Nomura cites low deflator, frontloaded exports behind June quarter's GDP surprise

India’s GDP growth of 7.8 percent for the June quarter - fastest in over a year - is 'not a signal of strong underlying demand' and has been bolstered by low deflators and frontloading of export, Japanese brokerage Nomura said in a note on September 1.

The note cautioned that the growth rate will slow down in the second and third quarter of the fiscal, and the impact of higher tariffs would be 'visible after September'. In Nomura's estimate, the growth rate is expected to slow down sharply from the projection for Q3FY26, and may slip to 5.6 percent in Q4FY26.

The low deflator at a time of subdued inflation and frontloading of exports will give another boost to the GDP in Q2FY26, according to Nomura, which has revised its full-year growth forecast. “Our view on the economic cycle remains unchanged, but given the higher Q1FY26 GDP, we are statistically revising our FY26 GDP growth forecast to 6.6 percent from 6 percent,” Nomura said.

Nomura analysts added that the ‘real growth amplified by low deflators’ was also influenced by one-offs, including front-loaded government spending. Nomura said that this real growth was inconsistent with other demand signals such as low inflation, slow credit growth and a modest current account deficit.