High-frequency growth indicators have been signalling a slowdown since June, Nomura said in a new note.
The Nomura India Coincident Activity Index (NICAI) is a composite index covering consumption, investment and the external sector. Aggregate NICAI growth slowed to 4.1 per cent y-o-y in August from 6.5 per cent in June and 7.0 per cent in March, and the preliminary reading for September is further lower at 3.0 per cent.
The Nomura India Growth Thermometer (NIGHT)uses NICAI to estimate the sequential growth pulse. NIGHT is tracking -1.0 per cent (q-o-q) in Q3, down from 1.4 per cent in Q2 and 0.6 per cent in Q1, confirming that growth momentum has slowed sharply. This suggests GDP growth is currently tracking below 6.5 per cent y-o-y in Q3 (RBI: 7 per cent), down from 6.7 per cent in Q2, although we await the full set of September data to finalise our forecasts.
The Nomura India Composite Leading Index (NICLI) has a one-quarter lead on non-agricultural GDP growth. It has been sequentially moderating since Q1 2024 and has continued to slide into Q4, suggesting that the moderation in growth momentum in Q3 (based on NICAI) will likely persist into Q4. The NICLI is just below the 100 threshold and moderating sequentially, which points to a rising risk of a cyclical growth slowdown in coming quarters.
“We see rising downside risks to our GDP growth forecasts, for both FY25 (6.7%) and FY26 (6.8%). Even as the pace of government spending picks up and base effects are favorable, we expect growth momentum to remain soft, due to fading urban pent-up demand, tight monetary policy, a moderation in credit growth, negative real rural wage growth, sluggish private capex and soft external demand,” Nomura said.