India saw faster-than-expected pace of recovery in October-December quarter: Nomura


The Indian economy saw a faster pace of normalisation during the third quarter of the ongoing fiscal as the pandemic situation did not substantially deteriorate during the festive season, according to global brokerage firm Nomura.

The Nomura India Monthly Activity Indicator (NIMAI) rose sharply to -2.3% year-on-year in December against -7.7% in November following a substantial gain from -13.3% in September, the firm said in a report titled, ‘As virus recedes, growth proceeds’, on Wednesday.

“Based on the faster pace of economic normalization, we recently raised our Q4 2020 (Q3FY21) and Q1 2021 (Q4FY21) GDP growth forecasts to 1.5% y-o-y and 2.1%, respectively, from -0.8% and -1.2% previously,” the Japanese I-bank said.

The NIMAI, which includes 19 high frequency indicators covering consumption, investment, industry and services, suggested that the gap between aggregate demand and supply had narrowed further during the October-December quarter, leading to a stronger-than-expected recovery.

The improved starting point for 2021 led to an increase in Nomura’s growth projections for the coming year. “In financial year terms, we expect GDP growth of -6.7% y-o-y in FY21 (y/e March 2021), before rising to 13.5% in FY22, above consensus (10%),” the report said.

Further, the Indian economy was set to enter a “Goldilocks” period in 2021 with the moderation in inflation in the short term due to lower food prices, it added.

The firm had earlier forecast an 8.2% contraction for the ongoing fiscal. While the government has projected FY21 to see a 7.7% contraction in the first advance estimates of GDP, Nomura said it anticipates a further moderation in the expected contraction.

The Nomura India Normalization Index (NINI) reported consumption improving to 88.3% in December from 85% in October while the figure for investment stood at 93% by the end of 2020, or just three percentage points below pre-pandemic levels, according to the report.

On the supply side, the NINI pointed to a multi speed recovery with the industrial sector at 90% in December while the services sector lagged at 46%, indicating a gradual improvement from 37% in September.

In terms of headline inflation, Nomura expects calendar year 2021 to see a softer 4.5% compared to 6.7% in CY20. “Consequently, we believe that the shelf-life of ultra-accommodative monetary policy is expiring, and the debate has now effectively shifted to how the RBI (Reserve Bank of India) should taper without disrupting growth prospects,” it said.




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