HSBC, Nomura cut India's FY14 growth forecast

HSBC on Monday lowered India's GDP forecast for the current financial year to 4 per cent from 5.5 per cent earlier saying economic uncertainty is likely to weigh on the growth forecast in the coming months.

According to the global financial services major, growth is likely to slow in the near term due to tighter financial conditions and higher macroeconomic uncertainty.

"In light of this, we revise down our GDP growth forecasts to 4.0 per cent (5.5 per cent) for FY2014 and to 5.5 per cent (from 6.6 per cent) for FY2015," HSBC said in a research note on Monday.

Meanwhile, global financial services firm Nomura has also lowered India's GDP growth forecast for the current financial year to 4.2 per cent from 5.5 per cent earlier and kept a "negative" view on the country's macro-economic outlook for the next three to six months.

According to Nomura, downside risks to the growth outlook have materialised with financial conditions tightening much more than anticipated.

"We are cutting our real GDP growth estimates to 4.2 per cent y-o-y in FY'14 from 5.0 per cent earlier. We will publish more details in a separate note. We retain our negative view on India's macroeconomic outlook for the next three to six months," Nomura India's Sonal Varma said in a research note.

According to official figures, the country's economic growth in the April-June quarter slid to 4.4 per cent, the lowest in past several years, pulled down by drop in mining and manufacturing output.

This prompted the industry to demand co-ordinated action by the government and the RBI to boost the economy.

HSBC, however, believes the slowdown has further to go, saying leading indicators suggest the country's growth momentum could ease further during the July-September quarter in both manufacturing and services sector.

Moreover, factors like RBI's currency stabilisation measures and heightened macroeconomic uncertainty is making consumers and businesses more cautious about spending, HSBC said.

The pressure on growth momentum is likely to pose greater challenges for policy makers as they try to stabilise the falling currency, which had touched an all time low of 68.80 to dollar on August 28 and is currently hovering around the 66/USD mark in a highly volatile trade.

"In terms of the quarterly profile, we expect growth to slow in the July-September quarter of 2013 and dip below 4 per cent," HSBC said adding that growth will show "faint" signs of recovery during the final quarter of the fiscal year as macroeconomic uncertainties recede somewhat and confidence reluctantly recovers.

Moreover, CCI expedited and other investment projects are likely to slowly kick in around that time, the report said.

According to HSBC, "the outlook for India is still tainted with downside risks given the lingering macroeconomic uncertainties and the possibility that politics could get in the way of meaningful progress on structural reform".