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MOSL: ECOSCOPE-1Q2019 - India’s Quarterly Economic Outlook; Combination of weak growth and lower inflation

ECOSCOPE: 1Q2019 - India’s Quarterly Economic Outlook; Combination of weak growth and lower inflation hints at rate cut(s)

 

• After witnessing extreme volatility in mid-2018, the financial markets were relatively calm towards the year-end, despite the unexpected loss of the BJP in three major state assemblies. The NIFTY index grew over 8% YoY (and ~5% QoQ) in 3QFY19 (or 4Q2018), while the benchmark bond yield declined from over 8% at Sept-end to 7.5% currently, and the Indian Rupee (INR) corrected from ~74 against the US Dollar (USD) to sub-70.
• The volatility in crude oil prices has certainly aided these movements. When compared with our , we have retained our growth forecasts but sliced inflation and current account deficit expectations. Further, with the materializing of weak growth and lower inflation in 2HFY19, we believe the Reserve Bank of India (RBI) could deliver one or two rate cut(s) amounting to 25-50bp in early 2019. This hinges on the assumption that the government will resist expensive populist schemes ahead of the 2019 general elections and maintains a path of fiscal consolidation