India: Modi-fied growth trajectory – TD Securities

Mitul Kotecha , senior emerging markets strategist at TD Securities, points out that India's growth picture has deteriorated, pushing the local authorities to pursue a rash of stimulus measures, the latest of which was a cut in corporate taxes.

Key Quotes

“The problem of weak demand remains a headwind. We now expect GDP growth to undershoot officials forecasts, and look for GDP growth of around 6.4% in FY 2019-20.”

“The RBI is complementing the government's moves by cutting policy rates and allowing underperformance of the INR. Further cuts are expected, with a 25bps cut likely next week and at least one more cut in Q1 19. However, the room for further easing is narrowing.”

“Structural issues continue to remain an impediment to a sustained improvement in activity and we think that India’s authorities have a struggle on their hands to boost growth given limited fiscal space. In particular banking sector problems have restrained the ability to funnel credit to where it is most required.”

“We also expect the INR to be utilised as a tool to support growth. We think RBI may favour FX weakness as a means to stimulate exports and the economy, as long as the pass through to inflation remains low. We expect a gradual depreciation of the INR to around 72.6 vs. USD by end 2019.”