Slowdown in India’s manufacturing sector will impact Sep quarter GDP data but the sector will drive a faster headline growth in FY16.Reuters

India's GDP growth will accelerate in the next fiscal year driven by increased manufacturing activity while the country's pro-growth agenda will continue to attract more foreign direct investments (FDI), Moody's Investors Service has said.

"We expect 5.6% GDP growth in India for the fiscal year ending March 2016, led by acceleration in manufacturing activity," a Moody's press release said.

September Quarter Data

Moody's Analytics, the research arm of the rating agency, said on 21 November that India's GDP data for the July-September quarter should show that the post‐election improvement in business sentiment is starting to lift investment. The data will be out on 28 November.

It has predicted a year-on-year rate of 5.3% for the July-September period, slower than the previous quarter print of 5.6%.

According to Moody's Analytics, India's manufacturing activity appears to have slowed but the services sector remains firm. Export demand has also picked up in recent months.

Many analysts believe India has slowed more sharply in the FY Q2 period thanks to a much weaker manufacturing sector performance.

"We expect India's GDP growth to slow to 4.87% in September quarter as manufacturing growth has slowed sharply and given the seasonal slump in farm sector growth," said Hasan Reza Razvi, economist at Mumbai-based Altius Fincap Markets.

FDI Indications

FDI inflows into India have increased significantly since April 2014, the rating agency noted.

"The trend of increasing FDI is set to continue over the coming quarters on the back of the country's pro-growth agenda and favourable economic environment when compared to other major emerging markets," said Rahul Ghosh, a senior Moody's analyst.

Greater FDI inflows will, in turn, provide more stable funding for India's current account deficit, thereby reducing the economy's exposure to external headwinds, according to Moody's.

Foreign Currency Bonds

Moody's said the improved external and domestic scenario will boost the ongoing increase in foreign currency bond issuance.

"We expect cross-border bond issues from both Indian non-financial firms and financial institutions to increase through 2015, as an improved economic outlook for the country has increased investor appetite for Indian credits, and as regulatory changes make it easier for Indian companies to borrow in foreign currency," said Vikas Halan, a Moody's vice-president.

The agency, which has assigned India a 'Baa3' rating with stable outlook, made these statements in its inaugural issue of "Inside India".

Last week, Moody's changed its outlook for Indian non-financial corporates to stable citing the strength of economic recovery and political stability. The outlook reflected expectations for fundamental business conditions in the sector over the next 12 to 18 months, the rating agency said.