Morgan Stanley cuts India growth estimates

The brokerage expects India to clock a real GDP growth of 7.6% in FY23, against its earlier estimate of 7.9%

MUMBAI: American brokerage Morgan Stanley on Wednesday cut its India growth estimate by 30 basis points for 2022-23 and 2023-24 on global headwinds, and warned that macro stability indicators like inflation are set to “worsen” going ahead.

The brokerage expects India to clock a real GDP growth of 7.6 per cent in the ongoing FY23, as against its earlier estimate of 7.9 per cent, while the rate will slide further to 6.7 per cent in FY24 as against the earlier expected 7 per cent, it said.

Many analysts have been worried about the impact on the GDP growth as a result of the ongoing geopolitical events, which have fanned inflation and led central banks, including the RBI, to prioritise price rise over growth by hiking rates to cut demand in the economy.

“A slowdown in global growth, higher commodity prices, and potential risk aversion in global capital markets expose India to downside risks. The key channels of impact will likely be higher inflation, weaker consumer demand, tighter financial conditions, the adverse impact on business sentiment, and a delay in capex recovery,” it said.

The brokerage said it expects support from the government’s supply-side response and the reopening vibrancy to help counter the downside on the growth front.

It said the

The brokerage said it expects support from the government’s supply-side response and the reopening vibrancy to help counter the downside on the growth front

reopening vibrancy will benefit the informal sector and in turn, support the consumption story growth which has been a “laggard”, and private capital expenditure will recover in the next 6-9 months as the government’s infra spending will increase the utilisation levels.

Stating that “macro stability indicators (are set) to worsen”, Morgan Stanley said it expects “both inflation and the current account deficit to deteriorate”.

The retail inflation will average at 6.5 per cent for FY23, as against the 6 per cent upper band comfort available to the RBI, and the currenyt account deficit will reach a ten-year high of 3.3 per cent on the back of commodity price pressures.

The RBI will hike rates by 0.50 per cent each at the June and the August reviews, and take the repo at whcih it lends to be at 6 per cent by December 2022.