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Analysts peg Q2 GDP growth around 4.2-4.7%, say market has priced it in

After Moody's downgraded India's growth outlook, many domestic brokerages also lowered their FY20 GDP expectations, echoing the fact that there is a consistent slowdown in the absence of any growth levers

November 29, 2019 / 04:12 PM IST

India's economic growth is expected to be sub-five percent for Q2 FY20, given the weak performance of the industry and service segments, brokerages said.

Q2 GDP data will be released later in the day and economists polled by Reuters expects it to be around 4.7 percent -- the weakest in more than six years.

Many experts feel it could also fall below the 4.5 percent mark.

"The prints are most likely to exhibit a considerable slump in the overall economic activity, thereby registering a GDP and gross value added (GVA) below five percent for Q2 FY20, as indicated by the abysmal host of indicators. Our economic activity index for GDP suggests that economic growth weakened to 78.26 in September, down from 95.65 registered in June. The index indicates that only 39.13 percent of the slew of leading indicators showed expansion relative to the 47.83 percent expansion seen in June and 86.96 percent seen in the similar period last year. On the basis of the index, we expect economic activity to witness a mere 4.5 percent growth relative to the seven percent growth YoY," Centrum Broking said.

Economic growth had slowed to five percent in Q1 due to decelerating demand and falling exports, prompting a raft of actions from the government, including a corporate tax cut in September.

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After Moody's downgraded India's growth outlook, many domestic brokerages also lowered their FY20 GDP expectations, echoing the fact that there is a consistent slowdown in the absence of any growth levers.

"We expect Q2 GDP growth to be around 4.7 percent, below the growth registered during Q1 FY20. Looking at industrial production numbers announced for the period as well as other high-frequency data, July-September was a slow period. Cyclically too, Q2 is usually a soft quarter," Shailendra Kumar, Chief Investment Officer, Narnolia Financial Advisors told Moneycontrol.

Vinod Nair, Head of Research at Geojit Financial Services, said the consensus was very wide, with a range of 4.2 percent to 4.9 percent.

"Consumption and investment demand is subdued in the economy. Industrial productivity fell to 4.3 percent in September, one of the lowest since October 2011. Similarly, electricity demand registered one of the steepest falls in October. The slowdown in the economy is captured in the weak core inflation rate at 3.47 percent in October. The indicators point to the fact that the economy is yet to get back on the revival path," he explained.

Has lower growth been priced in?

The street is well aware of the growth challenges that the Indian economy is facing right now. Experts feel that most of negativity is already priced in by the market and the street should started focussing on an expected recovery in H2 FY20.

"The market has factored the worst in the domestic economy and is expecting a revival in the next two quarters, considering the relief measures announced by the government after the 2019 Union Budget. Lower interest rates and a good monsoon are expected to provide leeway to the economy. While positive global developments like a US-China trade deal and Brexit resolution will provide additional support to the domestic economy in the future," Geojit's Nair said.

Narnolia's Kumar said Q3 has started on a better note in terms of high-frequency data like those of retail sales and auto numbers for October. A formal economy requires just-in-time inventory and there are early signs that Indian businesses have adjusted to the same, offering hope that H2 FY20 should see a revival in terms of economic growth, he added.

He feels monthly number for November and December would be important to watch out for in this regard. The market would be more interested in deciphering that instead of extrapolating Q2 numbers and reacting, Kumar stated.
Sunil Shankar Matkar
first published: Nov 29, 2019 04:12 pm

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