Higher domestic demand expected to drive output in H2 despite global headwinds
Growth in India's core sector eased to 3.3% YoY in Aug-22 from 4.5% in Jul-22. While a dilution of the favourable statistical base in Aug-22 led the headline growth print to ease, the seasonal sequential decline is in line with the pre-pandemic historical average decline of ~1.2% seen in the month of August. Encouragingly, on a cumulative basis, the core sector output in Apr-Aug'22 has expanded by 8.4% as compared to that in the corresponding pre-pandemic period of FY20 led by steady growth in the production of coal, fertilizers, cement, and electricity. On the other hand, the production of crude oil registered a double-digit contraction of 10.0% in Apr-Aug'22 as compared to that in the corresponding period of FY20.
Despite unrelenting global headwinds, India's economic activities have remained fairly resilient with incremental uptick remaining stable in FY23 so far. Most of the lead indicators have been able to better their performance despite elevated domestic inflation and some slowdown in external demand coming to fore. Going forward, Acuité remains hopeful of production activities gaining some sequential traction on the back of:
1. Strong improvement in manufacturing capacity utilization to 74.3% in Q1 FY23 (above its long-term average of 73.2%) juxtaposed with the 62.5% YoY growth in central government CAPEX during Apr-Jul FY23 bodes well for future activity.
2. The onset of the festive heavy season along with lingering pent-up demand is likely to buoy industrial activity in H2 FY23.
3. Moderation in international commodity prices (the Reuters CRB Commodity Index is lower by 9-10% since its peak in Jun-22) would help abate the input price pressures to some extent.
4. From the growth perspective, Acuité maintains its FY23 GDP growth estimate of 7.20% as of now. However, emergence of downside risks particularly on account of the anticipated global growth slowdown needs to be under close watch.