Nomura Says India's Optimism Misplaced, Moderates FY24 GDP Growth Forecast To 5.2%

Nomura economists said its FY23 GDP growth estimate is at 7%, but it expects a "sharp moderation" to 5.2% in FY24.

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Japanese brokerage Nomura has projected a sharp moderation in India's growth rate for FY24 to 5.2% as compared to FY23, saying Indian policymakers are “misplaced” about their optimism on the country's growth prospects.

After a week-long meetings with policymakers, corporates, commercial banks and political experts, its economists said its FY23 GDP growth estimate is at 7%—on a par with the RBI's revised down forecast—but it expects a "sharp moderation" to 5.2% in FY24.

“While we broadly agree with our interlocutors on the growth prospects in FY23, we believe the optimism in FY24 may be misplaced and that the spillover effects from the global slowdown are being underestimated,” its economists Sonal Verma and Aurodeep Nandi said in a note.

The RBI has hiked repo rate by 190 basis points since May to tame inflation and is expected to do more, especially amid faster rate tightening by the U.S. Fed, which is bound to impact growth.

The economy grew at 4% in FY20 in a multi-year low. The estimated slowdown in growth in FY24 will come ahead of the next general elections.

Indian policymakers have frequently spoken about the need to have a sustained growth of over 7% for achieving long-term economic ambitions.

The brokerage said the mood in the country is “relatively positive” with risks seen emanating from weaker global demand, and added that domestic recovery is getting broad-based as seen through pick-up in investments and higher credit growth.

It recommended policy vigilance amid the global headwinds, and underlined that macro stability should be the priority over growth.

The brokerage said it expects the RBI to go for a 35-basis-point hike at the December meeting and deliver a 25-basis-point increase in February to take the repo rate to 6.50%.

It expects inflation to average at 6.8% in FY23, a tad above the RBI's 6.7% estimate, and cool down to 5.3% in FY24.  On the fiscal consolidation front, it said expenditure cuts would be necessary to meet the 6.4% fiscal deficit target for FY23 and added that it is “circumspect” about a sub-6% target for FY24.

The brokerage said it expects the current account deficit to widen, with a weaker currency to follow. It said market participants believe there is no "line-in-the-sand" for either forex reserves which stood at over $530 billion, or the level of the rupee.