SBI Research raises FY23 economic growth forecast to 7.5%

“Rising corporate revenues and profits, growing bank credit and abundant liquidity in the system are boosting confidence”

“Rising corporate revenues and profits, growing bank credit and abundant liquidity in the system are boosting confidence”

SBI Research forecast India’s economy to grow 7.5% in 2022-23, an upward revision of 20 basis points from its previous estimate.

According to official data, the economy grew by 8.7% in FY22, adding a net ₹11.8 lakh crore during the year to ₹147 lakh crore, SBI Research said in The report. He pointed out that this figure, however, was only 1.5% higher than the pre-pandemic year of financial year 2020.

“Given high inflation and upcoming rate hikes, we expect real GDP to gradually increase. [rise]by ₹11.1 lakh crore in FY23. This still translates to real GDP growth of 7.5% for FY23, up 20 basis points from our previous forecast,” SBI Chief Economist Soumya Kanti Ghosh said Thursday. .

Nominal GDP increased from ₹38.6 lakh crore to ₹237 lakh crore, or 19.5% annualized. Also in FY23, as inflation remained high in the first half of the year, nominal GDP would rise by 16.1% to ₹275 lakh crore, he said.

The bank’s research wing said it was basing its optimism on rising corporate revenues and profits and growth in bank credit, coupled with ample liquidity in the system.

Regarding the increasing growth of companies, the SBI research team noted that in FY22, about 2,000 listed companies recorded a 29% growth in revenue and a 52% increase their net profit compared to the previous year.

Interestingly, the backlog position remained strong with the main Construction L&T seeing a 9% growth in the backlog position to ₹3.6 crore lakh in March, buoyed by a 10% growth incoming orders of ₹1.9 crore lakh in FY22 and ₹1.7 crore lakh. in FY21.

Similarly, sectoral data for April indicated that credit drawdowns took place in almost all sectors, led by personal loans registering a peak in demand of 14.7% in April and contributing about 90% of the additional credit to the during the month, mainly driven by housing, auto and other personal loans, as customers, expecting interest rate hikes, anticipated their purchases.

On the liquidity front, the SBI said it expected the central bank to support growth by only gradually raising repo rates, but more importantly by frontloading it in June and August with an increase of 50 basis points of pensions and a CRR (cash reserve ratio) of 25 basis points. rise in the next June policy.

System-wide base liquidity has fallen from ₹8.3 lakh crore at the start of the year to ₹6.8 lakh crore now, while the net absorption of liquidity adjustment facility ( LAF) increased from ₹7.5 lakh crore to ₹3.3 lakh crore.

The RBI is likely to raise the repo rate cumulatively by 125 to 150 basis points from the pandemic level of 4%.

The central bank may also increase the CRR cumulatively by another 50 basis points, after increasing it by 50 basis points in the last monetary policy, which will cause ₹1.74 lakh crore to be absorbed from the market on a sustainable basis (₹87,000 crore absorbed earlier).

High government borrowing has ruled out the possibility of selling OMO, so increasing the CRR seems a possible non-disruptive option to absorb sustainable liquidity. Also, it opens space for the central bank to manage liquidity going forward through OMO purchases.

With this, the monetary authority can return to the market at least three-quarters of ₹1.74 lakh crore absorbed by the increase in CRR, or ₹1.30 lakh crore, in some form or another to meet the duration offer. This will reduce market borrowing to around ₹13 lakh crore.

Given rising crude prices, which are trading at over $120 a barrel, the research team found inflation to average 6.5-6.7% in FY23.

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