S&P sees 12-14% credit growth in India despite rural stress risks

Mumbai: India's economic growth is anticipated to decrease below 7 percent during the second half of the fiscal year, yet the country could still experience growth close to 7.2 percent for the entire year, according to economist Madan Sabnavis. During a conversation with ANI, Sabnavis predicted a growth rate of around 7.5-7.6 percent in the second quarter, following a 7.8 percent growth in the first quarter, before experiencing a slowdown below 7 percent in the third and fourth quarters. He attributed the moderation to the impact of the monsoon and a potential slowdown in consumption.

Sabnavis believes that the higher Q2 growth would be bolstered by the groundwork created by adjustments following the new GDP series, but this support would wane in the second half of the year. He expects growth rates to dip below 7 percent in Q3 and Q4, resulting in an average annual growth rate near 7.2 percent.

Despite the anticipated short-term slowdown, Sabnavis foresees a strengthening growth trajectory for India in the long run. He stated that the 8 percent growth rate is India's potential growth rate, which could be achieved soon, possibly between 2027 and 2029. However, he is confident that the country will surpass the 8 percent mark by 2030.

In the global bond markets, Sabnavis anticipates ongoing uncertainty and volatility for approximately six months as investors evaluate relative returns across markets and developments in the United States. He emphasized the importance of considering the yield differential between Indian and US bonds alongside the likely depreciation of the Indian rupee.

Sabnavis noted that US Treasury yields stood between 5.2-5.3 percent, while Indian bonds were around 7.2 percent, but he clarified that the headline yield gap does not by itself determine investment flows. He predicted that this situation would persist, with increased volatility expected as the US environment stabilizes and the Federal Reserve's response becomes apparent.