GDP. Economy Snapshots. Q3FY18 GDP at 7.2%; recovery shaping up

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Wilfred Cummings
5 years ago
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1 Mar 1, 218 Q3 GVA at 6.7% vs 6.2% in Q2 Nominal GDP at 11.9% vs 1% in Q2 GDP Q3 GDP at 7.2%; recovery shaping up Healthy GDP for Q3 at 7.2% portrays the expected growth turnaround post a dismal H1. Growth sentiment depicts gains from global recovery and recuperation from demon & GST glitches. While healthy agri growth remains puzzling, higher output in industrial sector and services reflects revival in investments & private consumption. Nominal GDP (11.9%) indicates higher deflator and wider trade deficit (higher oil price, higher inflation, higher import bill). Growth is likely to remain consumption led amidst insipient signs of investment recovery. Incremental support to growth from monetary or fiscal action remains elusive. Hence, much of the recovery will likely be basis pick up in global demand, efficiency and productivity gains basis reforms taken so far (GST, bank recap, IBC) and improvement in rural demand tracking higher allowances & higher agri income. We expect GVA at 6.3%. Economy Snapshots Q3 GDP highest since demonetization; manufacturing picks up Q3 GVA at 6.7% marks the first uptick in output growth rate since note ban in Nov 16. Key trends during Q3 reflect 1. Higher net taxes tracking lower subsidies 2. Strong agri growth despite lower output estimates 3. Supportive Government spending implying healthy services 4. Improvement in Industrial sector with revival in Manufacturing & Construction (highest in 17 quarters). GVA encompasses 4.1% agri growth, Industries (6.8%) & Services (7.7%). Mining (-.1%) reflected the muted coal and natural gas output. Electricity generation remained reasonable at 6.1%. On a QoQ basis services accelerated (7.7%) with a healthy performance in trade, hotels, transport (9%), financing, insurance (6.7%) as well as public admin, defence & other (7.2%). Manufacturing GVA (8.1%) recovered sharply post a dip seen since demonetization. An improvement in global growth sentiment aided higher exports growth (specifically engineering goods and pharma products). Remonetization and settling in businesses post GST also stabilized the manufacturing sector. Production (IIP) data exhibited healthy trends for capital, intermediate, infrastructure and non-durable goods. Q3 reflects improvement in investments and private consumption Nominal GDP at 11.9% and real GDP at 7.2% indicate a higher positive deflator. Growth nuances hint at 1. Consumption driven growth (71.9% share in GDP) reflecting an improvement in private consumption and moderation in government consumption (bearing limited fiscal room), 2. An uptick in the investments share in GDP (3.7) and 3. Sharp increase in imports growth implying a widening of the trade deficit. Investments grew sharply both real & nominal terms (GFCF grew.3%yoy highest in years). While Govt consumption/ GDP (1.4) moderated, private consumption moved up to 61.% of GDP. Expansion in consumption was on the back of higher trade deficit. Faster pick up in imports vis-à-vis exports led to a wider deficit (net exports/gdp at -3.9%). Exports remained positive reflecting improving global demand. However, rise in crude oil price and a vulnerable INR amidst Fed normalization led to higher import bill. Outlook: While growth seems to have bottomed out, we remain cautious about the delicate balance required to support the incipient signs of recovery amidst global policy normalization, rising price pressures domestically and a vulnerable INR. Monetary and fiscal space remains limited for any further boost to growth. We expect growth to remain consumption driven gaining support from higher agri income and state 7th PC implementation. The investment cycle revival will find support from banking recap and bankruptcy law. However, PSU bank sector issues and rising borrowing costs remain headwinds. Continued efforts towards ease of doing business and targeted public capital spending remain imperative for future investments. We expect GVA at 6.3%

2 Exhibit 1: GDP at factor cost GVA at constant prices Sector YoY (%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY16 Agriculture, forestry & fishing Mining & quarrying Manufacturing Electricity, gas & water supply Construction Trade, hotels, transport & comm Financing, insur, real est & bus Ser Public admin, defence & Ser GVA Agriculture Industry Services GVA 27,71 27,682 28,214 28,69 29,296 29,46 3, Source: CSO UTI MF Research Exhibit 2: Nominal GDP (at current prices) GDP at current prices Sector YoY (%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY16 Final consumption expenditure Govt final consumption exp PFCE GCF GFCF Changes in stocks Valuables Exports Less Imports Discrepancies GDP at market prices (%) GDPmp (Rs bn) 3,98 37,3 38,3 41,9 39,297 4,883 43, Exhibit 3: Expenditure-wise contribution to GDP (at market prices) % of GDP Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY16 Consumption / GDP Govt Consumption / GDP Pvt Consumption / GDP Investments / GDP Net exports / GDP UTI MF March 1, 218 2

3 Exhibit 4: Real GDP (activity wise) GDP Agriculture Industry Services Exhibit : Nominal GDP (activity wise) GVA Agri Industry Services Exhibit 6: Real GDP (expenditure wise) GDP Pvt Final Consumption Exp Gross Fix Cap formation Exhibit 7: Nominal GDP (expenditure wise) Nominal GDP Consumption Exp GFCF Exhibit 8: Final Consumption Expenditure (Real) Exhibit 9: Final Consumption Expenditure (Nominal) Real final consumption expenditure (YoY %) Pvt FCE Govt FCE (rhs) Government Private (rhs) UTI MF March 1, 218 3

4 Exhibit 1: Nominal expenditure GDP Contribution to GDP growth (%) Net exports Investments Consumption Exhibit 11: Consumption distribution Jun-11 Sep-11 Dec-11 Mar-12 Pvt Consumption/GDP Govt Consumption/GDP Exhibit 12:..net exports stood at -3.9% of GDP Net exports/gdp Jun-11 Sep-11 Dec-11 Mar-12 UTI MF March 1, 218 4

5 CERTIFICATION This research report contains commentary and analysis by Meghna Shah, Economist, UTI AMC Ltd. It is hereby certified, with respect to the issuers about which commentary or analysis have been provided and also all of the views expressed in this research report accurately reflect the personal views about the subject issuer(s) and its (their) securities. DISCLAIMER The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on this document and should understand that statements regarding future prospects may not be realized. Opinions, projections and estimates are subject to change without notice. UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI MF (acting through UTI Trustee Company Pvt Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services. Copyright: UTI Asset Management Company Ltd. Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorized signatory of, UTI Asset Management Company Ltd. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of UTI Asset Management Company Ltd and should not be reproduced or used except for business purposes on behalf of UTI Asset Management Company Ltd or save with the express prior written consent of an authorized signatory of UTI Asset Management Company Ltd. All rights reserved. UTI Asset Management Company Ltd. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully." UTI Asset Management Company Ltd 6th Floor,UTI Tower, Gn Block,Bandra Kurla Complex, Bandra(East), Mumbai - 4 1, India Tel: ; meghna.shah@uti.co.in ; Website: UTI MF March 1, 218

STCI Primary Dealer Ltd

STCI Primary Dealer Ltd Macroeconomic Update: GDP Q3 FY18 Beating expectations, India s Real GDP noted a sharp rebound, coming in at 7.2% for Q3 FY18, higher than the revised estimate of 6.5% witnessed in the previous quarter.