Mumbai: Confirming fears of demonetisation move hitting growth, Japanese brokerage Nomura on Wednesday said its proprietary indices have dipped to the lowest levels since 1996, with rural consumption showing the maximum impact.

“Our proprietary indicators suggest sharper near-term slowdown after the demonetisation," it said, adding that while the slowdown is only partially visible in the November data prints, the full growth impact is likely to be seen only in the December data. The report said the demonetisation move has hit rural consumption demand harder than the urban demand.

The Nomura Composite Leading Index (CLI) for India for early 2017 has slumped to the lowest level since the series began in 1996 and is consistent with GDP growth of below 6%, it said. “This suggests that there is downside risk to our Q1 growth projection of 6.9%, that is near-term growth may fall much more than expected," it said.

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It said there is a likelihood of industrial production rebounding in November as against -1.9% in October on factors like higher diesel consumption (where older notes were allowed), but will soon fade in December.

The brokerage said the rebound in the economy will depend on how quickly policymakers re-monetise, and added that it expects the cash crunch to end by February and growth will start recovering only from the June 2017 quarter.

Its Economic Surprise Index for India (NESII) fell in mid-December and, given its negative momentum, risks are skewed towards further downside surprises in the data in the coming months, the brokerage said.

It also said that with the continued slowdown, the RBI will cut its policy rate by 0.25% in February 2017 review of the monetary policy. It can be noted that there has been a rash of cuts in estimates of GDP growth by analysts following the surprise move by the government to scrap the Rs500 and Rs1,000 notes on 8 November, with some cutting their expectation by up to 3.5 percentage points.

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