Goldman Sachs: India GDP Growth Will Slow With General Elections Next Year

India's real GDP growth will decline marginally to 6.3 per cent in 2024 from the 6.4 per cent estimated for 2023, investment bank Goldman Sachs said on Monday, also pointing to political uncertainty being the main domestic risk

21 Nov 2023 12:00 PM GMT
On today’s episode, financial journalist Govindraj Ethiraj talks to Vivek Iyer, Partner & National Leader for Financial Services Risk at audit firm Grant Thornton, as well as cricket commentator and writer Ayaz Memon.

Our Top Reports For Today

  • [00:00] Stories Of The Day
  • [02:48] India GDP growth will slow with general elections next year before accelerating again, says Goldman Sachs.
  • [05:51] Small loans rise as does indebtedness
  • [14:20] Sam Altman joins Microsoft, will that make AI safer?
  • [17:21] Air traffic hits a fresh record high
  • [19:21] Australia took the World Cup for the 6th time, lessons for India

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Markets And Outlook

India's real GDP growth will decline marginally to 6.3 per cent in 2024 from the 6.4 per cent estimated for 2023, investment bank Goldman Sachs said on Monday, also pointing to political uncertainty being the main domestic risk, in the context of the ongoing state and next year’s general elections.

The next calendar year will be of two halves, wherein the government spending before the upcoming General Elections will be the key driver for growth, while after the elections, it will be the re-acceleration in investment growth, especially from the private sector, Goldman Sachs said in a report, according to Business Standard.

From a fiscal year perspective, the brokerage said it expects growth to accelerate to 6.5 per cent for FY25 from the 6.2 percent it has projected for the ongoing FY24, it added.

"India has the best structural growth prospects in the region. We believe GDP growth is likely to stay robust at 6.3 per cent y-o-y (year-on-year) in 2024," the brokerage said, adding the country is less sensitive to potential external shocks like longer rates globally, persistent dollar strength and geopolitical uncertainties.

Actually, most brokerages and rating firms hold their projections around this level which is actually not very good for a country with strong growth aspirations.

I find it interesting that Goldman, among other banks and analysts like Jeffries, have already laid out their worst case scenarios on what could happen if the elections don’t go in favour of the ruling BJP.

Jeffries global strategist Chris Wood said the markets would fall 25% if the BJP did not make it back.

Others may not have used the same words but hinted at the same thing.

It's the job of analysts and strategists to factor in the unexpected but their narrative seems to run a little differently from lets say political analysts who at least in public seem to feel confident of a BJP return.

Goldman points out, as we know that , election season is already underway with Assembly polls in five states, which will be followed by the General Elections later, it said, adding that outcomes of these elections will be "keenly watched" by investors from the standpoint of economic reforms and/or policy continuity.

"We expect the government to intervene through subsidies or other measures to keep a lid on food prices in an election year," it said.

The "somewhat elevated" inflation relative to the target will limit the room for monetary easing, and the RBI will cut rates by only 0.50 per cent to 6 per cent by early 2025, the brokerage predicted.

In the markets yesterday, the indices started the week on a muted note with the Sensex closing 140 points lower at 65,655 levels. The Nifty50, on the other hand, ended at 19,694, down 38 points.

Finance stocks, including the likes of Bajaj Finance, who saw one of its lending products being suspended by the Reserve Bank last week, fell further. And more on that subject shortly.

Meanwhile in international markets, the dollar is seen as generally weaker though that did not help the rupee much.

Oil has risen, in anticipation of extensions or deepening of production cuts at a OPEC meeting coming up next weekend. It is now around $82 a barrel.

Back in the markets, it's also a major IPO week with some Rs 7,000 crore worth of offerings lined up from companies like Flair Writing Industries, Tata Technologies, Gandhar Oil Refinery (India), Fedbank Financial Services, and Indian Renewable Energy Development Agency.

The interesting thing about many of these IPOs as has been often the case in the current rush is that these are older companies, though in many cases it is the promoters who are liquidating some of their holdings.

I am guessing a 30-year or so wait is fine if the company is doing well and investors are okay with the price.

The first is Flair Writing, an almost 50-year-old company going public now. It has its own brands of pens and also franchises brandes like Pierre Cardin and Hauser of Germany.

And Tata Technologies, about 34 years old, is an engineering consulting and R&D company, my term for it. It is large, has almost 12,000 employees working in areas ranging from aerospace to automotive and industrial heavy machinery.

Gandhar Oil is a white oil or highly refined mineral oil manufacturing company, set up around 30 years ago in Mumbai. White oil is used by the drugs and cosmetics industries, among others.

Small Loans Are Getting Worrisome

The RBI has tightened norms for personal loans in India making it more expensive for banks and their intermediaries to lend.

The increase in risk weightages is also a warning shot of sorts, telling the system that it needs to be on alert.

The problem with small loans and individual personal loans is that it has exploded thanks to one, the need for debt to fuel and fund lifestyle expenditure as some call it and second, the ease with which people can access loans, including by perhaps and in many cases, the tapping of an icon on a smartphone.

