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%
Exhibit 1: GDP at factor cost GVA at constant prices Sector YoY (%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY16 Agriculture, forestry & fishing 4.3. 7..2 2.7 2.7 4.1.7.8 Mining & quarrying 1. 9.1 12.1 6.4 1.8 7.1 -.1 11.3 9.4 Manufacturing 9.9 7.7 8.1.3-1.8 6.9 8.1 12. 7.7 Electricity, gas & water supply 12.4 7.1 9. 6.1 7.1 7.7 6.1 4.9 8.8 Construction 3. 3.8 2.8-3.7 1. 2.8 6.8 3.7 1.4 Trade, hotels, transport & comm 8.9 7.2 7. 6. 8.4 9.3 9. 1.6 7. Financing, insur, real est & bus Ser 1. 8.3 2.8 2.2 8.9 6.4 6.7 1.9 6.3 Public admin, defence & Ser 7.7 8. 1.6 17. 13.2.6 7.2 6.4 1.8 GVA 8.3 7.2 6.9.6.6 6.2 6.7 8. 7. Agriculture 4.3. 7..2 2.7 2.7 4.1.7.8 Industry 8.3 6.8 7.1 3.1.1.9 6.8 9.1 6.3 Services 9.4 7.9 6. 7.2 9.6 7.1 7.7 9.7 7.7 GVA 27,71 27,682 28,214 28,69 29,296 29,46 3,19 14 112336 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 12.1 11.8 13.3 14.7 1.7 8.9 1.1 11.1 13. Govt final consumption exp 12.9 12.8 16. 36.8 19.7.9 1.7 9.7 18. PFCE 12. 11.6 12.9 11.8 9. 9.6 1. 11.3 12.1 GCF 8.8.1 4..1 7.4 1.3.8 3.7 4. GFCF 14.4 1.3 9.2.6 3.6 9.3.3 4.6 8.4 Changes in stocks -6.7-61. -6.4 8. -. 8.1 9. -3.9-39.9 Valuables -12. -9.7-11.1-21. 113.2 32.8 3.6-3.9-13.6 Exports 4.9 4.8 9.6.2 8. 9.2 6.3.7 8.7 Less Imports -.1.3 11.4.1 19. 8.8 13.6 -.9 6. Discrepancies -86. -1.8-84.9 133.2 168.7 7. -227.2-117..1 GDP at market prices (%) 11. 1.8 1.8 12. 9.2 1. 11.9 1.7 11.3 GDPmp (Rs bn) 3,98 37,3 38,3 41,9 39,297 4,883 43,86 1376 3 Exhibit 3: Expenditure-wise contribution to GDP (at market prices) % of GDP Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY16 Consumption / GDP 69.2 7.6 73.1 68.3 7.2 69.9 71.9 69.2 7.3 Govt Consumption / GDP 11.3 12.8 1. 9.6 12.4 12.4 1.4 1.4 11. Pvt Consumption / GDP 7.9 7.8 62.6 8.7 7.8 7. 61. 8.8 9.3 Investments / GDP 32.1 3.2 29.7 28.6 31.6 3.2 3.7 32. 3.1 Net exports / GDP -1. -2.1-2.6-1.1-3.6-2. -3.9-2.3-1.8 UTI MF March 1, 218 2
Exhibit 4: Real GDP (activity wise) 16 12 8 4 GDP Agriculture Industry Services Exhibit : Nominal GDP (activity wise) 2 1 - GVA Agri Industry Services Exhibit 6: Real GDP (expenditure wise) 2 1 - GDP Pvt Final Consumption Exp Gross Fix Cap formation Exhibit 7: Nominal GDP (expenditure wise) 2 2 1 Nominal GDP Consumption Exp GFCF Exhibit 8: Final Consumption Expenditure (Real) Exhibit 9: Final Consumption Expenditure (Nominal) 4 3 2 1-1 -2 Real final consumption expenditure (YoY %) 12 1 8 6 4 2-2 2 2 1 Pvt FCE Govt FCE (rhs) 4 3 3 2 2 1 - -1 Government Private (rhs) UTI MF March 1, 218 3
Exhibit 1: Nominal expenditure GDP 2 2 1 - Contribution to GDP growth (%) Net exports Investments Consumption Exhibit 11: Consumption distribution 8 7 6 4 3 2 1 Jun-11 Sep-11 Dec-11 Mar-12 Pvt Consumption/GDP Govt Consumption/GDP Exhibit 12:..net exports stood at -3.9% of GDP -2-6 -8-1 Net exports/gdp Jun-11 Sep-11 Dec-11 Mar-12 UTI MF March 1, 218 4
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