Showing signs of sluggishness in the economy, industrial production shrunk by 4.3 percent in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors, as per official data.

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According to data released by the Central Statistics Office (CSO), 4.3 percent contraction is the lowest in the 2011-12 series of Index of Industrial Production (IIP), which was unveiled in May 2017. Factory output, measured in terms of IIP, had expanded by 4.6 percent in September 2018.

According to analysts, the dismal IIP performance points to a deep slump in economic activity. "Weakness was broad-based across a mix of consumption and investment indicators," said Kotak Institutional Equities in a report.

Morgan Stanley also noted that broad-based contraction was witnessed across sub-components. HSBC added that underlying momentum has weakened, especially for capital goods, which declined for a fifth straight month.

Morgan Stanley believes GDP growth will likely remain slow in Q2 at around 5-5.2 percent. Citi expects the Q2 GDP growth to decline to 4.9 percent.

"Revised Q2 growth forecast suggests 50-70 bps downside risk to FY20 GDP target of 6 percent. Sequential pickup in H2 could be lower than we are currently penciling in. Q3 growth could be around 6 percent if Q2 growth is close to our forecast," Citi said in a report.

Kotak revised down India's FY20 GDP growth estimate by 80 bps to 5 percent and expects the Reserve Bank of India monetary policy committee (MPC) to cut the repo rate by another 50 bps through the rest of FY20. Meanwhile, HSBC expects a 25 bps repo rate cut in the December policy meeting.

SBI Research on Tuesday said that it has cut India's GDP growth forecast for the fiscal year 2020 to 5 percent from 6.1 percent earlier on the back of global economic slowdown coupled by domestic woes. However, the research house believes the growth rate to pick up pace in FY21 to 6.2 percent.

Japanese brokerage Nomura massively cut its GDP forecast to a low 4.9 percent for the FY20 from 5.7 percent earlier, saying the economy is going through a "deeper trough" and even a sub-par recovery is at least a year away. For FY21, it has downgraded the outlook to 6.1 percent from 6.9 percent previously.

While there has been a rash of growth estimate cuts, including a 0.70 percentage points reduction by the RBI last month to 6.1 percent, the Japanese brokerage's estimate is so far the lowest.

Last week, Moody's also cut India's credit rating to negative from stable amid concerns that the country’s economic growth will remain "materially lower than in the past." Moody's said that the decision to change the outlook partly reflects lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than it had previously estimated, leading to a gradual rise in debt burden from already high levels.