Moneycontrol Pro Panorama | Q2 GDP shocker is yesterday’s news, what matters is the outlook

GDP Market outlook

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The Q2 GDP data may have come as a nasty shock to economists, but not to the markets. The markets had already seen the impact of sluggish growth in Q2 on the performance of companies, analysts had pared down their earnings estimates and the markets had reacted at that time. The Nifty currently is around the same level as in early July. Simply put, the GDP data is yesterday’s news. What matters to the market is the outlook.

The consensus is that the low growth in Q2 was a one-off, caused by excessive rains and an astrologically inauspicious period that affected spending. Also, growth in government capex, expected to recover after the election, didn’t happen.

What then is the outlook for growth? The central government’s total expenditure in October 2024 was 1.3 times its expenditure in October 2023. The fiscal deficit, a measure of the government’s stimulus, was 2.7 times more in October 2024 than in October a year ago. And with the fiscal deficit by October-end at 46.5 percent of the budgeted figure, compared to 45 percent at the end of October last year, there’s still scope for more government stimulus.

Others have pointed to a revival in demand in October and November, thanks to festive sales. Rural demand has improved and is expected to do better, on the back of a good harvest. Lower inflation should stimulate urban demand. Low global crude oil prices will also help.

Another reason cited for slower growth in Q2 is the tightening of credit regulations by the RBI, which has resulted in lower credit growth, thereby affecting consumption. However, we pointed out that the fall in bank credit growth continues, according to the latest RBI data in mid-November.

While festive sales have propped up the economy in October and November, the post-festival outlook is what matters. The November GST collection figure shows growth of 8.5 percent year-on-year, the third month of growth below 10 percent.

Much depends on how consumption shapes up. The sluggishness in the equity market, via the wealth effect, will have a negative impact on the premium segment. A recent report on consumer durables by Motilal Oswal says, "Discussions with distributors indicate that festive season demand was not as strong as it was last year and that consumer enthusiasm was missing. Consumers delayed their buying decisions, which could be a sign of a consumption slowdown, though it needs to be monitored." In the final analysis, what is needed is for consumption to become more broad-based, rather than rely only on spending by the elite.

Moreover, this is a time of great uncertainty for the global economy, with Donald Trump becoming president of the US in January 2025. He has threatened steep tariffs and mass deportations. The rupee is already under pressure and a devaluation of the yuan to boost exports could make matters worse.  Our Eastern Window column today indicates that high tariffs on Chinese imports in the US and the EU could lead to dumping of goods into India and other developing countries.

And finally, in the event the growth slowdown continues, the central bank can always impart a monetary stimulus by cutting rates or increasing liquidity. We’ll know this week what steps it will take in this regard.

Investing Insights from our research team

Senco Gold Limited: Shining growth prospects

NTPC Green Energy: Can it unlock more value for the shareholders of parent?

Capital Small Finance Bank – why its valuation merits attention

Festive season drives auto sales

What else are we reading

Moneycontrol Pro Market Outlook | GDP shocker can play spoilsport

Q2 miracle: when growth slumped, the unemployment rate came down

What were the drivers of growth in Q2?

Chart of the Day: What do the GDP data say about long-term structural changes in the economy?

Four hits and three misses in Aster DM’s merger with Quality Care 

The mother of all bubbles (republished from FT)

Siddaramaiah’s political stock rises after Congress sweeps bye-elections in Karnataka 

With China in play, India's economic leverage on Bangladesh faces challenge

GDP growth and inflation will trend downwards in FY25

Markets 

Structurally, India can sustain 10–11% earnings growth, says Anand Shah of ICICI Prudential AMC

Technical Picks: Anant Raj Limited, JSW Steel, Infosys, Swan Energy.

Manas Chakravarty Moneycontrol Pro