Nomura cuts FY22 growth estimate to 10.8% due to lockdowns

Japanese brokerage Nomura on Tuesday cut its GDP growth estimate for the current 2021-22 fiscal to 10.8 per cent from the earlier 12.6 per cent, blaming the impact of the second wave-induced lockdowns.

It said the activity levels have dropped further to 64.5 per cent of the pre-pandemic levels in the week to May 9 as per a proprietary index, after a further 5 percentage points drop in the week. The activity levels, at present, are at par with those seen in June 2020.

The country has reported over 4 lakh new infections and 4,000 deaths a day during the ongoing second wave of the COVID-19 infections, leading over 20 states to impose lockdowns or lockdown-like restrictions as a desperate measure to restrict the spread of the virus.

Nomura said its cut in the GDP growth estimate is reflective of a larger lockdown-led loss of sequential momentum in the June quarter.

"We expect a localised hit in Q2 (April-June period) and believe that medium-term tailwinds (like vaccine pivot, global recovery, easy financial conditions) remain intact," it said.

The economy is officially assumed to have contracted by 7.6 per cent in FY21 because of the hit following the national lockdown last year.

At present, the RBI estimates the economy to expand by 10.5 per cent in FY22 because of the base effect, while some analysts have warned that the growth may come down to as low at 8.2 per cent if the second wave peaks in June.

In the note, the brokerage said the fall in activity continues to be driven by a sharp fall in mobility, pointing that Google's workplace and retail and recreation mobility indices fell by 10 per cent. Power demand also fell by 4.1 per cent week-on-week while the labour participation rate inched higher to 41.3 per cent vs 38.9 per cent last week.

The sharp drop in Nomura India Business Resumption Index (NIBRI) suggests that the rolling state-wide lockdowns are hurting sequential growth.

"We would, however, caution that the drop in mobility exaggerates the hit to economic activity. International experiences suggest the correlation between mobility and GDP growth is much weaker during the second wave, due to more targetted restrictions and more pandemic-adept consumers and businesses," it said.