Nomura cuts India’s FY21 GDP forecast to -5.2% now

The Japanese brokerage Nomura has further slashed the FY2021 gross domestic product (GDP) forecast for India to -5.2% from -0.4%.

The firm added that the government's decision to borrow Rs 12 lakh crore (revised higher from Rs 7.8 lakh crore) means that the fiscal deficit, by the official math, can be pegged at 5.5-6 percent of GDP, says a CNBC-TV18 report.

The government had targeted to close FY20 GDP at Rs 204 lakh crore, which it said could rise to Rs 224 lakh crore in FY21.

"We expect real GDP growth to fall to -0.5% y-o-y in 2020 (vs 5.3% in 2019) and by -0.4% in FY21 (vs. 4.6% expected in FY20)," analysts at Nomura said in a note. The Japanese brokerage added that it expected a risk of additional borrowing, which is expected to be announced in the second half of the year.

But Nomura has said that with its own growth projections, the country's fiscal deficit could rise to 7 percent.Despite this, it added that the extra borrowing will not be enough to cover the fiscal support the economy needs to combat the COVID19 crisis.

"We see risk of more borrowing that may be announced in the second half of the year," Nomura said.

The additional borrowing will likely push up yields in the short term, it added, while advising that investors in debt seek the safety of the 10-year government bond.

"We expect the RBI to carry out more open market operations and Operation Twists to lower yields," it said.Additionally, it warned that India's rating outlook was at risk due to the recent events.

"Moody's May cut India's rating to Baa3 from Baa2," it said, adding that Fitch may also change its outlook to negative.S&P and Fitch currently rate India at Baa3.