HSBC on Monday lowered India's GDP forecast for the current financial year to 4% from 5.5% earlier, saying economic uncertainty is likely to weigh on the growth forecast in the coming months.
According to the global financial services major, growth is likely to slow in the near term due to tighter financial conditions and higher macroeconomic uncertainty.
"In light of this, we revise down our GDP growth forecasts to 4.0% (5.5%) for FY2014 and to 5.5% (from 6.6%) for FY2015," HSBC said in a research note on Monday.
According to official figures, the country's economic growth in the April-June quarter slid to 4.4%, the lowest in past several years, pulled down by drop in mining and manufacturing output.
This prompted the industry to demand co-ordinated action by the government and the RBI to boost the economy.
HSBC, however, believes the slowdown has further to go, saying leading indicators suggest the country's growth momentum could ease further during the July-September quarter in both manufacturing and services sector.
Moreover, factors like RBI's currency stabilisation measures and heightened macroeconomic uncertainty is making consumers and businesses more cautious about spending, HSBC said.
The pressure on growth momentum is likely to pose greater challenges for policy makers as they try to stabilise the falling currency, which had touched an all time low of 68.80 to dollar on August 28 and is currently hovering around the 66/dollar mark in a highly volatile trade.
"In terms of the quarterly profile, we expect growth to slow in the July-September quarter of 2013 and dip below 4%," HSBC said adding that growth will show "faint" signs of recovery during the final quarter of the fiscal year as macroeconomic uncertainties recede somewhat and confidence reluctantly recovers.
Moreover, CCI expedited and other investment projects are likely to slowly kick in around that time, the report said.
According to HSBC, "the outlook for India is still tainted with downside risks given the lingering macroeconomic uncertainties and the possibility that politics could get in the way of meaningful progress on structural reform".