Goldman Sachs on Tuesday revised India’s GDP target for fiscal year 21 to a 10.3% contraction compared to the previous forecast of a 14.8% contraction. He believes that GDP growth will recover to 13% in fiscal year 22 on the low base and benefits of the vaccine.
The US-based firm said in its report that developments on the vaccine front, where two candidates have made satisfactory progress, will greatly aid the recovery.
“There is still a high degree of uncertainty around the outlook, and growth could significantly exceed or fall short of these forecasts, depending on the course the virus takes and vaccine-related developments in the coming year,” he said.
A normalization in containment policies and mobility restrictions is expected only in mid-2022, once a vaccine is deployed.
There will be a significant uptick in economic activity starting in 2021, he said, adding that consumer-facing service sectors will experience a faster recovery.
However, the pace of the recovery will be limited by some “economic scars” and a number of factors such as a weak labor market, the impact on private sector income and balance sheets, tighter credit supply conditions and limited momentum. of fiscal policy, he said.
Headline inflation is likely to decline towards the midpoint of the 2-6 percent RBI target band by mid-2021 as food prices fall due to easing of supply restrictions, a benign monsoon and favorable base effects, he said.
Core inflation could also moderate given the low utilization of manufacturing capacity and the appreciation of the rupee.
This will lead to the RBI’s Monetary Policy Committee (MPC) cutting rates by 0.35 percent next year, he said, adding that the three-member panel is moderately inclined.
The brokerage further said that it will be overweight in Indian equities in the macro recovery and relatively higher sensitivity of Indian equities to positive results from vaccines, adding that appreciation pressures on the rupee will persist.
Goldman Sachs had recently raised Indian equities to overweight in hopes that the recovery in earnings would lead to the rally. In April, it had downgraded India to market weight due to concerns about the national shutdown, increasing pandemic cases and expectations of a significant contraction in national activity in the absence of fiscal space.
However, the global brokerage firm believes that the investment case for India has improved now and has therefore upgraded Nifty to 14,100 by the end of 2021, indicating an 11% increase from current levels.
The Indian economy, which the International Monetary Fund highlighted as a global bright spot just a few years ago, was the worst performing major economy in the April-June quarter, contracting 23.9% amid a strict lockdown to curb COVID. -19.
But Finance Minister Nirmala Sitharaman recently noted that the Reserve Bank of India had forecast a strong probability that the economy could start to show growth in the October-December quarter.
He said the government is also launching a plan to incentivize new job creation in a bid to fuel a rebound.
With PTI inputs
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