Economic indicators are giving mixed signals about the health of the domestic economy.
India's GDP (Gross Domestic Product) moderated to 4.4 percent in the third quarter of 2022-23, data released by the National Statistical Office (NSO) on February 28 showed.
In October-December 2021, the economy grew by 11.2 percent while it witnessed a growth of 6.3 percent in the July-September 2022 quarter.
However, despite the moderation in the December quarter, the NSO retained its 2022-23 GDP estimate at 7 percent.
On the other hand, India’s manufacturing sector expanded at the slowest pace in four months in February. However, it still remained strong thanks to healthy domestic demand despite elevated inflation.
As Mint reported, the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) fell to 55.3 in February from 55.4 in January, as factory orders and production rose, albeit at a slower rate, a survey by S&P Global showed.
Meanwhile, activity in India's dominant services sector expanded at the fastest pace in 12 years in February. The S&P Global India Services Purchasing Managers' Index rose from 57.2 in January to 59.4 in February, its highest since February 2011 and considerably above all forecasts in a Reuters poll which had predicted a fall to 56.2, reported Mint.
The gross goods and service tax (GST) revenue collection for the month of February 2023, as reported by Mint, stood at ₹149,577 crore, up around 12 percent on a yearly basis.
The monthly GST revenues remained over ₹1.4 lakh crore for 12 straight months in a row, said the finance ministry in a statement on March 1.
Indian automakers reported mixed performance in February, with an increase in domestic sales of passenger vehicles, two-wheelers, and commercial vehicles offset by plummeting exports across all segments from a year earlier, Mint reported.
Economy losing steam?
While economic indicators are mixed, they are still showing growth. Economists and rating agencies still express firm faith in India's growth prospects.
Global rating agency Moody's now expects India's real GDP growth to be 5.5 percent in 2023, up from the earlier projection of 5 percent, and to be 6.5 percent in 2024.
Analysts do not think growth is losing steam.
"GST numbers for February are quite decent suggesting some momentum. For the consumer durables segment also, Q4 is expected to be good. As of now, there are no signs of a further slowdown," said Anita Gandhi, Whole Time Director and Head of Institutional Business at Arihant Capital.
Deepak Jasani, Head of Retail Research at HDFC Securities, pointed out that the Ministry of Statistics and Programme Implementation has revised data for the previous quarters of FY21, FY22 and FY23.
"With this revision, FY22 GDP growth now stands at 9.1 percent versus 8.7 percent earlier. For FY23, while the statistical agency has maintained its real GDP growth estimate at 7 percent, it revised nominal GDP growth to 15.9 percent from 15.4 percent previously," said Jasani.
Jasani, however, underscored that there was uneven recovery within the industry segment, with mining and construction performing well and the manufacturing segment disappointing. Manufacturing output declined for a second consecutive quarter in Q3, reflecting stress on margins due to high input costs.
He believes weak external demand and its spillover to the domestic economy could delay recovery in the sector.
Government consumption expenditure declined by 0.8 percent in Q3 versus -4.1 percent in Q2 and Jasani believes this trend might continue as the government focuses to improve the quality of expenditure and reduce revenue expenditure.
"For now, we are maintaining the FY23 GDP growth estimate at 6.8-7 percent and will be monitoring incoming data closely, particularly on the global front, to examine the impact of global spillover on the domestic economy. We will also watch out for risks related to El Nino which could impact both inflation and growth," aid Jasani.
Sneha Poddar, Assistant Vice President and Research Analyst of Motilal Oswal Financial Services, pointed out that the Central Statistical Office expects 5.1 percent year-on-year (YoY) growth in Q4FY23, which means full-year growth of 7 percent in FY23.
"We believe that real GDP growth could be 4.6-4.8 percent in Q4FY23, implying full-year growth of 6.8-6.9 percent in FY23. We expect 5.2 percent growth in FY24, led by weak consumption and some moderation in investments as well," said Poddar.
What should you do?
The market is expected to remain volatile in the short term. However, the long-term outlook remains healthy as the economy still appears to be on a strong footing.
Analysts advise betting on domestic-centric sectors to minimise the risk of a recession in the West.
Poddar highlighted that the slowdown in consumption was well reflected in the Q3FY23 results which were led by a weak demand environment and macro headwinds.
Poddar believes the slowdown in consumption is a material concern if trends don’t reverse immediately.
"Markets are trading 5 percent down year-to-date and thus have turned valuations inexpensive with Nifty trading at nearly 17.5 times FY24E earnings per share. This offers room for a modest upside if corporate earnings do not see material downgrades ahead. We prefer BFSI, IT, industrials, auto and cement sectors that one can look at this juncture," said Poddar.
Gandhi is of the view that infrastructure, capital goods, metals and banking are attractive sectors for investment.
Jasani said till we get over the fears of El Nino, we can avoid fresh positions in rural dependent sectors and tilt more towards the defensives like pharma and IT.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.