The challenge is thus both on the demand and the supply side. On the supply side, possibly, the RBI has done what it can.

Also remember that spending and consumerism, not necessarily in a bad way, is what the economy needs. The problem is when people in their mid 20s earning around Rs 5 lakh a year start running up debt.

What can be done on the demand side, how can borrowing by constrained. Could there be disincentives ? And finally, what about the role of fintech companies, could there be some form of relook so as to ensure there is more responsibility in their actions and maybe bring in more friction into the process, which of course goes against their grain and existence ?

So what is the solution then? The Core Report will try and bring in different voices on this subject in coming days. I reached out to Vivek Iyer, Partner & National Leader for Financial Services Risk at audit firm Grant Thornton and began by asking him how he was viewing the landscape of small loan debt at this point?


Sam Altman Comes To MS

The great Bay Area drama continues with new twists and turns in the plot every hour seemingly.

For now, it seems to have settled somewhat with OpenAI naming ex-Twitch boss Emmett Shear as interim CEO, while outgoing chief Sam Altman is set to join backer Microsoft.

Microsoft Chief Executive Satya Nadella said in posts on X that Altman would become CEO of a new research group inside the software maker, along with other departing OpenAI colleagues such as outgoing President Greg Brockman who quit following Altman's ouster.

In a statement on the social media platform X, Shear dismissed speculation that OpenAI's board ousted Altman because of a spat over the safety of powerful AI models. He vowed to open an investigation into the firing, consider new governance for OpenAI and continue its path of making technology like its viral chatbot available, Reuters reported.

"I'm not crazy enough to take this job without board support for commercialising our awesome models," Shear said, adding: "OpenAI’s stability and success are too important to allow turmoil to disrupt them like this."

The appointments, settled late into the night on Sunday, followed Altman's abrupt departure just days earlier as CEO of the ChatGPT maker and ended speculation that he could return.

Though in a fresh twist Monday morning, US time, More than 500 employees of OpenAI have threatened to leave the company if the current board doesn’t resign and reinstate former Chief Executive Sam Altman and former President Greg Brockman.

OpenAI currently has about 770 workers. Included in the list of names of signers was Ilya Sutskever, the company’s chief scientist and one of members of the four-person board that voted to oust Altman.

The developments are of course interesting. For one, this means Sam is clearly joining a larger company in a somewhat diminished role compared to the sheer press and adulation he enjoyed earlier.

It is also testament to Satya Nadella’s skills and attraction as a leader that he could win Sam Altman over, whatever the background dealering would or could have been.

More importantly, the question as I see it is, while OpenAI represented almost the wild west of AI with complete hell let loose on the world, could the MS version of it, rather the advanced versions of it, since MS and OpenAI already work together and MS has already rolled out AI enhanced products like CoPilot, be more benign and manageable.

We don’t know yet but I would bet that Sam Altman and team in the MS ecosystem could do good, if they of course are able to last.

Air Traffic New High On Weekend

India's domestic air traffic touched a new high on Sunday as airlines carried 456,910 passengers with around 5,958 or close to 6,000 flight movements

On Saturday also, the air traffic number reached a new high of 4,56,748 passengers, according to official data, making it two historic days.

It was also the highest post-Covid air traffic for two consecutive days.

India is one of the fastest-growing civil aviation markets in the world and domestic air passenger traffic registered an annual growth of nearly 11 per cent to 1.26 crore in October.

Meanwhile, the Mumbai International Airport (CSMIA) on Monday said it recorded 18% more passenger traffic of more than 4.25 million in October with international passenger growth at 20%.

Speaking of air traffic, the Dubai AirShow wrapped up with ambitious plans announced and set.

Dubai International airport aims to boost capacity to 120 million passengers a year by 2026, up from 100 million today.

Saudi Arabia is ramping up steadily, also trying to be a middle east hub, a battle it intends to and has begun fighting with the Emirati airlines like Emirates and Etihaad, apart from Qatar Airways.

Saudi Arabia plans to increase its international routes from 99 to over 250 and more than triple annual passenger traffic to 330 million by 2030 from 109 million in 2019.

The kingdom is spending heavily to transform its aviation sector, moving ahead with plans for a new national airline and massive airport in Riyadh to boost connectivity.

Boeing dominated the Dubai Airshow, racking up 313 orders—232 firm and 81 non-firm. Meanwhile, Airbus garnered only 86 orders, as of Friday, the last day of the biennial airshow.

Australia Win

India lost to Australia in the finals of the World Cup Cricket 2023 yesterday, ending 6 weeks of anticipation and hope that India as host country would win the trophy.

Be that as it may, the matches were definitely a boost for the economy and the games where played saw considerable boosts in spending on hospitality and allied services. Ahmedabad perhaps benefited the most since two key matches, India versus Pakistan and the finals India vs Australia were played there.

Looking back 6 weeks, what are the takeaways and lessons if one may call it that and what can India do here and what should it focus on ? To discuss this, I spoke to our regular contributor on this theme, cricket commentator and writer Ayaz Memon and began by asking him how he looked back at the matches and tournament now that it had ended?


Updated On: 21 Nov 2023 6:00 AM GMT
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