"There are downside risks to the tune of 0.40-0.80 per cent to our gross-value added estimate of 7.6 per cent," it said in a note today, nearly a fortnight after the government demonetised the Rs 500 and Rs 1,000 banknotes.
This projection, however, is very meagre as many brokerages have already projected even a 50 per cent dip in GDP growth, with Ambit Capital being the steepest at 3.6 per cent.
The brokerage said there will be an impact on consumer goods and discretionary spending for at least two quarters, which will impact growth till March 2017.
Cash dependent businesses will be hit the most during this period and rural demand, especially from the unbanked sections, may also moderate, it added.
It, however, said there will be some pent-up demand which can give an upside to growth starting the first quarter of the next fiscal.
By acting on the demand side, the demonetisation move can help reduce inflation by up to 0.20 per cent over the next few months and make the case for a 0.25 per cent rate cut from RBI in first half of 2017 stronger, the brokerage said, adding there will not be a rate cut in the December 6 policy announcement.
On the fiscal side, there will be "windfall gains" if the move results in unearthing unaccountable money from the system and will help to increase the proportion of direct tax revenues over indirect collections, it said. But it did not quantify the fiscal gains.
The brokerage was, however, quick to add that the estimates on blackmoney vary widely and there is a risk of overestimation in this assumption.
It also said a slowdown in the passage of other key reforms including the goods and services tax in the ongoing Winter session is being hampered by the banknote reforms.
On November 8, Prime Minister Narendra Modi had announced to discontinue Rs 500 and Rs 1,000 notes.