Goldman Sachs Raises India’s 2024 GDP Growth Forecast to 6.7%

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Goldman Sachs has revised its forecast for India’s gross domestic product (GDP) growth for calendar year 2024 (CY24), increasing it by 10 basis points (bps) to 6.7%. This adjustment comes amid expectations of a resilient investment growth momentum and potential interest rate cuts by the Reserve Bank of India (RBI) later in the year.

Core Inflation Trends and Economic Outlook

According to Goldman Sachs, India’s core inflation averaged 3.4% year-on-year (Y-o-Y) from January to April 2024.

Analysts predict that core inflation will bottom out in the second quarter (Q2-CY24) but may rise to the 4-4.5% range in the second half of the year. This forecast is driven by anticipated increases in core goods inflation due to the delayed effects of rising manufacturing costs.

RBI’s Cautious Stance on Food Inflation

The Monetary Policy Committee (MPC) of the RBI has expressed caution regarding persistent food inflation, attributed to supply-side disruptions caused by ongoing hot weather conditions in many parts of India. Goldman Sachs analysts believe the RBI will closely monitor the progress of the monsoon and the sowing of the summer (kharif) crop before making any significant monetary policy adjustments.

“Going forward, we expect investment growth momentum to sustain with extra fiscal space for infrastructure spending, given a higher-than-expected dividend transfer by the RBI. As a result, we recently revised our growth forecast for CY24 slightly higher by 10 bps to 6.7% Y-o-Y,” stated Andrew Tilton, chief Asia-Pacific economist and head of EM economic research at Goldman Sachs, in a note co-authored with Santanu Sengupta and Arjun Varma.

Interest Rate Cuts Expected by Year-End

Taking into account the current economic developments, Goldman Sachs has deferred its expectation of an RBI interest rate cut to the fourth quarter of CY24, with the first reduction likely during the December 2024 meeting.

“We continue to expect a shallow easing cycle of total 50 bps rate cuts from the RBI, with 25 bps rate cuts each in Q4-CY24 and Q1-CY25,” Tilton, Sengupta, and Varma wrote.

Stock Market Surge Amid Economic Optimism

This positive outlook for India’s economy coincides with a surge in equity markets. On Monday, May 27, the BSE Sensex reached an all-time high of 76,000 points before closing at 75,390.50. Similarly, the Nifty ended slightly down at 22,932.45. Banking stocks performed particularly well, with IndusInd Bank and Axis Bank gaining over 1%.

The revised GDP forecast and anticipated monetary policy adjustments highlight a cautiously optimistic outlook for India’s economic trajectory in 2024, amidst balancing inflationary pressures and growth ambitions.