India's Economic Activity Strengthened In October; But Could Start Weakening From November: Motilal Oswal

Motilal Oswal Report

Preliminary estimates indicate that India's economic activity index for gross value added strengthened further. It grew at a 14-month high of 9.2% YoY in October 2023 (versus 8.6%/2.5% YoY in September 2023/Oct-22). The acceleration in growth (versus Oct-22) was led by a sustained broad-based growth in the industrial sector (up 13% YoY), and a strong growth in the services sector (up 9.7% YoY) in Oct-23. On the contrary, farm sector growth remained muted at 1.8% YoY in Oct-23.

However, EAI-GDP growth decelerated to a seven-month low of 3.0% YoY in Oct-23 (versus 8.7%/1.8% YoY in Sep-23/Oct-22). The slowdown in growth was led by consumption, which decelerated to 2.5% YoY in Oct-23 (versus 4.9%/6.2% Sep-23/Oct-22), and contraction in net exports as imports grew much faster than exports.

On the other hand, investment growth jumped up to 12.5% YoY in Oct-23 (versus 4.4%/6.1% in Sep-23/Oct-22). Excluding fiscal spending, EAI-GDP grew 4.5% in Oct-23 versus 9.1% in Sep-23.

High-frequency indicators for Nov-23 suggest a slowdown in momentum with six out of ten high frequency indicators reflecting a decline in economic activity. Rail freight traffic and rail passenger traffic witnessed contraction for the first time in four months.

Commercial vehicle/passenger vehicle sales growth and power generation growth decelerated sharply in Nov-23. Additionally, water reservoir level continued to contract for the ninth consecutive month.

On the other hand, manufacturing PMI increased, Vaahan registrations witnessed a double-digit growth, toll collections and air cargo traffic remained robust.

India's real GDP growth came in at a much higher rate of 7.6% in Q2 FY24, beating all estimates. Our calculations suggest that EAI-GVA growth remained strong at 9.2% in Oct-23.

High frequency indicators for Nov-23, however, suggest a deceleration in growth. Therefore, we expect growth to ease to 5.8% YoY in Q3 FY24. Despite this, we do expect some slowdown in growth in H2 FY24.

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