SBI economists see Q2 GDP growth slowing down to 6.5%; FY25 growth to be closer to 7%

Economists at the country's largest lender, SBI, today said they see India's Q2 real GDP growth slowing down further to 6.5% in the September quarter of this fiscal year. Amid concerns over the country's economic growth rate and whether it is slowing down, the analysts said they expect FY25 growth to come "closer to" 7%.

SBI analysts join a long line of agencies like Fitch, ADB, IMF, Moody, World Bank, S&P, and even RBI in forecasting India's GDP growth for FY25 in the range of 6.8% to 7.2% for FY25, driven by robust consumption and investment. SIP inflows have been at an all-time high, and so has QIP (qualified institutional placement) fundraising. As many as 71 companies raised Rs 88,678 crore this year through QIPs.

Activity in Indian primary markets also remained robust, with 78 mainboard IPOs in 2024; this is a 111% rise from just 38 listings in FY23. Between April and June 2024, India's real GDP grew by 6.7%, the lowest growth seen in 15 quarters, pushing experts to believe that India is caught in a cycle of slowdown.

"There is some incipient pressure evident on the domestic economy. Based on our analysis of 50 meaningful leading indicators (both consumption and demand-centric), a dip looks plausible across select cohorts of agriculture, industry, and services in Q2," the SBI economists added.

Stating that they track 50 indicators to gauge economic activity, SBIs note said the proportion of indicators showing acceleration declined to 69% in Q2 FY25, as against 80% in Q2 FY24 and 78% in Q1 FY25.

However, things might be changing now, given that rural demand has started looking up amidst muted urban demand. SBI also explained that the ongoing regulatory tightening on unsecured lending and roadblocks that are hindering rollover/refinancing of debt through unsecured credit are dismantling the unwarranted exuberance that had built up post-pandemic, especially in the urban areas.

Madhu Lunawat, CIO & Fund Manager, Bharat Value Fund states that the overall investment environment remains strong due to favorable economic conditions supporting government policies & reforms. "The sustainable inflow from domestic investors is going to support the Indian equity market in any kind of correction. The long-term bullish structure of Indian economy will continue to attract new domestic & global investors to participate in India’s growth story through various Investment avenues.”

Rate cuts not on cards

RBI Governor Shaktikanta Das clarified today that changing the monetary policy stance to 'neutral' does not mean a rate cut is imminent in the central bank's next policy announcement. Notably, RBI MPC is set to meet between December 4 and 6, 2024, to decide if the prevailing repo rate of 6.5%, which has stayed unchanged for the last 2 years, should be brought down or not.

In its last meeting, The RBI monetary policy committee had shifted its stance to 'neutral' indicating that it is open to adjusting interest rates based on economic conditions.

"It should not be assumed that we have done this, so therefore the next step is a rate cut. A change in stance doesn't mean that the next step is a rate cut in the very next meeting. It's not so," Das said.

Das also cautioned that inflation remains a key factor, and inflation and CPI prints for October are expected to stay high.