India's Softer GDP Growth Underlies Strong Momentum, Narrowing Gap With GVA: HSBC

India's gross domestic product, which grew at the slowest pace in five quarters in June, still underlies strong momentum in the economy and reflects the narrowing of gap with gross value added, HSBC said.

The GDP grew 6.7% in the April-June quarter, lower than 7.8% in the January-March 2024 quarter and 8.2% in the year-ago period, according to the latest estimates released by the government's statistical office on Friday. GVA, which strips out indirect tax and subsidies, is estimated to have grown 6.8%, as compared with 6.3% in the preceding quarter.

The gap between GDP and GVA growth, consumption and investment growth, industry and services growth, and export and import growth, narrowed, HSBC said in a note.

In the previous two quarters, GDP growth had significantly exceeded GVA growth by 1.5 and 2 percentage points, raising questions about which measure is a better indicator of economic performance. This disparity was largely driven by a sharp increase in net indirect taxes, the foreign bank noted.

However, in the June quarter, GVA growth surpassed GDP growth due to a slowdown in net indirect taxes and an increase in state subsidies. The GVA advance was also despite an ongoing heatwave, weaker credit growth, and lower government spending.

"With GDP and GVA growth in a narrow 6.7-6.8% range, we are finally starting to get a clearer sense of the underlying growth momentum," HSBC said.

The bank has maintained its forecast of 7% GDP growth for the ongoing fiscal.

Morgan Stanley also affirmed its India growth projection for the year at 6.8%, characterised by broad-based strength reflecting improved consumption and robust capex.

"In this context, we believe the cycle has more years of steady expansion ahead, driven by improvements in productivity growth, ensuring that macro stability remains benign," the bank said in a note.

Rural consumption is showing signs of growth, as evidenced by rural FMCG volumes surpassing urban ones, improved two-wheeler sales, favourable monsoon conditions and kharif sowing, and moderating inflation. Additionally, FMCG companies like Hindustan Unilever Ltd. and Dabur India Ltd. have provided positive anecdotal insights, Morgan Stanley said.

Private investment is also showing promising signs, with improving investment intentions and increasing order books, which should bolster the strong trends in public and household capital expenditure. HSBC also expects a modest increase in government spending on a sequential basis.