Brokerages expect large rate cut, monetary and fiscal package soon

Brokerages expect a significant impact on India’s GDP growth of the 21-day countrywide lockdown announced by Prime Minister Narendra Modi. Some analysts are even factoring in an extension of this lockdown, and expect RBI to announce a large rate cut in its April monetary policy meeting. They feel the central bank could even potentially move beyond traditional rate cuts to support the economy. A monetary and fiscal package could also be in the offing to limit the impact of the lockdown, said brokerages.

Here are the highlights of what brokerages are expecting:

-Expect FM to come out with monetary and fiscal package to offset lockdown impact

-Estimates 4.7% growth in FY21, assuming a shutdown till Aprilend and see cost of 1 month of lockdown at 50-75 bps of GDP

-Expects RBI to cut policy rates by 100 bps in 2020 to lower high real lending rates

-Impact of 21-day lockdown in June quarter GDP will be much sharper than anticipated

-Factoring in 4 full weeks of complete shutdown, followed by another 8 weeks of partial shutdown across India until May-End

-Cuts CY20 GDP forecast to 2.5% from 4.5%, expects RBI to move close to 65 bps in April policy meeting

-Lockdowns/curfews in several states have brought attention to spread of COVID-19 in India

-Tests conducted so far are a fraction of number of tests conducted by China, Korea and Norway

-Resumption of economic activity would require government to have much greater clarity of infected and at-risk persons

-Real GDP growth will collapse in June quarter

-Don’t rule out negative real GDP growth in September quarter as it will take time to restart economic activities

-RBI may cut rates by 100 bps in coming months, many move beyond traditional rate cuts to support economy

-FY21 GDP growth will likely drop to sub-4% despite a low base, June quarter likely in the negative

-Large near-term economic impact inevitable but raises probability of a V-shaped recovery

-Fiscal support for affected workers/business can driver faster recovery

-Given India’s public health infrastructure, flattening the outbreak curve substantially is key, also steepens economist cost curve

-About 60% of GDP outside of agriculture, public administration, health and telecom will be significantly impacted by lockdown

-Much will depend on length of the lockdown