High-Frequency Economic Indicators Hold Steady With All Eyes On Festive Season Push
The seasonality demand factor will play out in Q2 GDP numbers itself as festivities are starting earlier than last year.
Economic activity remained steady in July after some sequential easing in the previous quarter. Now, with the festive season about to kick off and progress of the southwest monsoon, there could be a gear shift as spending increases.
Early economic data for the April-June quarter suggests that India's GDP growth for the period will ease amid lower corporate profitability and weaker industrial production. The High frequency indicators are showing mixed performance, said Dipanwita Mazumdar, economist at the Bank of Baroda.
Mazumdar explained that while diesel consumption was picking up, toll collections were lower due to an unfavourable base.
"Freight is performing better," she said, adding that credit growth has been witnessing some correction while growth in industrial output has been better. The manufacturing gross value added or GVA will bear the impact of low profit in the first quarter of the ongoing financial year.
While the manufacturing and services PMI remain steady, motor vehicle sales and merchandise exports saw annual deceleration on a yearly basis in July. Non-food credit growth also eased to 13.9% in June, after rising between 15-16% through 2024.
On a fortnightly basis, economic indicators remained steady, except UPI payments, which moderated from the previous fortnight, according to Teresa John, deputy head of research and economist at Nirmal Bang Institutional Equities.
Rural indicators are looking up, with demand for work under the MGNREGA seeing a significant decline of 21.6% on an annual basis, which may be attributed to a pick-up in agricultural activity, she said.
Amid a continuing catch up in the south west monsoons, kharif acreage was up by about 2% at the start of August, with paddy and pulses seeing higher acreage from a year ago. FMCG companies, too, continued to report a modest improvement in rural demand.
The big blip to note is the fact that rural once again grew faster, said Rohit Jawa, chief executive officer and managing director, Hindustan Unilever Ltd. "Although on a two-year CAGR basis, it's still lagging urban, but in the last few months, it grew faster in volume, and that is the more notable change," he said.
Festive Season To Push Demand?
While mid-year e-commerce sales have seen 19% YoY growth, it has been driven by deep discounting, said John. Similarly, companies are revving up ad-spends and promotional schemes to lure customers in the festive season, suggesting some fatigue in urban demand.
The seasonality demand factor is going to play out in Q2 GDP numbers itself as festivities are starting earlier than last year, Mazumdar said. Forward guidance of major companies has also highlighted that demand is going to be on strong footing.
What will come into play is boost from normal monsoon and good harvest which will propel the backlog demand of rural economy. Slight comfort on inflation with correction from food prices will further stimulate rural demand conditions, she said.
