Mumbai: Leading brokerage Credit Suisse Thursday lowered its forecast for India's GDP growth in the current financial year to 5.3 percent from 5.7 percent earlier due to "ongoing aggressive" fiscal tightening.
"The ongoing aggressive fiscal tightening, equivalent to more than 1 percent of GDP in the current fiscal, and another likely squeeze in the order of 0.25-0.50 percent of GDP next fiscal...This larger than previously expected fiscal tightening has, however, led us to further reduce our GDP growth forecasts for the current fiscal to 5.3 percent and to 6.7 percent for next fiscal," Credit Suisse research analyst Robert Prior-Wandesforde said in a note.
Credit Suisse had earlier estimated that India's GDP will grow at 6.9 percent rate in the next financial year.
He further said that these projections are comfortably above the consensus estimates and that he continues to expect a 7.5 percent average GDP reading for FY'15.
The Central Statistical Organisation had last week pegged the GDP growth for the year at a decadal low of 5 percent, the lowest since FY'02 when the readings came in at a poor 4.7 percent.
He also said that this will further encourage the RBI to cut lending rates and the ratings agencies to leave the sovereign rating unchanged.
"No doubt the government will also be hoping that a Budget incorporating credible tightening measures will persuade the rating agencies to maintain India as an investment grade credit, while encouraging the RBI to cut interest rates further. And therefore, we anticipate another 100 bps in repo rates by the end of calendar 2013," Prior-Wandesforde said.
He is also bullish on the bonds saying "we expect the Budget to be bullish for the local currency sovereign bond market and that 7.5 percent 10-year yield during the March quarter followed by a period of consolidation".
The report is expecting fresh net bond issuance to the tune of Rs 4.7 lakh crore next fiscal.
On his Budget expectations, Prior-Wandesforde said, "We expect Finance Minister P Chidambaram to err on the side of prudence, incorporating a modest tightening of the underlying fiscal stance after a bigger squeeze this fiscal. In short, fiscal prudence will be the key of this Budget."
The Finance Minister had already made it clear that he would cap fiscal deficit at 5.3 percent this fiscal and aim for a further improvement at 4.8 percent next fiscal.
"Notwithstanding the fact that Budget will be the last before the next general elections, we have little reason to doubt Chidambaram's willingness and ability to achieve these goals," he said.