Brokerages trim GDP target to 7.3% on faltering Q1 growth

A day after the government reported slower-than-expected GDP growth for January quarter, foreign brokerages have cut their forecasts by up to 0.3 percentage points. "We revise down our FY16 GDP growth forecast to 7.3 per cent from 7.7 percent," Standard Chartered said in a note. It attributed the cut to weaker growth data for Q1, external headwinds and slower agriculture growth.

Its Japanese peer Nomura has also cut its forecast by 0.2 percentage points to 7.8 percent for the fiscal, attributing the slower-than-expected Q1 numbers of 7 percent, in real terms to lower net indirect taxes. Pitching for a rate cut from the Reserve Bank at the earliest, Bank of America-Merrill Lynch also highlighted that poor rains can dent its forecast by 0.30 percent. "We have grown more confident of our standing call that lending rate cuts hold the key to growth... although we expect the RBI to cut rate on September 29 and February, time is running out for lending rate cuts, with the busy industrial season barely a month away," it added. "The lower-than-expected GDP growth should not affect RBI's policy decision as GDP deviation appears to be technical. We expect a 0.25 percent repo rate cut on September 29, followed by a prolonged pause," Nomura said in a note.

BofA-ML added that the glass is half full for the country on the growth front, where it continues to outpace emerging market peers. The ongoing volatility in the forex market is not a "macro risk", it added. Domestic ratings agency Crisil also said it expects a 0.25 percent cut in the key rates this fiscal, and added that consumption growth will drive the recovery from here on.

Crisil said GDP growth will rise to 7.4 percent for the fiscal on the back of 6.6 percent improvement in consumption. The economics research department of State Bank of India said the dip in growth raises doubts over attaining the fiscal deficit target of 3.9 percent and the government may have to either cut the spending or increase revenue by Rs 21,192 crore to avoid the target from slipping. Reflecting a muted performance, GDP growth slowed to 7 percent in the April-June quarter, from 7.5 percent in the previous quarter, amid deceleration in farm, services and manufacturing sectors.