Ambit Capital has said that India is likely to grow slower this year as against the previous one. The research firm had earlier cut its GDP estimates from 7.9% to 7.5% and now it has brought it down further to 7%.
It said, "Now, we cut our FY16 GDP growth further to 7.0% YoY, implying a slower GDP growth rate in FY16 vs FY15." Given its rationale for the decision, Ambit said that it has cut GDP estimates further because of their 'growing conviction' that the Prime Minister is prioritising a clean-up of the system over pursuit of near-term GDP growth. Ambit further said that the second reason for the GDP estimate cutback is because of "the cut in our Banking team’s credit growth estimate from 15% year-on-year (YoY) to 12% YoY for FY16."
The research firm had first cut its GDP estimate on March 23 where it had said that PM Modi is likely to hit a hard reset button over the next four years.
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Ambit said that PM Modi is trying to 'clean-up ' the system and has four-facets to the effort, namely; crony capitalists who are rigging the system, pressurising civil servants and public sector company chiefs to deliver, end subsidy fraud from direct benefits transfer (DBT) and attacking black money.
Ambit said, "We have good reasons to believe that the PM’s multi-faceted clean-up is highly likely to result in GDP growth slowing down in FY16."
It said, "The sheer lack of clean and capable civil servants, public sector chiefs and contractors means that public sector and Government capex growth will disappoint in FY16."
On crony capitalists’ crackdown, Ambit said that the PM’s crackdown means that private sector capex growth will also disappoint in FY16. It said, "Our discussions with major power, infra, metals & mining companies suggest that none of them are in any rush to invest. In fact, some of them are taking the point of view that they will consciously hold back capex."
Lastly, Ambit said that the black money bill seems likely to result in an exodus of Indian businessmen seeking residentship abroad. It said, "We have already heard about promoters of several prominent small-midcap companies who have taken tax residentship abroad in the past few weeks. Also, a significant proportion of white collar professionals working in India for MNCs are contemplating leaving the country."
Based on these factors, Ambit said that it is pulling down the GDP growth estimates for FY16 to 7% from 7.5% earlier.
It said that the firm now expects a 50 bps sequential deceleration in GDP growth in FY16.
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