Eyes set on festive season
* RBI Cuts GDP forecast to 6.1% given just 5% GDP growth in 1QFY20
* Capex shows faint signs of pickup; however, intensity remains insufficient
* Cumulative Fiscal deficit for Aug’19 narrowed down by Rs5.53tn, 6% down from Aug’18 mainly on the account dividend received by government (Rs1.5tn or 92% YoY)
* Core inflation moderates to 4.25% in Aug’19 from 4.28% in Jul’19, pickup in food inflation (3%) augurs well for 2HFY20 pickup in rural demand
* Export fell 6% in Aug’19 (USD26bn vs USD28bn in Aug’18), recent GOI measures like RoDTEP, Credit insurance, Priority sector lending, mega shopping festival likely to prove thrust to exporters ahead.
With RBI having cut GDP forecast to 6.1%, all eyes are on the current festival season given one of the worst slowdowns in Automobile and Real estate sectors. GDP growth at 5%, uncertain global growth, increased, pessimistic business and consumer sentiment, contraction in PMI (49.8), poor GST collection (0.92tn), negative export growth (-6%) makes Q2FY20 growth slippery. We believe benign inflation (3.2%), soft inflationary expectations, low crude prices and uncertain global trade scenario provides headroom for another 25bps rate cut by December. We believe 1) normal monsoons 2) low interest rates 3) improved liquidity and 4) low crude oil prices and will provide support to GDP and demand. We believe further economic measures like 1) cut in personal income tax rates 2) PSU disinvestment and 3) scrappage for automobiles will be key determinant to growth revival.
GDP growth to further moderate- 2QFY20 is expected in show further slowdown in GDP given 1) weak pickup in capex by Government (3%) 2) Continued slowdown in automobiles and real estate segments 3) Poor performance of High-frequency indicators such as credit growth (9.8%), railway freight (-6.1%), automobile (-23%).
Export likely to gain momentum- Export fell 6% in Aug’19 due to weak global demand. We expect to trade deficit to further narrow down due to 1) soft oil prices 2) weak import demand 3) incentives provided by GOI.
2QFY20 inflation likely to show uptick - Inflation is expected to show an uptick given1) low base 2) festive season demand pickup 3) incentives provided by GOI, while crude prices likely to remain benign.
Industrial production expected to gain momentum- IIP in July’19 (4.3%) showed improvement on back of manufacturing goods (4.2%). We expect IIP to gain momentum due to 1) festive season demand 2) Pick up in capex by government.
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