Analysts temper optimism on strong Q1 GDP numbers
While India’s GDP growth for the Apr-Jun quarter came in above expectations, several factors are keeping the outlook cautious for the world’s fifth largest economy.
Even as India registered a notable GDP growth of 7.8% for the April-June quarter of FY2024, analysts are cautiously optimistic about the economic outlook for the rest of the fiscal year.
“The acceleration in real GDP growth during Q1FY24 is primarily a statistical phenomenon driven by a falling deflator, while nominal GDP growth slowed to a ten-quarter low of 8% YoY. This shift can be attributed in part to deflationary forces, with the Wholesale Price Index (WPI) recording a decline of 2.9% YoY in Q1FY24,” pointed out analysts from Nuvama.
The GDP exceeded expectations, contributing to renewed optimism in the economy, said analysts from Motilal Oswal adding, “The remarkable growth was underpinned by robust private consumption and investment, even as challenges persisted in the export sector.”
The surge in GDP was contributed by a lot of factors including a fall in the deflator. Meanwhile nominal GDP slowed to 8%, marking a ten-quarter low.
In terms of sectoral performance, the services sector, particularly financial services, real estate, and public administration, played a pivotal role in driving the rise.
Meanwhile, manufacturing activity remained stable, and the farm sector exhibited slower but healthy growth at 3.5% YoY.
“A noticeable uptrend in combined state and central government capital expenditure (Capex) during FY21-23, compared to the last decade, highlights the government’s investment focus. Notably, the north-eastern states exhibit higher traction in Capex,” pointed out JM Financial.
Investment growth (Gross Fixed Capital Formation or GFCF) remained robust, registering a substantial 7.1% growth rate in 1QFY24, a testament to the resilience of non-corporate investments.
Final domestic purchases, excluding exports, surged to an eight-quarter high of 12.9% in April-June quarter of FY2024, surpassing the 11.1% recorded in the same period in FY2023.
“Private consumption emerged as a significant contributor to overall growth, growing robustly at 9% Year-on-Year, while government consumption and capital expenditure lagged during the quarter,” noted Antique Stock Broking in its review of the numbers.
Festive season boost
Experts anticipate real GDP growth to reach 6.5% for the entire fiscal year 2023-24, implying a 6% target for the remaining quarters.
“The near-term outlook appears favorable, driven by robust investment growth and anticipated demand in the festive season. However, vigilance is required to navigate the potential headwinds stemming from inflation, monetary conditions, and weather disruptions in the coming months,” added analysts from Nuvama.
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