Gradual Recovery at Work, GDP May Grow to 7.8% in FY16: Nomura

New Delhi: A cyclical recovery is under way for the Indian economy, and the country's GDP growth is expected to improve to 7.8 per cent this fiscal from 7.3 per cent in 2014-15, a Nomura report says.

According to the Japanese brokerage firm, the PMI data for August reinforce the view that cyclical recovery is in progress for the Indian economy led by improving consumption demand and rising profit margins owing to low inflation and falling interest rates.

The Nikkei India Manufacturing PMI -- a composite monthly indicator of manufacturing performance -- stood at 52.3 in August, down from a six-month high of 52.7 in July.

According to Nomura, historically, the manufacturing PMI has fallen in August and the decline this year has been much smaller than the average fall of 1 point in the last six years.

"Therefore, we believe that the PMI data signal improving manufacturing activity," it said.

"We expect a gradual recovery in GDP growth to 7.8 per cent in FY16 from 7.3 per cent in FY15, led by higher corporate profits, policy easing, debottlenecking of stalled projects and rising discretionary demand."

On RBI's policy stance, the report said the central bank is likely to cut its repo rate by 25 bps at its review later this month, following which it's "likely to be on hold".

"With CPI inflation likely to undershoot the Reserve Bank's 6 per cent inflation target for January 2016 and pipeline price pressures remaining weak, we expect RBI to cut its repo rate by 25 bps on September 29 and then go on hold," Nomura economists Sonal Varma and Neha Saraf said in a research note.

RBI, which has lowered the benchmark rate by a combined 75 basis points so far this year in three instalments, is scheduled to hold its next bi-monthly monetary policy meet on September 29.