The International Monetary Fund (IMF) has slashed India’s economic growth forecast to 8.2% for Financial Year (FY23) from 9% estimated in January, 2022, citing the impact of high oil prices on consumer demand and private investments. The IMF also reduced India’s FY24 growth forecast to 6.9% from 7.2% estimated earlier. 

"The global economy will suffer significantly from the war in Ukraine," the IMF had said its World Economic Outlook released on Tuesday. 

Experts were of the view that GDP forecast cut was in line with the expectations and may weigh on weigh on private consumption and investment.

Power Breakfast: IMF cuts global growth forecast, Russia-Ukraine war is affecting the country's development

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"IMF GDP forecast cut in line with expectations" 

"This GDP forecast cut is not surprising as RBI during its last meet had cut its GDP forecast to 7.2 percent from 7.8 percent. The geopolitical factors, high commodity prices, and weaker domestic demand (as higher oil prices are expected to weigh on private consumption and investment) are some of the factors that led to the GDP forecast cut" said Santosh Meena, Head of Research, Swastika Investmart Ltd.  

As far as the impact on the stock market is concerned, We believe that the financial markets have already discounted the cut and even the other agencies have shared a similar view on the GDP forecast cut, said Meena.   

"This growth rate forecast is still amongst the highest. Currently, the market is extremely volatile and will stay the same in the short term. Nevertheless, we are bullish on the Indian stock markets from a medium to long-term perspective," said Meena.  

But any negative surprise from the inflation side can lead to more than expected stringent action by the central bank, further aggravating the GDP forecast cut issue, highlighted the expert.  

Earlier, the fund has also cut its projection for 2023 by 0.2 point to 6.9 per cent. The World Bank projected 8 per cent growth for the Indian economy in 2022 in a report released last week, which also warned that the war in Ukraine will slow down South Asian countries` recovery from economic devastation caused by the Covid-19.  

Global economic prospects have been severely hit, largely because of Russia's invasion of Ukraine, says Amit Agarwal, Vice President, Fundamental Research, Kotak Securities. 

"Downgrade reflects weaker domestic demand" 

"The downgrade reflects weaker domestic demand as higher oil prices are expected to weigh on private consumption and investment. It can lead to less spending by businesses and consumers, deteriorate current account, impact foreign flows, weaken currency and negatively impact earnings of corporations," said Agarwal.  

Kotak Securities expert is of the view that it poses downside risks to elevated valuations of the market, expensive ‘growth’ stocks and ‘narrative’ stocks. "Faster capex by the central and state governments offers the key upside," the expert added. 

Meanwhile, Global growth has been projected to slow from an estimated 6.1 per cent in 2021 to 3.6 per cent in 2022 and 2023, the fund said.  

The fund had earlier projected 9.5 per cent growth for the Indian economy in 2022. It slashed it by 0.5 percentage points in its January report and it has further reduced it now by 0.8 point. 

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