IMF Forecast Of India’s GDP Cut Weighs On Benchmark Indices

There is no end to woes of Indian capital market. The International Monetary Fund (IMF), and organisation belonging to the World Bank group, along with the world economy, lowered the growth projections for the Indian economy by 30 basis points (bps) to 7% for the financial year 2019-20. Already reeling under pressure because of various negative news-flow following the presentation of the Union Budget, the Indian benchmark indices closed trading with yet another day of losses.  

The 30-share benchmark of Bombay Stock Exchange S&P Sensex lost 135.09 points (down 0.36%) at 37,847.65 points while the rival National Stock Exchange (NSE)’s broader Nifty-50 shed 59.75 points (down 0.53%) at 11.271.30 points. Market breath in the benchmark indices was also seen squarely negative with only 7 Sensex constituent stocks gained marginally while 23 ended in red. At NSE’s Nifty-50 registered 12 advances versus 38 declines.

IMF's downward revision now brings its FY20 growth projection on par with Economic Survey and Monetary Public Committee (MPC) of the Reserve Bank of India (RBI), Chief Economic Adviser Krishnamurthy Subramanian and the Asian Development Bank.

Anagha Deodhar, Economist at ICICI Securities, said, “We expect rural stress to continue as deficient monsoon plays a drag on agricultural growth. Growth is likely to remain weak in H1FY20 before picking up modestly in the second half.

Pro-cyclical budget, weak investment activity and geo-political uncertainties are likely to keep a lid on aggregate demand. In such a situation, MPC' dovish stance is likely to persist”.

IMF has cut India’s growth forecast for 2019-20 to 7% from its earlier forecast in April of 7.3% on poor demand conditions, while its World Economic Outlook July update also cut India’s growth forecast in 2020-21 to 7.2% from the previous estimate of 7.5%.

“India’s economy is set to grow at 7% in 2019, picking up to 7.2% in 2020,” the report said. “The downward revision of 0.3 percentage points for both years reflects a weaker-than-expected outlook for domestic demand”, IMF said.

This latest cut in the forecast follows a series of cuts by the IMF in its previous updates. The forecast of 7.2% growth for 2020-21 is 0.5 percentage points lower than what was forecast made in October and January.

 The IMF has also cut its forecast for world GDP growth by 0.1 percentage point each in 2019 and 2020 to 3.2% and 3.5%, respectively. The growth forecast for emerging markets and developing economies has also been cut by 0.3 percentage points for 2019 to 4.1% and by 0.1 percentage points for 2020 to 4.7%.