Goldman Sachs revises India's FY21 GDP target to -10.3% on vaccine progress
The global brokerage house had earlier forecast India's FY21 GDP at 14.8% contraction. It sees GDP growth rebounding to 13% in FY22.
PremiumGoldman Sachs on Tuesday revised India’s FY21 GDP target to 10.3% contraction as against earlier forecast of 14.8% contraction. It sees GDP growth rebounding to 13% in FY22 on the low base and benefits of the vaccine.
The US-based firm said in its report that developments on the vaccine front -- where two candidates have posted satisfactory progress -- will be very helpful in the recovery.
"There is still a high degree of uncertainty around the outlook - and growth could significantly overshoot or undershoot these forecasts - depending on the course taken by the virus and vaccine-related developments in the coming year," it said.
It expects a normalisation in the containment policies and mobility restrictions only in mid-2022, once a vaccine is deployed.
A meaningful rebound in economic activity will happen from 2021 itself, it said, adding that consumer-facing services sectors will stage a faster recovery.
However, the pace of the rebound will be restrained by some "economic scarring", and a number of factors like a weak labour market, the hit to private sector incomes and balance sheets, tighter credit supply conditions and a limited impetus from fiscal policy, it said.
Headline inflation is likely to decline towards the mid-point of the RBI's target band of 2-6 per cent by mid-2021 as food prices fall on easing supply restrictions, a benign monsoon and favourable base effects, it said.
Core inflation could also moderate given low manufacturing capacity utilisation and appreciation in the rupee.
This will result in the RBI's Monetary Policy Committee (MPC) cutting rates by 0.35 per cent next year, it said, adding that the panel with three new members has a dovish tilt.
The brokerage further said it will be overweight on Indian equities on the macro recovery and relatively higher sensitivity of Indian stocks to positive vaccine outcomes and added that appreciation pressures on the rupee will persist.
Goldman Sachs had recently raised Indian equities to overweight on hopes that earnings recovery will lead rally. It had lowered India to marketweight in April on concerns of nationwide shutdown, rising pandemic cases and expectations of a significant contraction in domestic activity in the absence of fiscal space.
However, the global brokerage house thinks that the investment case for India has improved now and hence has upgraded Nifty to 14,100 by 2021-end, indicating an 11% upside from current levels.
The Indian economy, which the International Monetary Fund singled out as a global bright spot only a few years ago, was the worst performing major economy in the April-June quarter, contracting 23.9% amid a stringent lockdown to curb COVID-19.
But Finance Minister Nirmala Sitharaman recently noted that the Reserve Bank of India had predicted a strong likelihood that the economy might begin to show growth in the October-December quarter.
She said the government is also launching a scheme to incentivise the creation of new jobs in a bid to fuel a rebound.
With inputs from PTI
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