scorecardresearchIndia's Q1FY23 GDP jumps in double-digits but misses estimates; What happens

India's Q1FY23 GDP jumps in double-digits but misses estimates; What happens next? 6 experts weigh in

Updated: 01 Sep 2022, 11:52 AM IST

  • GDP in the April-June quarter of this fiscal year grew by 13.5%, as against a 20.1% growth in the same quarter last year.

Gross Value Added (GVA) for the first quarter of FY23 came at 12.7%.

Gross Value Added (GVA) for the first quarter of FY23 came at 12.7%.

India's Gross Domestic Product (GDP) in the April-June quarter of this fiscal year (Q1FY23) grew by 13.5%, as against a 20.1% growth in the same quarter last year, data released by the National Statistical Office (NSO) showed on August 31.

Gross Value Added (GVA) for the first quarter of FY23 came at 12.7%. GVA is the value of all goods and services produced in an economy after deducting the input costs.

The Indian economy expanded at the quickest pace in a year but slightly missed the estimates of the Reserve Bank of India (RBI). In the August MPC meet, RBI Governor Shaktikanta Das said RBI expected the country's real GDP growth for 2022-23 at 7.2%, with Q1 at 16.2%, Q2 at 6.2%, Q3 at 4.1%, and Q4 at 4%, with risks broadly balanced.

Views of experts and brokerages on Q1FY23 GDP print

Analyst: Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services

"Q1 data suggests that RBI's FY23 growth forecast will be revised down to 6.7% from 7.2% earlier. We, on the other hand, have revised our forecast to nearly 6.5%, up from 6.3% earlier,' said Gupta.

He added that the GDP print confirms that growth recovery is not so strong in India. It ideally implies that monetary tightening should be not very aggressive. However, it appears that the terminal repo rate will be 5.75-6% in this cycle with one or two more rate hikes, ending the cycle in December 2022.

Analyst: Vivek Rathi, Director - Research, Knight Frank India

Rathi pointed out that India’s real GDP witnessed a double-digit growth of 13.5% in Q1FY23, due to a favourable base, however, when measured sequentially, the economy contracted by 9.6% QoQ because of high inflation which moderated the real GDP.

Rathi believes the impact of inflation and increased import costs can be seen in a quarterly contraction in both personal as well as government consumption expenditure which contracted by 2.4% and 10.4% from March 2022.

In the coming months, India’s economy would face headwinds primarily arising from a widening trade deficit as a result of decelerating exports due to the global demand slowdown. Additionally, investments in the economy could get hindered due to tightening borrowing costs and elevated input costs, he said.

However, Rathi is optimistic about India’s economic outlook as the early indicators such as manufacturing PMI, GST collections, etc., in the last few months have remained strong despite global turbulences.

Analyst: Teresa John, Economist, Nirmal Bang Institutional Equities

Overall GDP growth is 3.8% above pre-pandemic levels (Q1FY20). However, trade, hotels, transport and communication still remain 15.5% below Q1FY20 levels. John expects these segments to recover over the coming quarters.

"We retain our GDP growth estimate for FY23 at 7.5%. We see GDP growth in the second half of FY23 (H2FY23) at about 5% year-on-year (YoY), largely supported by continued recovery in contact-intensive services," said John.

"Q4FY22 GDP was marred by the impact of the Omicron wave, which provides a supportive base to some extent. Easing of high raw material prices may also support recovery in the manufacturing sector in H2FY23," John added.

Analyst: Madhavi Arora, Lead – Economist, Emkay Global Financial Services

Incoming data, even though slowing, remains better than emerging market (EM) peers. Improving contact-intensive services amid a revival in urban demand could continue. This may be further aided by strong formal-sector employment growth, indicated by the rise in EPFO new payrolls and the Naukri Job index, said Arora.

Besides, strong tax collections also point to a healthy formal sector. Rural consumption may ease, owing to the delayed monsoons and lower acreage under sowing vs. last year. Additionally, a subdued real rural wage growth may further impact rural consumption. Capex indicators are healthy, with capacity utilization further improving and signs of new investment gradually emerging, with capital goods production registering an uptick.

Yet, the momentum of recovery is still below full strength, warranting policy support and government capex-push.

The global price disruptions reflect a confluence of the China slowdown, protracted shortage of critical inputs, the extended war in Europe and demand-curbing global policy actions.

All these factors pose downside risks to domestic economic activity.

This, in conjunction with higher global uncertainty, tightening global financial conditions, lower corporate profitability amid high input costs and tighter policy reaction function of the RBI, will further curb domestic demand.

"We retain our GDP growth forecast of 7% for FY23, although we reckon there are rising downside risks to our estimate," said Arora.

Analyst: Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company

Q1FY23 GDP robust growth data was on expected lines given the low base of last year as also recovery in key industries and services sector. However, this may not lead to many reactions in Indian bond yields as the key focus for debt markets would hinge on the direction of US treasuries and dollar index movement, said Iyer.

Also, the key to note is that potential global growth slowdown headwinds could linger in terms of domestic sentiments as well.

Brokerage: Phillip Capital (India)

The brokerage firm has retained its FY23-24 GDP growth estimate at 6.5%-7.5%.

Phillip Capital pointed out that the latest HFD (high-frequency data) suggest a stable to moderate growth pace. Investment and consumption are expected to continue to deliver decent performance aided by public and private capex expansion and the upcoming festive season (Q1 growth trends are in-line).

Global growth slowdown could limit export performance while domestic buoyancy would support imports resulting in an elevated trade deficit.

Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.

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First Published: 01 Sep 2022, 11:17 AM IST