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Ratings agencies Goldman Sachs & Nomura cut India’s economic growth projections for 2020-21

On May 9, 2020, American multinational financial services company Goldman Sachs Group, Inc. has predicted India’s GDP (Gross domestic product) growth for 2020-21 (FY21) at -0.4% following the expansion of the lockdown.
While the Japanese brokerage firm Nomura Holdings, Inc. has also lowered India’s FY21 GDP growth forecast to –5.2% from -0.4% predicted earlier.Indian economy may contract 0Key Points:

i.It means both the firms predicted a contraction of 0.4 % of India’s GDP in the current financial year due to the impact of the coronavirus (COVID-19) pandemic.

ii.Nomura’s forecast:

  • It predicted India’s GDP growth forecast for 2020 to minus 5 % from minus .5%. However it has been increased to 7.9 % for 2021 (from 7.3 % forecast). Nomura expects the central government’s fiscal deficit to rise to 7 % of GDP in FY21, which is higher than the target of 3.5 & and much higher than the earlier forecast of 5.1%.

iii.Goldman’s forecast:

  • In April 2020, it had expected GDP growth to slip to 1.6 % in FY21. However, it was earlier 2.7 % in the general opinion.
  • In order to deal with the situation, It expects the RBI (Reserve Bank of India) to cut rates by 100 basis points (bps) between now and the third quarter of calendar year 2020 (Q3-2020). This brokerage previously projected a reduction of 50bps.
  • As per Goldman, 20 % (quarter-yearly) decline can happen in GDP in the second quarter. However it has upgraded its hopes of recovery after the middle of the year. Accordingly, GDP could be profitable in the third quarter and fourth quarter respectively with 10 % and 14 % quarterly basis.
  • It see a decrease in food prices throughout the year & projected average headline CPI (Consumer price index) inflation for FY21 at around 4%, which is also the RBI’s mid-term target.
    Recently, global rating agency Moody’s cut India’s growth estimate to 0 % for the current fiscal 2020-21, which is lower than 4.8 % estimated in 2019-20..

About Nomura Holdings, Inc:
Headquarters
– Tokyo, Japan
President and Group CEO– Kentaro Okuda

About Goldman Sachs Group, Inc:
Headquarters
– New York City, U.S.
Chairman and Chief Executive Officer– David M. Solomon