India's Real GDP Growth Much Better Than Expected In Q2: Motilal Oswal

Motilal Oswal Report

• India's real gross domestic product grew 7.6% YoY in Q2 FY24 (versus 6.2% in Q2 FY23), much better than the BMBG consensus of 6.8% and our forecast of 6.6%. Real gross value added growth was 7.4% YoY in Q2 FY24.

• Details suggest that better growth was almost entirely driven by investments (9.9% in Q2 FY24, highest in five quarters versus 6.5% in Q2 FY23) and fiscal spending (+12.4% in Q2 FY24 versus -4.1% in Q2 FY23). On the other hand, private consumption growth remained weaker at 3.1% YoY in Q2 FY24 versus 8.3% in Q2 FY23 (much weaker than our forecast). Additionally, external trade subtracted 3.6% from real GDP growth in Q2 FY24, the highest quarterly drag since Q4 FY16 as imports grew at a much sharper pace than exports.

• GDP, excluding government consumption, grew 7.2% in Q2 FY24 versus 7.3% in Q2 FY23.

• India's investment rate rose to 32.9% of GDP in Q2 FY24, better than 32.1% of GDP in Q2 FY23. Our calculations suggest that corporate investments grew 3.3% YoY last quarter, after declining for two quarters (versus our expectation of a third successive fall). Notwithstanding higher investments, India's net imports were steady (at 2.4% of GDP versus 2.3% in Q1) because private consumption grew only 3.1% YoY. Consequently, it is likely that household financial savings picked up in Q2 FY24.

• Further, with better real growth, nominal GDP growth was also 9.1% in Q2 FY24, better than 8% in Q1 FY24 (and our forecast of 8.5%).

• On GVA basis, real/nominal growth was 7.4%/9% in Q2 FY24 versus 5.4%/16.1% in Q1 FY23. Services sector and farm growth were slower than expected, while industrial sector drove better-than-expected real GVA growth.

• Growth in the farm sector stood at an 18-quarter low of 1.2% YoY in Q2 FY24 (versus 2.5% in Q2 FY23 and 3.5% in Q1 FY24). Growth in the services sector decelerated to 5.8% YoY (versus 9.4% growth in Q1 FY23). Industrial sector growth soared to a nine-quarter high of 13.2% YoY (versus -0.5% in Q2 FY23 and +5.5% in Q1 FY24). Acceleration in industrial sector growth was broad-based, probably led by lower input costs and better corporate performance.

• Overall, GDP growth remained robust, led by higher domestic demand. On the expenditure side, govt. consumption and investments provided cushion to real GDP growth. However, weaker private consumption growth is surprising and worrisome. On the production side, the industrial sector remained robust, while the farm sector deteriorated.

• Overall, India's GDP growth remains extremely strong. At 7.7% real growth in H1, it is almost certain that the full-year growth will be revised upward once again, probably to 6.5-6.6%.

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