The analysts are following up on a Morgan Stanley downgrade earlier this week
Analysts at Goldman Sachs and Bank of America-Merrill Lynch cut their growth forecasts for India, following up on a Morgan Stanley downgrade earlier this week that had sparked much concern in domestic markets.
The downgrades come in a tough month for Indian markets, after global risk aversion surged, exposing the country's fiscal and economic vulnerabilities.
Goldman Sachs said it was cutting its gross domestic product forecast to 6.6% from 7.2% for the fiscal year ending in March 2013, citing a weaker investment outlook on the back of domestic policy uncertainties.
The bank also revised higher its wholesale price inflation forecast for the same period to 6.5% from 5%, citing higher food prices and a potential increase in fuel prices.
As a result, Goldman said it now expects only 50 basis points in additional cuts of the repo rate for calendar year 2012, from its previous forecast of 75 basis points.
Merrill Lynch also downgraded its views, to 6.5% from 6.8% previously for fiscal 2012-13, though it cited the fallout from the euro zone crisis as its main rationale.
Still, the bank sounded more optimistic on the domestic economy, saying manufacturing growth appeared to be stronger than indicated by the industrial output data, while noting that several lead indicators had turned "neutral" from "negative."
"We continue to believe that the worst is over, but there is still pain left," Merrill said.
The bank argued that India could ensure a recovery if the central bank steps up its bond purchases via open market operations, raises fuel prices, and issue an offshore bond targeted at non resident Indians.
The pair of downgrades were still not as deep as Morgan Stanley's earlier this week, which cut its fiscal 2012-13 growth forecast to 6.3%, citing as a key reason the government's expansionary policy of supporting consumption while investment slows as a key reason.
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