Foreign brokerages see upside in India's growth estimate

NEW DELHI: Foreign brokerage firms expect an upside to India's growth estimates after a revision in the base year, but they expect the RBI to hold rates in the monetary policy review tomorrow.

The government has revised FY 2014 GDP growth to 6.9 per cent from 4.7 per cent after updating the base year to 2011-12 from 2004-05.

This "stronger-than expected" GDP data means there would be relatively "shallow" rate cut cycle by the RBI and in all probability, the central bank is likely to stay on hold tomorrow, according to Citigroup, BofA-ML and HSBC.

"We are now tracking FY 2015 GDP growth at 6.6 per cent (earlier 5.5 per cent)," DSP Merrill Lynch India Economist Indranil Sen Gupta said, adding that "as data are not available before FY2012, it is not possible to calculate potential growth based on the new GDP series. As of now, we go along with our view that potential growth is around 7.5 per cent."

Citigroup India Economist Rohini Malkani said: "While we await further details to establish trends, we acknowledge that there is an upside risk to our GDP estimates on stronger industrial trends than estimated earlier."

On rate cut, he said: "We believe RBI will be largely guided by inflation momentum, quality of fiscal consolidation and external sector improvements. We maintain our call of RBI cutting rates by an additional 75 bps after the budget."

Advance GDP estimates for 2014/15, along with a quarterly breakdown, will be released on February 9.

"We expect the RBI to assess this data in deciding on its monetary policy stance. As such we still do not expect it to cut policy rates on the February 3 meeting," HSBC Chief India Economist Pranjul Bhandari said.

Looking ahead, we expect the RBI to cut rates in mid-March and finally in June, making it a total of 75 bp in rate cuts in 2015," Bhandari added.

The Reserve Bank of India, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review tomorrow.