Indian GDP at 6.6pc in 2019

Capital expenditure is likely to slow down due to economic uncertainties in India which goes into an unpredictable General Elections by May next year.

Citing challenging scenarios, Japanese origin international bank, Nomura, sees the country’s 2019 gross domestic product growth at 6.6%, down from 7.4% this year.

Overall, a negative first half and a positive second half of 2019 is projected.

“We are expecting GDP growth to actually slowdown in 2019 to about 6.6 per cent down from 7.4 per cent in 2018,” said Sonal Verma, Chief India Economist at Nomura during a media briefing on 13 Dec 2018.

Typically, long-term capex decisions are not taken in scenario of political uncertainties. “So, we do expect some postponement in terms of the capex decisions,” she said.

The moderation is essentially due to the adverse impact of the shadow banking stress that have evolved in the last three-four months and uncertainties ahead of the May 2019 General Elections.

Shadow banks were able to get enough money to lower their upcoming redemption but a lot of them are being forced to slow down their balance-sheets.

Therefore, a tighter credit conditions will be faced by sectors that were dependent on shadow banks to fund themselves. These were largely the real estate developers, the small and medium enterprises and some of the auto vehicles financing.

The Indian economy will also take the impact of the global economic slowdown.

“Our concern on India is more cyclical. Structurally, we do continue to be quite positive,” said Verma.

Touching on India, as part of its report on Asia Pacific equity market, Nomura sees near-term risk to earnings on account of margin pressures emanating from rise in commodity prices and demand slowdown.

Uncertainty on oil, political overhang due to elections and concerns of global liquidity tightening would keep valuation under check, it pointed out.

“We continue to value NIFTY at 15x on FY20F earnings. Our target at 11,270 implies 5% upside from current levels. We remain stock selective,” said Nomura. fiinews.com