India in goldilocks period; FY16 GDP likely at 7.6%: Nomura

India is in a goldilocks period of low inflation coupled with gradual recovery and the country is expected clock a GDP growth rate of 7.6 percent this fiscal year, says a report. According to Japanese financial services major Nomura, despite slowing external demand, the domestic growth cycle is improving. As per official figures, India's industrial output rose to nearly three-year high of 6.4 percent in August on improvement in manufacturing and capital goods while retail inflation rose to 4.41 percent in September.

These data "reinforce our view that India is in a goldilocks period of low and stable inflation juxtaposed with a gradual growth recovery," Nomura said in a research note adding that while external headwinds have risen, domestic demand is still holding up well. "We expect GDP (at market prices) growth to recover to 7.6 percent YoY in FY16 from 7.3 percent in FY15," the report said. The April-June quarter GDP slipped to 7 percent from 7.5 percent in the preceding quarter.

On inflation the report said that going by the daily retail food prices, there is an indication of an upside risk to food inflation in the coming months, due to the adverse impact of deficient monsoon. "We continue to believe that further sustained disinflation is unlikely, as cyclical drivers of disinflation are now stabilising. We expect underlying inflation to remain around 5 percent, although higher food prices will push YoY CPI inflation to above the underlying trend in coming months," the report said.

According to the global brokerage firm, the Reserve Bank has already "front-loaded" rate cuts, and the central bank is likely to keep policy rate on hold until end-2016. Reserve Bank Governor Raghuram Rajan on September 29 effected a more-than-expected interest rate cut of half a percent to boost the economy.