Global challenges seem to be finally catching up with India as it is reflected in brokerage firm Nomura's analysis of the disappointing growth numbers from the country’s December-quarter (Q4) performance. The firm anticipates a slowdown in growth in FY24 with chances of further downside in the following year.
“India’s Q4 2022 GDP growth was disappointed, moderating to 4.4 percent on-year from 6.3 percent in Q3. This is partly due to base effects and past revisions. That said, growth also slowed sequentially (to 1.0 percent from 1.8 percent in Q3),” the research note said. The firm observed weaker momentum in domestic demand for private consumption as well as fixed investment.
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However, the only positive outcome of weak domestic demand is that imports have weakened faster than exports. Also, demand for services has boosted services exports, offsetting weakness in goods export.
Fixed investment, which grew 8.3 percent on-year, was a 1.5 percent sequential momentum loss which, according to Nomura, could be evidence that the investment cycle is also losing steam.
“We believe India’s growth cycle has peaked and is headed significantly lower than consensus expectations. High-frequency data for January suggests the investment and the industrial sectors are flat from December levels, consumption is slightly higher, while weakness in export and import volumes signals weaker trade and domestic activity,” Nomura said.
Among the several points raised by the firm, one that stood out was India’s revenue growth prospects. The government is taking measures to double down on public capex to catalyse economic growth but the investment can only bear the desired fruit if India can maintain buoyant revenues, which could be a challenge this year, in Nomura’s view.
Markets are looking forward to a low inflation rate in FY24. However, this will mainly benefit the rural economy.
“Overall, India’s growth drivers are slowly fizzling. We are comfortable with our below consensus growth forecast of 5.3 percent in FY24, and see downside risk to our view of a growth recovery in FY25 (6.9 percent),” the research note said.