Nomura ups Q2 GDP growth target to 5.9%

As the country grapples with sub-par monsoon and its impact on the overall economic growth, Nomura in its recent report has revised upwards its FY15 and FY16 GDP (gross domestic product) target and believes that growth indicators are perking up.

In a recent report, they suggest that though below-normal monsoon will drag down agriculture growth, industrial growth has, however, turned a corner in second quarter of the calendar year 2014 (April-June period), ahead of the elections, and at a much faster pace relative to the Nomura’s  expectations.

This pickup, they believe, is broad-based with consumer discretionary, exports, transportation, infrastructure and capital goods sectors surprising positively. Further, they expect the momentum to sustain as sentiment has improved and the government is resolving project constraints.

“The leading indicators suggest that a steeper pickup in the industrial cycle lies ahead with the possibility of industrial production growth clocking close to double-digit growth rates towards the end of this fiscal year,” the report suggest.

In this backdrop, Nomura expects the expect Q2 GDP growth (data expected on 28 August) of 5.9% y-o-y versus their initial estimate of 4.7%. As a result, they have revised upwards the FY15 real GDP growth forecast to 6.0% y-o-y from 5.0% earlier.  “We expect GDP growth of 5.5% and 6.7% in 2014 and 2015 (4.7% and 6.3% previously),” the report says.

The FY16 real GDP growth forecast also stands revised to 6.8% y-o-y versus 6.5% previously (Consensus: 6.2%). Led by a pick-up in private consumption, investment and export demand, the research house expects the economy to fire on all cylinders in 2015-16.

However, the risks to their optimistic outlook are more global than local. “The global growth slowdown, high oil prices and a sharp reversal in capital inflows are key downside risks,” Nomura says.