IGI Logo

* Q3FY23 GDP growth moderated (4.4% vs 6.6% in the previous quarter), as the favorable base effect faded. However, the lower-than-expected print was muddled by past revisions since FY20, albeit not affecting the FY23AE of 7%. Growth for FY21 (-5.5% vs -6.6%) and FY22 (9.1% vs 8.7%) was revised upwards. The implied Q4FY23 GDP will grow at 5.1%. The FY23 nominal GDP is expected to be a whopping 15.9% vs 18.4% in FY22, implying an estimated deflator of ~9% in FY23.

* The Q3FY23 GDP growth at a mere 4.4% vs GVA growth at 4.6% depicted lower indirect taxes adjusted for subsidies. However, the tepid GVA growth reflected improving agri and industry growth, while services growth moderated across the board, led by public administration and other services. Construction and electricity led the industry, while manufacturing was less of a drag. Private GVA growth also slowed, to 5.4%, while public-sector contribution to GVA growth fell to 0.3ppt (1.6ppt in H1). Q3 expenditure was led by GFCF, which was up an impressive 8.3%, while net exports caused a lower drag. The weaker-than-expected growth in private consumption and decline in government consumption pulled down growth.

* Going ahead, even as recovery in domestic economic activity is yet not broad-based, protracted global drags in the form of geopolitical uncertainty, still-elevated prices, El Nino-led risk to agri output, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on output. This will put pressure on the domestic growth story, which still lacks the next lever of secular growth. We maintain our 7% GDP growth forecast for FY23, but see growth slowing to 5.7% in FY24E.

Q3FY23 growth slows, on base effect; Services see broad-based moderation

Q3FY23 GDP growth decelerated more than expected, registering at 4.4% (Emkay: 5.0%; Consensus: 4.7%), as the favorable base effect faded. The lower-than-expected quarterly numbers have been muddled amid sharp revisions to prior data-points. We witnessed a similar trend in the last two years, which were affected by Covid disruptions. Q3 GVA growth at 4.6% was largely due to a slowdown in Services, albeit likely reflecting a normalization after the post-pandemic reopening boom of the past couple of quarters. Within Services, trade, hotels & transport showed the sharpest moderation (9.7% vs 15.6% prior), although partly owing to the base effect. Public Administration and Other Services, which is a government-spending proxy, materially slowed to a mere 2%. Industrial growth rebounded somewhat (2.4% vs -0.4% prior), led by a sharp pick-up in Construction and Utilities, while Manufacturing was less of a drag. The Agri sector showed resilience. The Q3 expenditure side was led by GFCF, which was up an impressive 8.3%, while net exports caused a lower drag. The weakerthan-expected growth in private consumption sharply moderated to 2.1% from 8.8% in Q2, despite the healthy high frequency data. Government consumption also slowed further

FY23 GDP growth estimates retained at 7%; Q4 implied growth to rise to 5.1%

Despite the past upward revisions to estimates for FY21/22, the FY23 advance estimates by the NSO stand at 7%, while nominal GDP is expected to be a whopping 15.9% vs 18.4% in FY22, implying an estimated deflator of ~9% in FY23. Implied Q4FY23E GDP growth will be 5.1%. FY23 growth levers are likely to see Services leading the way (9.4%), while industry growth would be tepid (3.6%) owing to weak Manufacturing performance, albeit on a high base. Services growth will be led by trade, hotels & transport (14.2%), with FY23 being the first full year since FY19 to be free of any Covid disruptions. Expenditure-side estimates depict healthy GFCF and private consumption growth, while government consumption will slow down after picking up the slack last year.

Growth pressures likely to stay challenging; expect FY24E growth at 5.7%

Back home, incoming data has been mixed in recent weeks. Formal sector employment growth seems to be slowing, as indicated by the sequential fall in EPFO new payrolls, while real rural wages seem to have improved, with NREGA employment demand having reduced and rabi sowing being strong. However, we keep an eye on the upcoming rabi harvest, given that a potential heatwave is threatening to throw a spanner in the works. Meanwhile, Capex indicators are healthy, with further improving capacity utilization and signs of rising newproject announcements. Yet, momentum of the recovery remains below full strength. This, in conjunction with higher global uncertainty, tightening global financial conditions, lower corporate profitability, still-elevated inflation and tighter policy reaction function of the RBI, will further curb domestic demand. We are also keeping a watch on the weather vagaries amid the rising probability of El Nino, which could pose a risk to our agri output forecast (See, “Will El Nino be el problema?”, Feb 26, 2023). We retain our GDP growth forecast of 7.0% for FY23, but see FY24E GDP growth at 5.7%.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer