India: Growth momentum persists, rates on hold – Nomura

Nomura’s heat-map of high-frequency data indicates a stronger economic recovery of Indian economy in Q4, led by a resolute pick-up in external demand and investment, although consumption demand signals are more mixed.

Key Quotes

“Nomura’s Composite Leading Index has risen to a near seven-year high in Q1, pointing to a V-shaped recovery, due to ongoing remonetisation and stronger external and industrial demand. The index suggests that the uptick in non-agriculture GDP growth could be stronger than during the cyclical recovery in 2014.”

“We remain bullish on the growth outlook. We expect GDP growth to rise to 6.7% y-o-y in Q4 2017 from 6.3% in Q3, followed by a stronger rebound to 7.5% in full-year 2018. Given base effects, we expect growth in H1 (7.8%) to exceed H2 2018 (7.1%).”

“The Nomura Economic Surprise Index for India increased sharply to 0.27 in mid-January, close to its +1 standard deviation (sd). Since it tends to be mean-reverting, there is a higher probability of negative data surprises in coming months.”

“The Nomura RBI Policy Signal Index moderated to 0.02 in January from 0.13 in December, remaining in the “no change” zone. Despite the growth recovery, we expect no change to monetary policy at the Reserve Bank of India’s (RBI) 7 February meeting, or indeed through 2018, because of an ample real rate cushion. However, we expect slightly more hawkish rhetoric in Q2, as both growth and inflation are likely to be higher.”