The second wave of the pandemic in India is more of a humanitarian crisis rather than an economic one, and is likely to have peaked, a Japanese brokerage said on Thursday. Nomura said it expects the overall hit to sequential growth in April-June to be much less severe than last year when there was a complete nationwide lockdown, and less than what the drop in mobility suggests. It estimated the economy to contract by only 3.8 per cent in June quarter as compared with March quarter…lockdowns are more nuanced this time and consumers and businesses have adapted, it said, adding that international experience also suggests the same.
Highlighting that the improving global growth will act as a tailwind, the brokerage said it expects the current lockdowns to last six more weeks. The brokerage said vaccinations are trailing at present, but the pace of inoculation will pick up after June as its analysis indicates increased supply. We expect half of the population to be fully vaccinated by end-2021 and India to reach its vaccine pivot point in Q3 (September quarter), which should boost domestic consumption, it added. Maintaining its 10.8 per cent GDP growth estimate for 2021-22, Nomura said the full impact of easy financial conditions should become visible as the pandemic’s uncertainty ebbs and vaccinations rise.
However, in what can be a potential area of concern, the brokerage said it expects cost pressures to intensify from supply chain disruptions, high global commodity prices and rising rural wages, and the core inflation remaining at an elevated 5.3 per cent for 2021. We expect a reverse repo rate hike in October and maintain our call for 0.50 per cent of repo rate hikes in H12022, it said.