(AP Photo/Richard Drew, File)
(AP Photo/Richard Drew, File)

New Delhi: Wall Street brokerage Goldman Sachs has joined peers in sharply slashing growth estimate, but has predicted an 8.5% gains in equity indices next year despite elevated valuations.

The brokerage attributed the evident dichotomy between GDP growth estimates and the benchmark target to the easy monetary policy that the central bank has been pursuing since the beginning of the year.

The reduction in GDP growth estimate to 5.3% from 6% comes to amid a rash of similar actions, especially after the September quarter growth slowed to a 26-quarter low of 4.5%. Its Japanese peer Nomura has pegged the growth to come at 4.9% for FY20, making it the lowest estimate among the analysts.

Its India chief economist Prachi Mishra said the reverses on the GDP front have been greater than expected but added growth may be at a trough and may improve from here on.

She said moderately better global economic conditions, softening domestic financial conditions which have been affected since the NBFC crisis, positive fiscal impulse where government is increasing spending and easing of supply bottlenecks make her confident of an increase in trajectory.

Mishra, who has worked in both the Reserve Bank and the finance ministry earlier, said there are early signs of also an early signs of economic stabilisation now.

She also expects the Reserve Bank to cut the key policy rates again by 0.25% on Thursday to push growth, but added the central bank may go in for a pause later on as inflation hits its targeted level of 4%.

The brokerage expects a breach of the FRBM Act targets with a fiscal slippage where the deficit will widen to 3.6% in FY20 but Mishra said the country has breached the target multiple times in the past and it may not be taken too adversely because of the reform measures like GST.

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