Nomura has maintained its 7% GDP growth forecast for India for FY27, following a strong 7.8% expansion in the June quarter. However, the brokerage warns that growth may moderate in the second half of the year due to risks such as corporate margin compression, erratic rainfall, and energy price volatility.
Nomura has decided to keep its GDP growth forecast for India at 7% for the current fiscal year (FY27). This announcement follows a strong start to the financial year, with official data showing that India’s economy expanded by 7.8% in the June quarter. This figure was notably higher than market expectations, suggesting that the domestic economy continues to show resilience despite global uncertainties.
Strength in the June Quarter
The stronger-than-expected growth in the first quarter was primarily driven by fixed investments and steady private consumption. Industrial activity also showed healthy gains, and the external sector contributed to the overall numbers. Given this robust performance, there are expectations that the Reserve Bank of India (RBI) might consider revising its own growth outlook higher during its Monetary Policy Committee meeting in October. While the central bank is expected to keep interest rates steady for now, the focus remains on controlling inflation.
Identifying Potential Headwinds
Despite the positive start, Nomura anticipates that economic growth may cool down in the second half of the fiscal year, with an expected moderation to approximately 6.6%. For investors, it is important to understand the risks that could weigh on this growth trajectory. One of the key monitorables is the pressure on corporate profit margins. As input costs remain sensitive to global commodity prices, many companies may find it challenging to maintain their profitability if they cannot pass on costs to consumers.
Another significant risk factor is the agricultural cycle. Erratic rainfall patterns and the potential impact on Kharif sowing can directly affect rural demand and inflation. If agricultural output suffers, it could lead to higher food prices, which might, in turn, affect the broader consumer spending power. Furthermore, the economy faces risks from potential fiscal slippage, where government spending might need to increase to support subsidies, and unfavorable statistical base effects that make high year-on-year growth harder to achieve in the latter months.
External Factors and Next Steps
Beyond domestic factors, global conditions continue to influence the outlook. Geopolitical tensions, particularly in West Asia, remain a concern as they could trigger volatility in energy and oil prices. Any spike in energy costs would hurt India’s trade balance and put further pressure on corporate margins.
Investors looking ahead should track upcoming data on corporate earnings, as these will provide the most direct evidence of whether companies are successfully managing margin pressures. Additionally, updates from the RBI regarding their policy stance and any reports on monsoon performance will be critical to gauge whether the economy can maintain its momentum through the rest of the year.