Indian economic recovery losing steam: Nomura

New Delhi, Feb 7: India's economic recovery is losing some steam and there is a likelihood of slowdown in the growth momentum, says Japanese financial services firm Nomura.

While improving urban consumption demand and a robust transportation sector are supporting growth, weak external conditions and sluggish investment demand are weighing on the pace of the recovery, it said.

There is a "downside risk" to its baseline forecast of 7.8 per cent GDP growth in 2016, it said, adding however that Nomura Composite Leading Index, with a reading still above 100, "suggests a mid-cycle consolidation, rather than the start of a downturn".

"The economic recovery, which began in the fourth quarter of 2014, is headed into a consolidation zone into the second quarter of 2016," Nomura said in a research note, adding that the growth recovery is not yet broad-based.

While urban consumption demand (passenger cars, aviation traffic, diesel consumption, consumer credit) remains the brightest spot in the economy, boosted by higher real disposable incomes and lower commodity prices, rural consumption demand (of two-wheelers) remains subdued.

"Overall, Nomura's proprietary indices for India, together with the high frequency data, indicate some slowdown in the growth momentum towards end-2015 and a high likelihood of further monetary policy easing," it said.

The government recently lowered its economic growth forecast for 2015-16 to 7-7.5 per cent from 8.1-8.5 per cent. On RBI's policy stance, the report said the central bank is expected to deliver a final 25 bps rate cut in April, utilising the room afforded by lower commodity prices (and weaker growth momentum).

"Beyond that, we expect the RBI to stay on hold until end-2016. We will monitor our growth and policy indicators on a monthly basis for early signs of any further deterioration in growth outlook or possible room for further easing," it added.

Meanwhile, RBI Governor Raghuram Rajan on February 2, left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy on government's budget proposals.

PTI