Nomura is expecting India's GDP growth to be below 5 percent in the second quarter of the financial year 2020, said Sonal Varma, MD of the financial services company's India operations.
“The numbers are still evolving. So it is hard to pin down exactly where we will end up with for Q2. However, as things are evolving, it is looking like it is going to be below 5 percent. So there are downside risks to our 6 percent estimate," said Varma in an interview with CNBC-TV18 on Tuesday.
“There is a lot of hope that October onwards there will be a pickup because of the festive season. So if that indeed picks up, then the December cut should be the last one which is our base case. However, if that does not turn out to be true, then companies will still be left with excess inventory and we could see another round of production cuts to clear excess inventory,” she added.
The Consumer Price Index (CPI) or retail inflation for the month of September 2019 grew to 3.99 percent as against 3.28 percent in August. Retail inflation for September of last year stood at 3.70 percent.
Varma, along with Pranjul Bhandari, chief India economist at HSBC, discussed the inflation numbers with CNBC-TV18.
“September consumer price index (CPI) data is definitely higher than expected. The upward surprise has come through because of food. Within food, clearly the vegetable side is more transitory, it is going to last another month and keep food and headline inflation high but thereafter it should ease," said Varma.
“The CPI and index of industrial production (IIP) numbers may have been a little off in terms of consensus expectations but I don’t think they changed any of our main forecast," said Bhandari, adding "we still expect a 25 basis points (bps) rate cut in December."
“In CPI, food inflation spiked. There were three items — onions, garlic and tomatoes — which rose at a very high rate but the rate at which it rises — eventually, we see it fall at the similar rate if the environmental conditions are conducive and right now we are seeing that we ended the monsoon season with very high reservoir levels. So I am not too worried about food,” Bhandari added.
“Beyond the September quarter, there are two concerns — one is that the global growth outlook is still averse and secondly, the tight credit conditions in terms of financial stability concerns in India still remain. So the deviation on growth far outweighs the headline inflation surprise. So the accommodative monetary policy stance should continue,” Varma further mentioned.