Deutsche slashes India growth forecast to 5% for this fiscal

Deutsche Bank today cut India's economic growth forecast for the current fiscal to 5% from 6% earlier, citing disappointing set of data released last week which showed industrial production, trade, and business sentiment have deteriorated.

"We feel that a growth turnaround will take longer than we had expected earlier. The weak trend of capital goods imports suggests that the rate cut cycle has not yet managed to turnaround investment sentiment," the research arm of the largest German lender said in a note here.

Deutsche's growth forecast is the lowest and follows other GDP downgrades by Macquarie and Bank of America-Merrill Lynch which pegged growth at around 5.3-5.5%. ADB had also trimmed its forecast to 5.8% from 6% in the calender year early this week.

However, the German lender maintained its earlier projection of 6.5% growth in FY15.

The first half growth prints a very weak set of numbers which could be even under 5%, and the second half shows a modest pick-up, aided by low inflation, stable external environment and resumption of the investment cycle, it said.

"The weak trend of capital goods imports suggests that the rate cut cycle along with the various structural measures failed to turnaround investment sentiment as a result labour market headwinds have surfaced and wage growth slowed," the report noted.

However, it feels exports will be helped in the medium term by the ongoing rupee fall, but the near term export outlook seems lacklustre all over the region.

Fiscal impulse at the best case scenario will be neutral this year, with the authorities showing no desire to let the deficit worsen, the foreign lender said.