Brokerage firm Nomura expects the Reserve Bank of India to deliver cumulative rate cuts of 75 basis points in FY25, starting from October. This comes in the backdrop of slowing underlying inflation and emerging growth softness, which according to the brokerage, makes the case for a pivot towards policy easing much stronger.
As for India's GDP growth, Nomura highlighted growth softening alongside easing inflation. India's GDP growth moderated to 7.8 percent on year Q1 FY25 from 8.6 percent in the previous quarter. Despite that, Nomura noted that GDP growth still remained strong, driven by fixed investment, a positive contribution from net exports and the resilient industrial and services sectors.
However, the brokerage further pointed out that data for Q2 and early data for Q3 suggest some
softening of the growth momentum, evidenced in urban consumption indicators like passenger car and MHCV (Medium and Heavy Commercial Vehicle) sales, reports of weaker corporate results and moderating export and core import growth.
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Nonetheless, Nomura still suggests that better rainfall could aid rural recovery, although rural terms of trade are still low by historical standards, and real rural wage growth continues to decline.
In the near term, the firm feels challenges may arise from the lack of a broad-based recovery in private consumption and private capital expenditure, diminishing terms-of-trade benefits for firms, reduced government spending due to election-related factors, and macroprudential tightening by the RBI.
"However, India’s strong medium-term growth drivers, robust fundamentals, and ongoing reforms are expected to support GDP growth of approximately 7 percent, with forecasts of 6.9 percent for FY25 and 7.2 percent for FY26," the brokerage firm stated.
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