Unsustainable growth cycle, will peak in the first half of 2022: Nomura

The current growth cycle seen in the country is not sustainable and will peak by the first half of 2022, a Japanese brokerage said on Friday.

Higher inflation and a wider current account deficit, which are the side effects of loose policies adopted to stimulate growth during the pandemic, will kick in, forcing the RBI to act even as the “scarring effects cast doubt on sustainability.” growth, ”Nomura said in its annual outlook.

He said the recovery has been uneven, hurting consumption by low-income households, and that a sustained rise in capital spending is also not in sight.

Overall, we don’t see the current growth cycle as sustainable. With mixed growth, high inflation, and larger twin deficits, we expect India’s risk premium to rise and the RBI to catch up as it lags, ” said its analysts.

The brokerage said growth increased by 2 percentage points after damage from the second wave of the COVID virus in mid-2021, but remained below the pre-pandemic trend. A further recovery was hampered by supply-side bottlenecks like the energy crisis and chip shortages, as evidenced by weak economic normalization in the December quarter, but output is expected to rebound once these issues resolved.

“In our baseline scenario, India’s business cycle peaks in the first half of 2022, then momentum begins to moderate in the second half, reflecting cyclical factors and the impact of scar effects, which we believe have lowered the potential growth rate, ”he said.

From a stock market perspective, the brokerage said it was “neutral” in Indian markets due to concerns over high valuations.

However, there are bright spots like high earnings growth, a large liquid market and a counterweight to North Asian markets, he said.

From a risk perspective, he said India lags the region on immunization and reported COVID, as well as strained public finances, increasing the risk of populism or more taxes. students.

(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

Carol N. Valencia