March quarter GDP growth fastest in 2 years; Dalal Street cheers
11th May, 2018
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India’s economy expanded 7.7 per cent year-on-year during the January-March quarter, recording the quickest pace of growth in nearly two years. Faster growth in manufacturing, farm sector and construction helped this growth rate.
The figure outpaced China’s 6.8 per cent growth rate in March quarter, confirming India as the fastest growing major economy.
For the financial year ended on March 31, the growth rate was pegged at 6.7 per cent, down from 7.1 per cent for a year earlier. “Investment activity has picked up,” said Economic Affairs Secretary Subhash Chandra Garg.
GDP and GVA growth for Q4 FY2018 printed at higher than anticipated levels, providing a positive surprise, and confirming that an economic recovery is underway. The uptick in economic activity benefitted from the healthy rabi harvest, robust volume growth in various sectors, an improvement in corporate earnings, as well as a favourable base effect related to the low growth in Q4 FY2017, said Aditi Nayar, Principal Economist, ICRA.
However, the downward revisions for the earlier quarters of FY2018 have prevented the full year growth estimates from exceeding our forecasts. The sharp uptick in the construction GVA growth in Q4 FY2018 benefited from the trend in its inputs, such as cement and steel consumption, and activity in the infrastructure sector (including affordable housing), even as real estate and industrial capex is yet to pick up and consumer sentiment is yet to recover appreciably. Moreover, the improvement in the construction GVA growth in Q4 FY2018 benefitted from the base effect, given the issues related to demonetisation, including the availability of labour, Nayar said.
The 9.0% growth of capital goods and the expansion in the GoI’s capital spending in January-February 2018 are likely to have contributed to the healthy expansion of gross fixed capital formation (GFCF) in the just-concluded quarter.
However, other indicators offer differing trends, such as the 7.1% contraction observed in the capital spending of a sample of 10 state governments (Chhattisgarh, Gujarat, Haryana, Kerala, Odisha, Punjab, Rajasthan, Telangana, Tamil Nadu and Uttar Pradesh) in Q4 FY2018. Moreover, the value of new projects and completed projects contracted on a YoY basis in Q4 FY2018.
“With fresh capacity being added by the private corporates in limited sectors, we maintain our view that the revival in investment activity is not broad-based,” said Nayar. ” We expect the economic growth to consolidate above 7% in FY2019, on the back of the continued benefits of the implementation of the GST, healthy consumption demand, government expenditure, and a back-ended pickup in investment activity. However, the ability of the public sector banks to support lending growth, the risk of monetary tightening and trade wars, and the impact of higher crude oil prices on purchasing power of consumers and corporate earnings have emerged as risks. On balance, GDP and GVA growth are expected to improve to 7.1% and 7.0%, respectively, in FY2019, from 6.7% and 6.5%, respectively, in FY2018.”
Ranen Banerjee, Partner and Leader – Public Finance and Economics, at PwC India, said the high growth rate reported in quarter is on expected lines for us as the high frequency data on PMI and IIP as well as rural demand were all indicating a revival. “We should however be wary of the headwinds the economy faces in the coming quarters from higher crude prices feeding into inflation and rising inflation expectations. We hope the Monetary Policy Committee would not press the panic button that could create further friction on growth rate and would continue to hold on to the interest rates,” he said.
Sampath Reddy, CIO, Bajaj Allianz Life said GDP growth Q4 FY18 came in above expectations at 7.7%, on the back of gross fixed capital formation (or investments). This registered a growth of more than 14% YoY in Q4FY18, compared to negative growth YOY in the corresponding quarter a year back (Q4FY17). Private consumption growth also picked up to 6.7% YoY in Q4 FY18. GVA growth for Q4 FY18 also picked up to 7.6%YoY, helped by manufacturing and construction sectors growth.
“GDP and GVA growth for FY18 came in at 6.7% and 6.5% respectively, compared to CSO’s GVA and GDP forecast for FY18 at 6.4% and 6.6% respectively. RBI in its April 2018 policy review said that the GDP growth for India is forecasted to increase to 7.4% in FY19, helped by revival in investment activity and pick-up in global growth—which should encourage exports and boost fresh investments,” he said.
With this, India remains on track to grow at above 7% in FY19, and emerge as the fastest growing major economy in the world. Some headwinds do remain from the perspective of rising crude oil prices, and unwinding of global easy monetary policy & rising interest rates. Investors should continue to invest systematically in equities, with our preference being for large-cap funds.
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