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Indian economy’s two-track recovery seen: Edelweiss

Indian economy’s a two-track recovery is foreseen in India’s exports, manufacturing CAPEX and pockets of real estate leads

Indian economy’s

Indian economy a two-track recovery is foreseen in India’s exports, manufacturing CAPEX and pockets of real estate leads, whereas services, government CAPEX and leveraged consumption lagging, says recent research by Edelweiss Group, ‘Economy 2021: Two-Track Recovery’.

India’s overall capex breakupSource: CMIE, BIS, Bloomberg, Company data, Edelweiss Research
India’s overall CAPEX breakup Source: CMIE, BIS, Bloomberg, Company               data, Edelweiss Research

The report highlights that Covid has dealt with an uneven blow to economic agents and the benefits of the policy response (domestic and global) are not evenly distributed either.

“In our view, corporates are better poised to lead the recovery than Household (HH); the latter are getting squeezed between cost control by businesses, weak job market, and inadequate fiscal transfers,” says the report

Further, the skew in the distribution of both profits and wages is only increasing.

“We forecast GDP to rebound 7-8% YoY in FY22, after 6-7% contraction in FY21. BoP is well anchored, keeping an appreciative bias in USD/INR (averaging 73 in FY22 against 75 in FY21). We expect the FY22 inflation trajectory to be much more benign than FY21; this should facilitate another 25-50bps rate cut before a long pause. While upsized fiscal support can broaden the recovery, premature rise in real rates in the US could jeopardize global reflation.”

Key macroeconomics forecasts : Source: Edelweiss Research

FY17 FY18 FY19 FY20 FY21E FY22E
CPI Inflation (Avg) 4.5 3.6 3.4 4.8 6.0 4.0
Current account balance (% of GDP) (0.7) (1.8) (2.1) (0.9) 1.5 0.0
USD/INR (Avg) 67.1 64.5 70.0 70.9 75.0 73.0
Policy choices
Repo rate (exit rate) 6.3 6.0 6.3 4.4 4.0 3.75
Central govt. fiscal deficit (% of GDP) 3.5 3.5 3.4 4.6 7.0 6.0
Real GDP (%, YoY) 8.2 7.2 6.8 5.0 ­6.5 7.5

RBI’s support cheered

Recently the Reserve Bank of India (RBI) decided to maintain interest rates at four percent while maintaining an accommodative stance, implying more rate cuts in the future if the need arises to support the economy hit by the Covid-19 pandemic.

The benchmark repurchase (repo) rate has been left unchanged at four percent, Governor Shaktikanta Das said while announcing the decisions taken by the central bank’s Monetary Policy Committee (MPC).

Consequently, the reverse repo rate will also continue to earn 3.35 percent for banks for their deposits kept with the RBI.

“RBI will continue to prioritize growth recovery for some time. Therefore, we foresee a 25bps rate cut in H1FY22 as inflation moves to a more benign trajectory,” said Edelweiss.

Inflation is stickier than expected 

The primary reason for the pause in rates is inflation being stickier than expected. The RBI is now projecting H2FY21 inflation to average around 6.3% (5.0% projected during previous policy). While it does acknowledge the likely moderation in vegetable prices, it believes supply chain issues and cost-push pressures on core inflation are likely to keep headline inflation elevated in the near term. Thus, it now envisages inflation to moderate in H1FY22 towards 5.0%.

Committed to broadening recovery

RBI has upgraded its FY21 to -7.5% YoY compared to -9.5% YoY projected previously. However, the central bank highlighted that the recent bounce in economic data is yet to become broad-based and continued policy support is warranted to broaden the recovery. As a result, it aims to maintain an accommodative stance this year and the next year as well.

NAREDCO National President, Dr Niranjan Hiranandani
NAREDCO National President, Dr. Niranjan Hiranandani

”The monetary policy committee’s decision to keep key rates unchanged was on expected lines and may continue shortly to support growth as private consumption has slowly started and several stalled projects have been revived due to the government’s efforts, stated ASSOCHAM and NAREDCO National President, Dr. Niranjan Hiranandani.

“The pro-active stance of the government to tackle the supply side issues would be instrumental in reducing the food prices further. As the numbers show that the economy is recuperating at a quicker pace than anticipated is a very good sign. Several sectors are showing an upturn consolidating the fact that the GDP growth numbers would be positive soon. Home loans will continue to remain at attractive rates, this should augur well for home buying sentiment,” he added.

Kaushal Agarwal, chairman, The Guardians Real Estate Advisory

Mr. Kaushal Agarwal - Chairman The Guardians Real Estate Advisory
Mr. Kaushal Agarwal – Chairman The Guardians Real Estate Advisory

Owing to inflation concerns and steep reductions previously, the RBI was expected to keep rates unchanged. With commercial banks being asked to consolidate profits and not distribute dividends, it’s time the banks further sweeten the lending rates. With vaccine announcements around the corner and persistent recovery in the economy, the country can be expected to fully recover financially by the end of Q4 FY 20-21.


Lincoln Bennet Rodrigues, Founder, and chairman, Bennet & Bernard Group The real estate sector is yet to see the full swing impact of various measures announced recently by the government and we feel that a rate cut now would have given some respite to the real estate sector which has been facing headwinds due to the pandemic.

Lincoln Bennet Rodrigues, Founder and chairman, Bennet & Bernard Group
Lincoln Bennet Rodrigues, Founder, and chairman, Bennet & Bernard Group

However, we are upbeat as consumer sentiment is high, especially after they witnessed the brittle nature of other investment vehicles compared to real estate. The post-pandemic world will be good for the real estate sector as it offers you the best bet – stability, security, and safety. So, one must take advantage of the current scenario and invest with a long term perspective to ensure superior returns.

Bhushan Nemlekar, Director, Sumit Woods Limited

Bhushan Nemlekar, Director, Sumit Woods Limited
Bhushan Nemlekar, Director, Sumit Woods Limited

Keeping the inflation in mind, the RBI was expected to keep the rates unchanged. The real estate sector already had a good festive season and we can see the recovery is expected to strengthen further. The sector is already optimistic because of the increased buyer interest in real estate assets and we expect the demand to sustain in the next quarter as well. The RBI has already announced several favorable measures this year for the real estate sector; however, more needs to be done such as the decision on Input Tax Credit and reduction in premiums at the State Government level.

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