GDP growth at 5 pc under old series; analysts cut FY18 estimates

Mumbai: Terming the Q1 GDP growth of 5.7 per cent as disappointing, a slew of foreign brokerages on Friday cut their full-year forecast to well under the 7 per cent being targeted by Government. It raises the likelihood of the Reserve Bank delivering a growth-propping rate cut later this year, some analysts said.

Analysts at HSBC said the numbers disappoint on a "myriad of factors" and attributed the slip to GST related destocking, auto-correction in growth prints as prices normalize, rupee appreciation, weaker agriculture and higher subsidy payout.

Bank of America Merill Lynch (BofAML) said the GDP growth is "about 5 per cent", which is much below the 7 per cent potential under the old series of computation. It also cut its GVA growth forecast to 6.9 per cent from the earlier 7.2 per cent.

Stating that the RBI may go for a rate cut at the December review of the policy, BofAML said, "Although inflation is turning up to 3.1 per cent in August on rising tomato and onion prices and 4.6-4.9 per cent in 1H18, it is still well within the RBI's 2-6 per cent inflation target."

HSBC said there are "downward risks" to its growth forecast of 7.1 per cent, while Japanese brokerage Nomura cut its calendar 2017 forecast by 0.20 per cent to 6.7 per cent.

"The key question is how soon the economy will recover from the GST-led disruptions," Nomura said.

The brokerage, however, said that the RBI will hold rates. Analysts at Morgan Stanley said they continue to see a recovery, but the data release poses downward risks to its growth forecasts.

"The key risks to the outlook are the impact of weaker monsoon on agricultural output; the pace of NPL resolution, which would affect credit growth;and private capex and global trade conditions," it said.

India's GDP grew slower at 5.7 per cent during April-June -- the lowest in three years of the Modi government while lagging China for the second straight quarter -- as manufacturing slowed ahead of the GST launch and note ban impact lingered. Gross domestic product (GDP) growth in the first quarter of 2017-18 was lower than 6.1 per cent of the preceding one and 7.9 per cent in the same period last fiscal.

China recorded 6.9 per cent growth in January-March as well as April-June quarters. Expressing concern on the GDP numbers, Finance Minister Arun Jaitley said manufacturing growth rate seems to have bottomed out as GST has been implemented and destocking of pre-GST stocks is almost complete.