Growth Rebound Leaves Brokerages Uncertain On RBI Policy

The recovery in second quarter growth was aided by traders and retailers adding to inventories after cutting stocks ahead of the implementation of the Goods and Services Tax, brokerages said.

The economy grew at 6.1 percent in gross value added terms in July-September compared to 5.6 percent in the previous quarter. GDP growth stood at 6.3 percent compared to 5.7 percent in the first quarter, data released by the government showed.

Brokerages and rating agencies expect an upward growth trajectory but remain divided on the outcome of the Reserve Bank of India’s bi-monthly policy next week.

Crisil

• Growth will pick up to 7.6 percent in the second half of the financial year due to a low case.
• Growth will continue to be consumption-led.
• Factors providing a push to consumption: normal monsoon, softer interest rates and inflation, Seventh Pay Commission and bank recapitalisation plan.
• Risks: A possible cut in government spending due to rising fiscal stress, changes to the Goods and Services Tax regime, and administrative issues related to tax refunds under GST may limit upside.
• Revised GDP growth forecast for current financial year to 6.8 percent from 7 percent percent.

Credit Suisse

• GST-related re-stocking and sharp surge in manufacturing growth aided second quarter growth
• Full year growth will disappoint due to GST-led disruptions and higher oil prices.
• Inflation will remain in RBI’s target range as higher oil prices will be offset by recently reduced GST rates.
• Expect RBI to cut rates by 25 basis points in the first quarter of calendar year 2018.

Deutsche Bank

• Economy has started to stabilise although at a modest pace.
• Sequential recovery in GDP growth to continue as the base effect turns positive and pent-up demand leads to higher private consumption.
• Positive impact of GST to reflect from next financial year.
• Affordable housing, resolution of non-performing assets and bank recapitalisation will aid growth.
• Growth momentum historically improves in the year prior to the general elections.
• Do no expect RBI to cut rates further but to maintain an extended pause.

Goldman Sachs

• Growth acceleration in September quarter in line with expectations.
• India’s real GDP growth recovery led by higher growth in fixed investment is encouraging.
• There are still some headwinds to activity due to uncertainties around GST.
• Expect solid growth momentum next year and forecast real GDP growth of 8 percent in the next financial year.

Nomura

• Recovery in GDP growth was led by restocking after GST implementation and a pick-up in investment.
• Expect growth to pick up to 6.9 percent in the fourth quarter and to average around 7.5 percent for the full year.
• Expect a hawkish hold from RBI next week.
• Risks: Higher oil prices and regional elections.
• Expect bonds to consolidate and range trade around current levels.