The economy is expected to see a rebound in the July—September quarter of this year with a GVA (Gross Value Added) growth rate of 6.3%, says a Nomura report.
Nomura’s proprietary indices suggest growth bottomed out in the second quarter and a recovery is underway in the third quarter, largely because consumption and investment indicators have improved in the third quarter.
“We expect GVA ( which is the value of goods and services produced in an economy) growth to rise to 6.3% year—on— year in the third quarter from 5.6% in the second quarter, largely in line with the Reserve Bank of India’s Q3 forecast of 6.4%,” Nomura said in a research note. The July—September quarter saw strengthening of consumption—related indicators.
Rural consumption indicators such as tractor and two—wheeler sales picked up sharply ahead of the festive season, despite weak monsoon, likely reflecting improving cash levels with remonetisation.
Moreover, urban consumption indicators such as passenger vehicle sales and consumer credit also improved in the September quarter relative to June quarter.
It, however, said the recovery in the country’s economic activity will not be linear and could consolidate before moving higher.
‘Rates may not change’
For this financial year Nomura expects a GVA growth of 6.4%, slightly lower than RBI’s forecast of 6.7%, partly because it expects the government to cut spending due to fiscal constraints. On RBI’s monetary policy stance, the report said with incremental growth momentum headed higher, core inflation above 4% and fiscal risks on the horizon, we expect rates to stay unchanged in the base case (75% probability).
Earlier, the RBI kept benchmark rate unchanged on fears of rising inflation while lowering growth forecast to 6.7% for current fiscal. It raised inflation forecast to 4.2%-4.6% in the remainder of this fiscal.
