India to clock faster GDP growth for Oct-Dec, inflation easing: HSBC research

India’s GDP growth momentum has improved in the October-December quarter of the current financial year (FY25), with inflation easing, according to an HSBC Research report released on Tuesday.

“GDP growth came in at a disappointing 5.4% in the quarter ending September. Our analysis of 100 activity indicators suggests that the growth momentum has improved in the quarter ending December,” the report said.

As many as 65% of the indicators are growing at a positive pace in the December quarter, compared to 55% in the previous one. The improvements have been most notable in agriculture, exports, and construction. Even urban consumption has shown some recovery, the report added.

However, the report highlights certain limitations to this growth. Utilities and private investment indicators continue to remain subdued. Activity levels are still below the highs seen in the June quarter, during which about 75% of the indicators showed positive growth.

With the activity momentum now positioned midway between the June highs and the September lows, GVA growth is trending at 6.5%, according to the report.

The report also said that food inflation has finally begun to ease, with the overall inflation rate expected to fall below 5% in January.

After a high inflation print in October (6.2% year-on-year) and persistently high food prices in November, food prices began to decline in December and are continuing to ease into January.

“Vegetable prices have dropped in December (notably onions, tomatoes, and carrots), along with certain pulses. On this basis, we forecast inflation to fall from 5.5% in November to 5.3% in December and below 5% in January,” the report said.

HSBC Research emphasized that with inflation easing, monetary policy would likely play a role in supporting growth.

“We expect two rate cuts of 25 basis points each in February and April, taking the repo rate to 6.00%. Domestic liquidity has been on a tightening streak over the last quarter, and measures to ease it may be introduced as the year progresses, such as more VRRs, FX swaps, and OMO purchases,” the report added.

However, HSBC cautioned that the upcoming rate-cutting cycle is likely to remain shallow. “One reason is the anticipated smaller balance of payment (BoP) surplus, which could limit flexibility, especially amidst heightened global FX volatility,” the report concluded.

(Inputs from IANS)