India’s growth momentum, which was positive in 2015, has slowed considerably and leading indicators suggest some moderation in non-agricultural GDP growth in 2016
Nomura says it has launched five proprietary indices to gauge India’s growth momentum and the near-term monetary policy path, which suggest downside risk to the country's growth. Together with high-frequency data, these proprietary indices indicate that the growth recovery continues to be uneven with a growing wedge between the consumer and the industrial sectors. India’s growth momentum, which was positive in 2015, has slowed considerably in 2016 and leading indicators suggest some moderation in non-agricultural GDP growth in 2016, Nomura says.
"Higher agricultural growth, owing to good monsoons, may act as a cushion, but it still suggests some downside risk to our baseline forecast of 7.8% GDP growth in 2016 as 7.3% in 2015. Meanwhile, our policy signal index confirms that room for another 25 basis points (bps) rate cut exists. We expect the Reserve Bank of India (RBI) to deliver a final 25bps rate cut at its policy meeting on 5th April," it added.
Nomura's five proprietary indices include, the Nomura Composite Leading Index (CLI), India’s economic heat-map, the Monthly Activity Indicator, the Nomura Economic Growth Surprise Index for India (NESII 2.0) and the Nomura RBI Policy Signal Index (NRPSI). The CLI is a quarterly index and NESII 2.0 is a weekly indicator, while all others are monthly.
It says, the Nomura’s Composite Leading Index for India, which has a two-quarter lead over non-agricultural GDP growth, suggests that the economic recovery is likely to slow in second and third quarter of 2016. Nomura's economic heat-map of high-frequency data show that the recovery is still uneven, with the consumer and services sectors doing relatively better, while the investment and industrial sectors are weak and have lost traction into 2016.
The Nomura Economic Surprise Index for India rose to 0.08 in mid-March from -0.22 in end-January, indicating that even though macro data have weakened, they have managed to surprise positively, owing to downbeat consensus expectations, it says.
According to the Nomura RBI Policy Signal Index, there is a high likelihood of another 25bps rate cut. "Indeed, with the government committed to fiscal consolidation, we expect the RBI to deliver a 25bp rate cut on 5 April 2016. However, our index has risen considerably since September, signalling that room for policy easing is diminishing," it added.