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Economic activity picks up in Dec’21

Expect 3QFY22 real GVA/GDP growth to be lower than consensus, at only 5-5.5%

* Our in-house Economic Activity Index for India’s real GVA (EAI-GVA) posted a three-month high growth of 5.1% YoY in Dec’21 (v/s 1.9% YoY in Nov’21). However, EAI-GVA posted a five-quarter low growth of 3.7% YoY for 3QFY22 (v/s 8.9% YoY in 2QFY22), due to the slowdown in Oct-Nov’21. The weakness largely emanated from the non-farm sector, while the farm sector remained stable in 3QFY22 vis-à-vis 2QFY22.

* Similarly, even though EAI-GDP grew at a four-month high of 5.3% YoY in Dec’21 (v/s 1.1% YoY in Nov’21), 3QFY22 EAIGDP came in at a three-quarter low of 3.9% YoY (v/s 7.6% YoY in 2QFY22). The slowdown was broad-based in 3QFY22.

* Total consumption grew 5.3% YoY in Dec’21 (v/s 5.8% YoY in Nov’21), due to a 4.4% YoY decline in government consumption. Private consumption, in fact, grew 5.6% YoY in Dec’21 (v/s 5.3% YoY in Nov’21). Investments grew sharply at 5.6% YoY in Dec’21, against 0.6% YoY in Nov’21. Within investments, government capex grew substantially at 74% YoY in Dec’21 v/s a contraction during Oct-Nov’21.

* A monthly analysis of indicators for Jan’22 has depicted a deceleration in growth. Almost all the indicators – PMI manufacturing, PMI services, toll collections, e-way/vahaan registrations, mobility, external trade, and power generation – have posted weaker growth in MoM/YoY terms.

* Overall, our EAIs suggest that the economic activity grew only ~4% YoY in 3QFY22. Although there is no one-to-one correlation between our EAI-GVA/GDP and official GVA/GDP growth, they move in tandem. Accordingly, real GVA/GDP growth could be just 5-5.5% in 3QFY22, lower than our expectation of 5.7% and the market consensus of 6.3%.

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