The December quarter GDP data came on a softer side, raising concerns over the slowing growth momentum of the country which is already trying to digest the fresh worries in terms of rising crude oil prices and higher inflation.
The Indian economy grew at a slower-than-expected pace of 5.4% in the December quarter which was at a three-quarter low. However, different sets of data show mixed trends in the economy. For example, while GDP growth dimmed, total gross GST collections grew at a three-month high of 17.6 percent year-on-year to ₹1.33 lakh crore in February 2022. On the other hand, the Manufacturing Purchasing Managers' Index, compiled by IHS Markit from February 10-22, improved to 54.9 in February from 54.0 in January.
Nonetheless, analysts point out the fresh worries such as geopolitical tensions, a sharp uptick in crude oil prices, rising input cost and slow demand that can spoil the economic recovery.
"Even as the Omicron impact in Q4FY22 is likely to be mild, the current geopolitical escalation may lead to potential global energy trade and price disruptions and weigh on near-term growth," brokerage firm Emkay Global Financial Services observed. However, the brokerage firm believes the energy supply shock may resolve in the coming months and likely will not leave a lasting mark on the global and domestic expansion.
The point of worry is the gloomy demand scenario which may affect the private capex plans negatively.
"On the demand side, consumption is the slowest to recover to pre-pandemic levels. Private investment, on the other hand, is endogenous in nature: it first needs demand to fire
and utilization to rise. As a result, even with a cleaner balance sheet, corporates are likely to be in a wait-and-watch mode, especially as global uncertainty weighs on sentiments, demand and cost," Emkay pointed out.
Should investors be worried?
The Q3 GDP prints do raise concerns but it is unlikely to have a major impact on the market sentiment as the momentum is likely to come back in the coming months when crude oil prices stablilise and geopolitical concerns ease.
Market analysts and brokerages, however, are mixed on Q3 GDP numbers owing to the current geopolitical situation and elevated crude oil prices. Some analysts say the road ahead is smooth while some point out to the near-term turbulence.
"Q3 GDP numbers should not concern investors much. After two years, FY23 will see a growth in GDP in absolute terms and it will be the year of the rebuilding of the market," said G Chokkalingam, Founder, Equinomics Research & Advisory Pvt Ltd.
"We may see a 12-20 percent rise in the market in FY23 and the strong influx of retail investors will mitigate the impact of FPI outflow," said Chokkalingam.
Chokkalingam believes FPI outflow will not sustain and with economic growth and better earnings, the market will see an inflow of foreign funds.
On the other hand, VK Vijayakumar, Cheif Investment Strategist at Geojit Financial Services said the Q3 GDP numbers indicate a decline in growth momentum which is an area of concern and now, to add to this concern we have crude prices skyrocketing to $110.
"Inflation will rise forcing the RBI to abandon its accommodative monetary stance. Higher interest rates would further impact growth.
"Some economy facing stocks would be impacted. But some segments like metals - aluminium and steel, particularly - stand to gain from higher global prices," said Vijayakumar. There is safety in IT stocks and high-quality financials are fairly valued, Vijayakumar added.
With current inflationary pressures rising and the crisis caused by Russia's invasion, there may be expectations of a recovery in the next quarter, given the increase in government spending, said Kshitij Purohit, Lead Currency & Commodities at CapitalVia Global Research.
"Once the current condition stabilises and the economy starts reacting to the fundamentals and micro factors, investors should invest in the core economy-related stocks which will be the real beneficially of government spending on infrastructure," said Purohit.