New Delhi, Jan 7 India’s GDP growth momentum has improved in the October-December quarter of the current financial year (FY25) and inflation has eased, according to an HSBC Research report released on Tuesday.
“GDP growth came in at a disappointing 5.4 per cent in the quarter ending September. Our analysis of 100 activity indicators suggests that the growth momentum has improved in the quarter ending December,” the report stated.
As many as 65 per cent of the indicators are growing at a positive clip in the December quarter compared to 55 per cent in the previous one. The improvements have been the clearest in agriculture, exports and construction. Even urban consumption has shown some improvement, according to the report.
However, the report states that this improvement comes with limits. Utilities and private investment indicators continue to remain subdued. Things are still not as good as the June quarter, when about 75 per cent of the indicators were growing positively.
With activity momentum midway between the June highs and the September lows, GVA growth is also trending at 6.5 per cent, according to the report.
It highlighted that food inflation has finally begun to ease and expects the overall inflation rate to fall below 5% in January.
After a high inflation print in October (of 6.2 per cent year-on-year), and continued high food prices in November, food prices have begun to fall in December, and furthermore in January.
“Vegetable prices have fallen in December (onions, tomatoes and carrots), as has the price of certain pulses. On the back of this, we forecast inflation to fall from 5.5 per cent in November to 5.3 per cent in December, and to just-below 5 per cent in January,” the report noted.
HSBC Research is of the view that some of the responsibility to push up growth will fall on the shoulders of monetary policy as inflation has eased.
“We expect two rate cuts over 25bp each over Feb and April, taking the repo rate to 6 per cent. Domestic liquidity has been on a tightening steak over the last quarter, and some steps to ease it may also come forth as the year progresses (e.g. more VRRs, FX swaps and OMO purchases),” the report added.
“But we expect it to be a shallow rate cutting cycle. One reason is our expectation of a smaller balance of payment (BoP) surplus, which could lower the room to manoeuvre, especially at a time of heightened global FX volatility,” the report added.
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