GDP growth in Q1 raises hopes of a better performance

The country's GDP grew by 7.8 per cent in the April-June quarter, compared to 6.1 per cent growth in the year-ago period, indicates he latest NSO data. The real GDP growth of 7.8 per cent in Q1 was largely broad-based with investment growth continuing to outpace consumption growth. However, analysts have revised their FY24 real GDP growth by 40 bps to 6.2 per cent and revise down the FY25 growth estimate by 20 bps to 6.3 per cent. In the near term, demand conditions are likely to hold up in the run-up to the festive season. Global demand too has held up better than expected. Kotak expects GDP growth to have peaked out in Q1 and growth rates will gradually taper off. Real GDP growth in Q1 was at 7.8 per cent. Investment growth at eight per cent in Q1 continued to outpace private consumption. Private consumption growth improved to six per cent. Most consumer companies have reported weak volume growth and analysts remain wary of consumption profile. The government expenditure at (-) 0.7 per cent remained relatively weak. Nominal GDP in Q1 grew by eight per cent on the back of deflation in wholesale prices.

Real GVA growth at 7.8 per cent in Q1 was largely led by services at 10.3 per cent while industrial activity was tepid at 5.5 per cent. Construction sector growth at 7.9 per cent propped up the industrial sector activity, while financial, real estate and professional services growth at 12.2 per cent pushed up services sector. Trade, hotel and transport sector growth, although slower than analysts’ expectations, remained buoyant at 9.2 per cent. The quarterly profile of GDP has seen some unusual shifts post-Covid making it difficult to evaluate underlying trends, especially the June and September quarters. For example, the (-) 7.4 per cent qoq GDP growth in Q1 compares to around (-)3.6 per cent in the pre-Covid period. This suggests that yoy growth rates will also need to be interpreted with some caution. Analysts feel that these issues to smoothen out over the next one year.

High frequency indicators continue to suggest resilient economic activity in the near term. Experts expect the GDP growth to moderate to 5.2 per cent in H2 against 7.4 per cent in H1. Global growth has fared better than our expectations. They factor in a relatively resilient global demand and upside surprise to our Q1 GDP estimate. Consumer consumption and spending is expected to grow and so will be the demand for retail and MSME borrowing. With inflation still high, a report by Jiraaf points out that individual investors are looking for good risk-assessed fixed-income investment opportunities that can give them good returns well above the inflation rate and fixed deposits, while also getting the benefit of diversification for their investment portfolio. One can only hope that the positive momentum on the front of GDP numbers will continue in the days to come.