Nifty PSU Bank index hit its eight-month low of 3,030 on the National Stock Exchange (NSE) in intra-day trade. The index was trading at its lowest level since January 23, 2017.
State Bank of India (SBI), Andhra Bank, Union Bank of India, Bank of India, Oriental Bank of Commerce and Bank of Baroda from the Nifty PSU Bank index were down in the range of 2% to 3%.
The rating agency CRISIL has trimmed its fiscal 2018 growth forecast for India by 40 basis points to 7% from 7.4% earlier, after data for the first quarter showed GDP (gross domestic product) growth at 5.7%, the slowest in the past three years.
The demonetisation-driven cash crunch hurt economic growth, especially small enterprises, while the imminent rollout of the Goods and Services Tax (GST) spurred destocking and a slowing of production brought down manufacturing growth.
“Indian economy can only grind its way up in an environment of subdued global growth and weak domestic investments. This fiscal would see some added headwinds in the form of GST related disruptions, even as the economy tries to recover from the impact of last year’s demonetisation drive,” CRISIL said in recent report.
The rating agency believes the sharp decline in growth in the first quarter is transitory and the economy will grind up slowly over the next few quarters as the impact of demonetisation and destocking fades. The Purchasing Manager’s Index (PMI) for August already signals a pick-up in manufacturing activity, it added.
Poor GDP growth in two successive quarters - 4QFY17 and 1QFY18 - has changed the growth prospects for FY18, says India Ratings and Research (Ind-Ra).
The combined effect of demonetisation and introduction of GST is proving to be more disruptive for the economy than was expected earlier. While the introduction of GST cannot be faulted on account of its eventual benefit to the economy, the same cannot be said about the impact of demonetisation.
Ind-Ra believes GDP growth will recover quarter-on-quarter in 2QFY18 with impact of demonetisation waning, teething problem arising out of GST implementation being looked into by the government and the festival season round the corner. However, it is unlikely to meet the agency’s earlier projection of 7.4% and will come down to 6.7% during FY18.
Also with inflation inching up, despite the clamour for further monetary easing, the Reserve Bank of India (RBI) will have less elbow room to reduce policy rate further. Moreover, a further reduction in policy rate is unlikely to make much of a difference, particularly on the investment front, given the large idle capacities in several manufacturing sectors, added report.