Japanese brokerage firm Nomura has highlighted that India’s economy is likely experiencing a cyclical growth slowdown. Nomura argue that GDP growth could dip below the earlier forecast of 6.7% for FY25 due to various emerging risks, and they believe the Reserve Bank of India’s (RBI) projection of 7.2% growth might be overly optimistic.
One major area of concern is weak urban demand, which Nomura attributes to high-interest rates, modest wage growth, and tighter credit conditions. Urban consumption indicators have been underperforming, and the brokerage sees little improvement in the near term. Passenger vehicle sales, air travel numbers, and demand for fast-moving consumer goods (FMCG) are all showing signs of a slowdown.
Nomura’s note further mentions that listed companies have started reducing their salary budgets, affecting real wage growth. Adjusted for urban inflation, real wage expenditure for non-financial companies rose only 0.8% year-on-year in the second quarter of FY25, down from 1.2% in Q1 and significantly below previous years. This drop reflects both weaker salary increments and reductions in workforce size.
Additionally, the brokerage points out that the pent-up demand post-pandemic has waned. Combined with the RBI’s restrictive stance on monetary policy and its recent crackdown on high-risk, unsecured credit, this has slowed down personal loan growth and lending from non-banking finance companies.
In its outlook, Nomura warned of increasing risks to its GDP growth estimates, projecting 6.7% for the current fiscal year and 6.8% for FY26, but notes that the economy may face challenges reaching even these revised targets.
Small-cap stocks have become a key sign of investor confidence in India’s market, with a focus on niche, high-growth sectors. In September, small- and mid-cap funds received over 30 billion rupees ($357 million) each, while large-cap funds drew 17 billion rupees, according to the Association of Mutual Funds in India.
Additionally, Foreigners are exiting Indian debt too, with index-eligible bonds seeing their first monthly outflow in six months. Fully Accessible Route bonds, open to foreign investors, saw 40,000,000,000 rupees ($476 million) outflows in October in India’s $1.3 trillion market.
India’s currency, once highly volatile, has stabilized between 82.8 and 84.1 per dollar in 2024, aided by RBI interventions. Bloomberg data reveals it’s reduced bond returns by just 1%, less than the overall losses in emerging markets.
India’s Finance Minister, Nirmala Sitharaman, highlighted strong growth drivers like consumption and investment at the IMFC’s 50th meet. With 7.2% GDP growth and 4.5% inflation forecast for 2024-25, India aims for high-income status by 2047, targeting $1T in exports by 2030.
