GDP growth slows in 1Q FY15/16 (Apr-Jun) - DBS Group Research

Real GDP growth rose 7% YoY in the Jun quarter i.e 1Q fiscal year 15/16, vs 7.5% in Jan-Mar. This compares with our estimate of 7.3% and consensus at 7.4%. On GVA basis, the economy expanded 7.1% from 6.1% in Jan-Mar, in line with our expectations.

India's growth pace in the Jun quarter was amongst the fastest in the region. However domestically, the economy lost steam, with private sector performance still lacklustre across the various sector verticals. A pick-up in government expenditure and construction activity helped to pick part of the slack. We maintain our FY15/16 growth estimate at 7.6% with downside risks, from last year's 7.3%.

Under expenditure, there was broad slowdown across sectors on the quarter except government expenditure. Private consumption rose 7.4% YoY from 7.9% the quarter before. Stabilisation in rural wages at weak levels and easing inflationary pressures supported spending trends. But job prospects were likely under pressure from subdued private sector activity.

Government consumption recovered to 1.2% from 8% decline in the quarter before. Indications are that fiscal expenditure will be frontloaded to 1H to spur the capex cycle and boost infra spending. Not surprisingly, the Apr-Jul deficit out yesterday already stands at near 70% of full-year budget. Next, capital formation picked modestly to 4.9% from 4.1% in the Mar quarter, reflecting the gradual rise in non-oil non-gold imports and higher capital goods output. The net exports position meanwhile deteriorated as the decline in exports outpaced de-growth in imports.

On GVA basis, reflecting the rabi crop, agricultural (forestry and fisheries) output grew 1.9% recovering from two quarters of decline. But this marked a slowdown from 2.6% rise last year as production of staples, pulses and commercial crops declined on year terms. Industry grew modestly at 6.5% (vs 5.6% in Jan-Mar). On QoQ basis however output slowed sharply to 0.4% from 13% in quarter before.

Mining output rose but was offset by a slower manufacturing sector (7.2% vs 8.4% in Jan-Mar). Sharp pullback in private sector activity (makes two-thirds of output) particularly weighed, reflecting tepid domestic and external demand conditions, while corporate balance sheets remain under pressure. Construction activity picked steam as consumption of finished steel jumped. Services sector retained its position as the main engine of growth, but slowed marginally to 8.9% from 9.2% in Jan-Mar. Trade and transport services rose, underpinned by higher sales tax collections, positive cargo numbers and rise in commercial vehicle sales. Jump in real estate activity lifted the financial and real estate segment, but credit/deposit pick-up remained lacklustre. The public administration segment rose 2.7% from 0.1% in Jan-Mar, boosted also by higher government expenditure.

Source : Equity Bulls

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