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Real GDP grew 8.4% YoY in 2QFY22

Expect 5-5.5% YoY growth in 2HFY22

* Real GDP/GVA grew 8.4%/8.5% YoY in 2QFY22 (v/s our forecast of 8.2%/7.8% and Bloomberg consensus of 8.3%/7.6%).

* While fiscal consumption grew 8.7% YoY in 2Q as against a decline of 4.8% YoY in 1Q, private consumption spending grew 8.6% YoY in 2Q (lower-than-expected) v/s 19.3% YoY in 1QFY22. Consequently, total consumption expenditure contributed 5.6% to real GDP growth. On the other hand, Gross Capital Formation (GCF) grew 17.2% YoY in 2QFY22 (higher-than-expected), contributing 5.8% to real GDP growth. As for external trade, while exports grew only 19.6% YoY in 2QFY22, imports grew faster by 40.6% YoY. Therefore, net exports contributed -4.4% to overall GDP. Discrepancies contributed another 1.4% to overall real GDP growth in 2QFY22.

* Nominal GDP grew 17.5% YoY in 2QFY22 as against a contraction of 4.4% YoY in 2QFY21.

* Growth in the Farm sector remained unchanged at 4.5% YoY in 2QFY22 (as against our expectation of a slower growth), contributing 60bp to real GVA growth. The Industrial sector grew 6.9% YoY in 2QFY22 on the back of slower growth in all components. It contributed 2.1% to real GVA growth. The Services sector grew marginally slower by 10.7% YoY in 2Q, contributing 5.8% to real GVA growth in 1QFY22. Within Services, the surprise majorly came from public administration, Defense, and other Services, which grew at a faster than expected pace of 23% YoY in 2QFY22.

* Using quarterly data on net exports of Goods and Services and total investments, our estimates suggest implied GDS rose to 28.7% of GDP in 1HFY22 v/s 27.1% of GDP in 1HFY21 and at an average of 27.8% of GDP in the three years prior to the COVID-19 outbreak (1HFY18-1HFY20).

* Overall, there were no shocks in the 2QFY22 GDP data. Therefore, our broad narrative remains unchanged too. We continue to believe that consumption may remain weak in the coming quarters as a result of a weak household sector. We pencil in a real GDP growth forecast of 5-5.5% YoY in 2H, leading to a growth of ~9% YoY in FY22, which is only 1% higher compared to FY20 levels.

I. Higher-than-expected Real GDP growth in 2QFY22…

* Real GDP expands 8.4% YoY in 2QFY22: Real GDP growth stood at 8.4% YoY in 2QFY22 on the back of 7.4% YoY contraction in 2QFY21 and against a record high growth (led by very low base) of 20.1% YoY in 1QFY22. The number is higher than our expectation of 8.2% YoY and Bloomberg consensus of 8.3% YoY. With this real GDP grew 13.7% YoY in 1HFY22 as against contraction of 15.9% YoY in 1HFY21.

* Fiscal spending expanded while all others grew slowly last quarter: While government consumption grew 8.7% YoY in 2Q as against a decline of 4.8% YoY in 1Q, private consumption spending grew 8.6% YoY in 2Q (lower-thanexpected) v/s 19.3% YoY in 1QFY22. Consequently, total consumption expenditure contributed 5.6% to real GDP growth. On the other hand, GCF grew 17.2% YoY in 2QFY22 (higher-than-expected), contributing 5.8% to real GDP growth. Within GCF, real investments – GFCF/inventory – grew 11%/2.7% YoY in 2Q v/s 55.3%/45.9% YoY in 1QFY22. As for external trade, while exports grew only 19.6% YoY in 2QFY22, imports grew faster by 40.6% YoY. Therefore, net exports contributed -4.4% to overall GDP. Discrepancies contributed another 1.4% to overall real GDP growth in 2QFY22.

* Nominal GDP grew 17.5% YoY in 2QFY22: Nominal GDP grew 17.5% YoY in 2QFY22 as against a contraction of 4.4% YoY in 2QFY21.

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