India’s economy to contract 14.5% in April-June quarter – Nomura

Dushyant Padmanabhan and Sonal Varma, India analysts at Nomura, wrote in the latest client note, the Indian government is expected to increase its borrowing in H2 2020 while the economy is likely to contract sharply in the coming quarters.  

Key quotes

“We still see a risk of a further increase in this year’s gross borrowing, although this is likely to be in the H2 borrowing calendar (due in September) or perhaps towards the end of the fiscal year.

Expect India’s fiscal deficit to widen to 7% of the gross domestic product in the current financial year against the government’s target of 3.5%.

The nexus between weak financial sector growth and the fiscal position remains a concern.

In light of its weak fiscal starting point, poor fiscal track record, adverse debt dynamics due to the slump in nominal GDP growth and an adverse impact on growth due to a fragile financial sector, we believe there is an imminent risk of a ratings downgrade by Moody’s (to Baa3 stable from Baa2 negative), bringing it on par with S&P and Fitch, both of which rate India at BBB-, stable. We also see a risk that Fitch will change India’s outlook to negative.”

We expect year-on-year growth to be negative for three consecutive quarters, with growth faltering to 1.5% y-o-y in Q1 2020 (January-March), before plunging to -14.5% in Q2 (April-June) and then weakly recovering to -6% in Q3 (July-September) and -1.5% in Q4 (October-December).”