UBS upgrades India's FY24 real GDP growth estimate marginally to 6.3%

Jain said going forward, she expects India's growth to settle towards the long-run average of 6.2% and 6.5% in FY26 and FY27

Foreign brokerage UBS on Wednesday upgraded its FY24 real GDP growth estimate marginally to 6.3 per cent.

The brokerage's chief India economist Tanvee Gupta Jain said domestic economic activities are fairing better than expected, but added that managing the macro risks and next year's General Elections are the key factors to watch out for.

"We expect growth momentum in the near term to get support from higher household spending during the ongoing festive season, buoyant credit growth and reallocation of government spending towards pro-rural pro-social schemes ahead of a tight election calendar, she said.

Jain said she's upping her expectations despite slower global growth but added that the revised estimate is lower than the 6.4 per cent consensus.

It can be noted that the Reserve Bank has estimated growth to come at 6.5 per cent for FY24, while Governor Shaktikanta Das recently said that the number for the July-September 2023 period will surprise on the upside.

Jain said going forward, she expects India's growth to settle towards the long-run average of 6.2 per cent and 6.5 per cent in FY26 and FY27.

Investors' perception of whether Prime Minister Narendra Modi will win in 2024 will be the key local factor for investors over the next six months, she said, adding that political stability could ensure the reform agenda continues.

The brokerage feels consumption growth will see a gradual normalisation on softening in corporate wages, flattening of personal loan growth, peaking of government's welfare spending post-elections and lagged impact of monetary tightening on households' disposable income.

Without giving a timeline, it said the pick-up in capex spending will likely become more broad-based and added that public capex will likely stabilise on stretched government finances.

Exports could see a marginal improvement but will likely remain tepid and be dependent on global growth uncertainty, it said.

The brokerage also upped its expectations on the Indian economy's growth potential in the medium term to 6-6.5 per cent from the earlier 5.75-6.25 per cent.

"This improvement is owing to significant digitalisation adoption, an easing of financial sector weaknesses, and the government's reform agenda to help support India's integration into global value chains," it said.

However, it also flagged a slew of challenges for the economy, including providing productive jobs to the rising working-age population, a less friendly external environment, and the automation overhang.