UBS maintains forecast of 8.9% real GDP growth for India in FY22

Swiss brokerage UBS on Wednesday said it is sticking to its forecast of 8.9 per cent year-on-year (YoY) real GDP growth for India during the ongoing financial year.

India's GDP grew 20.1 per cent YoY in June quarter of FY22. However, UBS said that the high growth in Q1 of FY22 is deceptive as it benefits from the "ultra-low base" of FY21.

"On a seasonally adjusted sequential basis, India's real GDP declined by 12.4%QoQ in the Jun-21 quarter (post the second wave) vs. -26%QoQ registered during the same time last year (due to nationwide lockdown)," UBS Securities Chief India Economist Tanvee Gupta Jain said in a report.

The brokerage said that the economic impact of the second wave was less adverse as compared to the first wave.

"We maintain our base case estimate of India's real GDP growth at 8.9%YoY in FY22 (consensus: 9.2%). This largely reflects the rebound from deeper contraction in FY21 GDP (-7.3%YoY)," Jain said.

UBS expects growth to gain momentum in the second half of FY22 on cyclical tailwinds, including pent-up demand, favourable external demand, and higher government spending likely towards capex.

UBS said that the formal sector has gained market share during the pandemic period. However, the scarring caused by the pandemic has adversely affected employment and income levels of workers in the informal sector.

"In our view, the govt's push towards boosting capex, especially on infrastructure, focus on manufacturing and exports could be the next growth drivers," Jain said.

She further added that the UBS Activity Indicator suggests that economic activity rebounded in the September quarter of FY22.

"The UBS-India Activity Indicator has been tracking above the pre-pandemic level and stood at 107 during the week ending 29 August. The indicator suggests economic activity improved sequentially by an average of 15% QoQ in the Sept quarter so far on progressive reopening of the economy post the second wave, after contracting 11% QoQ in the June quarter," Jain said.

Going ahead, the rising COVID-19 cases, risk of third wave of the pandemic and vaccination pace would be the key areas to monitor. "We believe a meaningful ramp-up in vaccinations is key to boosting consumer & business confidence. We expect India to inoculate 40% of the total population (or 55% of the adult population) by Dec 2021," Jain said.

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