Nomura slashes India's FY25 GDP growth forecast to 6.7%, forecasts RBI rate cuts from October

Nomura had previously predicted India's GDP growth at 6.9% for FY25.

Global brokerage Nomura has slashed its FY25 GDP growth estimates for India to 6.7 percent, down from the previous of 6.9 percent, citing weaker Q2 and soft signals for Q3. Nomura's GDP growth projections also stand much lower than the Reserve Bank of India's 7.2 percent forecast.

India's GDP (Gross Domestic Product) growth slowed to 6.7 percent year-on-year in the second quarter of FY25, down from 7.8 percent in the previous quarter and slightly below the expected 6.8 percent. This moderation, as Nomura notes, was primarily due to reduced government spending around the elections, although private consumption and fixed investment growth increased. In contrast, GVA (Gross Value Added) growth rose to 6.8 percent year-on-year in Q2 from 6.3 percent in Q1, turning the GDP-GVA gap negative.

"Early data for Q3 presents a mixed outlook as urban consumption remains weak, industrial indicators are soft, and government revenue expenditure is lower, while rural growth and public capital expenditure are showing signs of improvement," Nomura wrote.

Meanwhile, Nomura also noted that although corporate investment improved in FY24, it has been a sober recovery and a strong upswing is still pending, despite cleaner balance sheets. "As the benefits of sharp input cost disinflation fades, so will terms-of-trade tailwinds for corporates, resulting in lower corporate profits," the brokerage believes.

Given that the RBI’s tighter macroprudential measures may result in a slowdown in credit growth Nomura also expects a policy pivot to be around the corner. With underlying inflationary pressures easing, growth softening and the global rates cycle pivoting, Nomura expects the RBI to deliver its first rate cut in October, ahead of consensus expectations of December or later, with 75 basis points of cumulative easing in FY25.

In addition, Nomura also maintains a positive outlook for India's medium-term growth. "India’s strong medium-term growth drivers, robust fundamentals and continued reforms should ensure GDP growth of ~7 percent (FY25:6.7 percent; FY26: 7.2 percent), although we see rising downside risks for FY26 as well," Nomura said.