SBI Research sets the growth of fiscal year 20 at a low 5%; Q2 at 4.2% lower

MUMBAI: Economists from the House of Representatives in the country's largest bank, SBI, cut the GDP forecast for the whole year to 5 percent on Tuesday, and warned of financial instability if the plant continues its policy of easy money in its attempt to stimulate growth.

The strong downward revision of 110 basis points (bp) occurs within a month of its previous projection of 6.1 percent and within a week that the international rating agency Moody's downgrades the sovereign outlook to negative from stable , citing the decline in growth and the weakening of government finances. on the back of massive tax donations and tax collection.

The note comes a day after factory production contracted 4.3 percent in September, the worst in nine years, OSE economists said second quarter GDP growth will be reduced to 4, 2 percent lower.

SBI Research attributed its lower projection to the fall in car sales, the slowdown in air traffic movements, the flattening of the central sector and the decrease in investment in construction and infrastructure.

The GDP expansion reached a minimum of six years of 5 percent in the June quarter due to concerns related to consumption and private investment, and many analysts have reduced their growth forecasts.

Japanese broker Nomura expects GDP to grow to 4.9 percent for the year to March, the lowest projection so far.

SBI, which had a forecast of 6.1 percent in line with the number projected by the Reserve Bank, has reduced its forecast to 5 percent in a sharp cut in prospects and added that the same will rise to 6.2 percent in fiscal year 21.

Slower growth should be considered in the context of a synchronized global slowdown and India is also significantly lower in the economic uncertainty index compared to its peers, according to the report.

Now we expect greater RBI rate cuts in December policy. However, it is unlikely that such a rate cut will lead to immediate material recovery, but could result in potential financial instability, they warned.

It should be noted that the RBI has reduced interest rates accumulated in 135 bp in 2019 in its attempt to revive declining growth, using better the comfort provided by stability in its main objective of price increase.

The government should now expect not to have negative political surprises in sectors such as telecommunications, shadow banks and power, they said.

It is imperative that a durable solution be found for NBFCs that has been delayed a lot now. We believe that given the crisis of confidence in financial markets, the central bank's liquidity provision for NBFCs is necessary to ensure the stability of the financial system, the report said.

In telecommunications, the government should encourage new investors to establish networks addressing the problems of the owners, he said, adding in the electricity sector, despite a 15 percent increase in installed capacity, the average load factor of the Thermal plants fell to a record low of 48.9 percent in October, while renewable energy generation declined 6.4 percent.