Stock market: Nomura sees US-India trade deal soon, revised tariffs close to 20%

Nomura in its latest note said the outcome for a US-India trade deal remains a big uncertainty, saying the deal is yet to be signed despite positive noise from both camps. The foreign brokerage though believes the deal will be signed soon, and tariffs will likely be set closer to 20 per cent.

The stock market is expecting the trade deal between the two countries by year-end.  

Nomura said the mix of lower inflation, lagged transmission of easy macro policies, and the focus on structural reforms like GST rationalisation and de-cluttering of labour should broadly support growth. 

It said the higher GDP print has reduced the urgency for RBI to cut policy rate, but it has not settled the debate on the right balance between slowing nominal GDP growth versus high real GDP growth. 

“We believe that part of the low inflation is more structural in nature, and policy rates should gradually adjust to this macro shift. Consequently, we retain our forecast of a 25bp cut in December, but we lower the probability to 60 per cent (from 65 per cent earlier), as the MPC could decide to deliver another dovish hold,” Nomura said.

The brokerage said the broad message from the September quarter GDP data is that consumption growth has improved, while investment, government spending and net exports have eased. That said, it was the second consecutive quarter when the market has not only underestimated the quantum of GDP growth, but also its direction – forecasting a slowdown instead of a surge. 

“Really low GDP deflators have added to the unpredictability of the series. Consequently, there seems to be divergence between the GDP statistics and the evidence from high frequency activity indicators, making it difficult to gauge whether the GDP data are indeed reliably reflecting the state of the economy,” it said. 

Nomura believes it is difficult to square GDP growth of 8 per cent in H1 FY26 (April-September) with weak urban income growth, lacklustre corporate sales, tepid private capex, low industrial production growth and external sector under pressure from steep US tariffs.

The brokerage has revised upward its FY26 GDP growth forecast to 7.5 per cent from 7.0 per cent previously but retained its call for 25 basis points rate cut in December. Of the 8.2 per cent GDP growth, the ‘discrepancy’ category contributed to nearly half of the increase, i.e. unaccounted for by the major sub-components. 

“Private consumption growth picked up to 7.9 per cent YoY the September quarter from 7 per cent in June quarter, although its sequential momentum moderated. The government’s announcement of GST cuts in mid-August led to consumers delaying their purchases until September 22, but this appears to have been slightly offset by higher rural demand on the back of good monsoons,” Nomura said. 

On economy, Nomura said the GDP growth surged 8.2 per cent year-on-year in the September quarter from 7.8 per cent in the June quarter, beating expectations. 

With the RBI’s MPC meeting scheduled in a few days (December 5), the strong GDP growth data call into question, the market’s expectation of a 25 basis points cut in the policy rate to 5.25 per cent. 

“After all, GDP outturn has overshot the RBI’s forecast for the quarter at 7 per cent by a whopping 1.2 percentage points, which will lead to 0.5 percentage points upside risk to its current FY26 GDP growth forecast of 6.8 per cent. If the latest GDP data are taken at face value, then economy is growing robustly, and there is no need to cut rates, even though ultra-low inflation provides space,” Nomura said.

This is similar to the argument made by the RBI at the previous meeting, when it resisted easing despite sounding uncharacteristically dovish. 

“A similar argument can be made for the December and February MPC meetings as well, because the disconnect between high real GDP growth and low deflators is set to continue,” Nomura said.