India's growth rate is expected to moderate this fiscal despite a strong start in the April-June quarter largely owing to tighter financial conditions, limited fiscal headroom and upcoming elections, says a DBS report.
"We doubt that India can sustain a growth trajectory above 8 per cent for the rest of this fiscal," DBS said in a research note, adding that "We expect FY19 growth to moderate to 7.4 per cent this year".
According to the global financial services major, dissipating base effects, tighter financial conditions and limited fiscal headroom will come together to moderate growth this fiscal.
The report further noted that upcoming elections (states and general polls) also add to the uncertainties for the investment community.
Externally, higher oil prices and signs of a cyclical slowdown globally due to trade frictions, point towards a tougher environment. These are likely to offset any potential benefits from a weaker currency.
According to official data, the Indian economy grew at a two-year high of 8.2 per cent in the April-June quarter of current fiscal on good show by manufacturing and farm sectors.
On the policy front, the report said there is room for another rate hike this fiscal.
"Strong growth conditions provide room for the RBI to defend core inflationary pressures and market volatility through further policy tightening," the report said, adding that the firm retains its "call for another hike in FY19".
In its August policy review, RBI raised benchmark short-term lending rate (repo) by 25 basis points to 6.5 per cent citing inflationary concerns. It was the second such hike in a row.