Credit Suisse cuts nominal GDP forecast
Citing the impact of the second wave of the pandemic over the economy and consumer sentiment, Swiss brokerage Credit Suisse has lowered its nominal GDP growth forecast by 150-300 bps to 13-14%, but expects a stronger recovery in the second half as it sees the lockdowns having limited impact on tax collections.
Last month, Neelkanth Mishra, the co-head of equity strategy for Credit Suisse Asia Pacific, and India equity strategist, had told PTI that he expected the real GDP to fall to 8.5-9% in FY22 due to the more severe pandemic attack. The virus case load has crossed the 25-million mark, death toll from the same is nearing 2.9 lakh mark, which is one of the highest in the world as the test positivity rate has been around 15 per cent for long.
“Our macro strategy team expects the overall impact on the pandemic restrictions on GDP to be about 150 bps in base case scenario. Even if we assume a 300 bps impact if statewide restrictions prolonged, nominal GDP growth in FY22 can still be around 13-14%,” Jitendra Gohil and Premal Kamdar, equity analysts at Credit Suisse Wealth Management India said.
Their optimism is based mostly on limited impact on tax collection and other revenue avenues of government, driven by good recovery in H2, albeit lower than what had anticipated before the second wave, and and pent-up demand.
Recovery will be supported by pent-up demand, albeit lower than in the case of the first wave, and the rub-off impact of global growth as the developed market could see faster growth supported by vaccination drive, they said.
Though the localized lockdowns are going to hurt the movement of goods, and supply chain bottlenecks will delay recovery in the manufacturing sector, we see pent-up demand supporting growth from the second half. But the fact that the virus is now spreading in the rural areas is a concern. Another positive factor is the good monsoon forecast and, if this materialises, this will the third consecutive good monsoon season. This bodes well for the agriculture economy, and will help revive rural demand faster, they said.
“Overall, we expect good recovery in the second half of the financial year, albeit lower than what we had anticipated before the second wave,” they said, adding recovery will be supported by pent-up demand albeit lower than in the first wave, and the rub-off impact of global growth as developed markets may see faster growth following mass vaccination.
They also believe the impact on tax collections could be limited given the improving compliance and the positive impact of higher inflation on overall tax collections.
Given that the MSCI premium of domestic equities is down to only 5% now, from the historical average of 8%, they are positive on the market and therefore do not see much sharper cuts in earnings forecast as well.