Feb-23 Macrobook - Economic outlook

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Feb 21, 2023

QuantEco Research || India Macrobook Feb-23

Our core views for FY24

FY24 core views

While exports are likely to bear the brunt of global demand slowdown, rural consumption could tick up on the back of Kharif sowing led improvement in cash flows, healthy rabi sowing, moderating inflation, and softening of agri input costs. Urban consumption could see some downside amidst waning of pent-up demand and pass-through of higher rates weighing on leveraged demand for goods. We forecast India’s GDP growth to moderate 6.0% in FY24 from an estimated level of 6.8% in FY23. We expect CPI inflation to revert to the target band and come close to 5.3% in FY24 from an estimated level of 6.5% in FY23.  RBI is likely to remain hawkish with Q4 FY23 CPI inflation likely to exceed RBI’s forecast of 5.7%. We maintain our call of further monetary tightening in Apr-23 policy review. Basis another 25-bps hike in repo in Apr-23, we maintain our 10Y g-sec yield call of 7.50% by Mar-23. A likely pause expected thereafter could help 10Y g-sec yield to drift ~100 bps lower. We continue to expect 10Y g-sec yield to gradually drift lower towards 7.00% by Mar-24.We see downside risk to our FY23/ FY24 CAD estimates of 3.1% of GDP (USD 106 bn)/ 2.5% of GDP (USD 90 bn) We continue to maintain our USDINR call of 83.5 by end Mar-23 and 85.5 by end Mar-24. However, likelihood of a narrower CAD/BoP deficit provides some downside risk to our USDINR forecasts