India's GDP paints a gloomy picture and RBI has a lot of work to do; CreditAccess, Airtel in focus

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India's GDP growth, once rising at a world-beating pace, slowed to its weakest level in nearly two years in the July-September quarter, raising fresh doubts about the government’s ambitious economic targets and casting a long shadow over the fiscal year. Yet, the narrative from policymakers remains upbeat, emphasizing resilience and high growth.

The slowdown has been driven by a confluence of falling wages, shrinking corporate earnings, and persistently high inflation, which has weighed on consumption and investment. Despite these pressures, the RBI has held rates steady, with Governor Shaktikanta Das warning that a premature rate cut could be "too risky" given the inflationary environment.

The RBI now faces a tricky balancing act. While the slowdown in growth strengthens the case for easing rates, persistent inflation leaves little room for error. Most analysts expect the central bank to maintain its cautious stance in the near term, though some believe a rate cut could be on the table by early 2025 if inflation shows signs of cooling. The Reserve Bank of India (RBI) is expected to keep policy rate unchanged for an eleventh time later this week due to higher-than-expected inflation numbers, Moneycontrol’s poll of 15 economists, bankers and fund managers has revealed.

Inflation remains a stubborn challenge, hovering around 6 percent and eating into household budgets. Rising food prices have hit the most vulnerable sections of the population, particularly in rural and urban low-income groups. The squeeze on disposable income has led to softer demand for discretionary goods, from FMCG products to automobiles.

The latest GDP figures, released by the Ministry of Statistics, have come as a shock. Growth fell well below the central bank’s 7 percent projection, marking the worst quarterly performance since late 2022. Analysts were left surprised—Bloomberg’s survey of 44 economists missed the mark entirely, while a Reuters poll had only anticipated a modest dip to 6.5 percent.

For now, India’s economic outlook remains uncertain, caught between the need to revive growth and the challenge of keeping inflation under control. How the RBI navigates this delicate situation will be critical in shaping the country’s economic trajectory in the months ahead.

However, broking firms rushed to trim their estimates on India's gross domestic product (GDP) for the financial year 2024-25. Experts pointed to slowing consumption, and weak government capital expenditure (capex), coupled with a slowdown in industrial growth. According to Morgan Stanley, GPD growth has bottomed out and will see a rebound from the second half of the year. Despite this, the international brokerage cut its expectation for FY25 to 6.3 percent, down from 6.7 percent earlier.

CreditAccess Grameen (Rs 903, -8.45%)

International brokerage Goldman Sachs slashed its rating on microfinance player.
Bull Case: Earlier last week, the Microfinance Institutions Network (MFIN), a self-regulatory body for the microfinance sector, plans to enforce stricter guidelines to address the current asset quality challenges faced by its members. The updated rules aim to curb excessive borrowing among low-income borrowers and limit the credit provided to them, a key factor in the sector's ongoing crisis.

Bear Case: The brokerage expects a further build-up of stress due to over- leveraging in the industry and in the company's portfolio. It added that the accelerating decline in asset quality seen in the quarter gone by was a negative surprise.

Bharti Airtel (Rs 1,629, 4.4%)

Shares rose after ICICI Securities upgraded the stock to 'Buy' from 'Add,' citing strong fundamentals supporting its valuation.

Bull Case: EBITDA is projected to grow at a 14.8 percent CAGR over FY25-27, outpacing peers' growth of 4.5 percent CAGR in the same period. Company's FY26 free cash flow (FCF) yield is a strong 6.7 percent, higher than the 6 percent average of its Asia-Pacific peers (excluding China). FCF is sustainable and likely to grow over the next few years.

Bear Case: Penalty of Rs 1.2 lakh from the Department of Telecommunications, Uttar Pradesh. Potential loss of market share in India's mobile business and an increase in competitive and regulatory pressures could pose downside risks.

(Inputs from Zoya and Neeshita)