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Q3FY24 growth beats estimates led by revised base; manufacturing and GFCF shine

Q3FY24 GDP growth rose sharply to 8.4% (Emkay: 6.7%; Consensus: 6.5%) from the upwardly revised 8.1%, while GVA slowed to 6.5% (Emkay: 6.5%) from 7.7%. The sharp wedge between GDP and GVA growth is difficult to fathom; however, on the surface, it largely reflects higher growth in general government indirect taxes netted for subsidies. Higher-than-expected quarterly numbers have also been muddled amid sharp quarterly revisions to prior data points, while the base effect also helped. Revision noises, however, have reduced this year vs. post-COVID years. Q3 GVA growth at 6.5% was led by healthy manufacturing (11.6%) and construction (9.5%), while services growth rose to 7%. Healthy manufacturing earnings led by reduced YoY input costs and higher volume growth aided the sector. Services growth has been supported by public administration and personal services category, despite contracting the central government’s revex spending. Trade, hotels, and transport showed the sharpest gains from Q2. Q3 expenditure side was led by GFCF (10.6%), while private consumption (3.5%) continued to disappoint and government consumption expectedly contracted.

FY24 GDP growth revised up to 7.6%; Q4 implied growth to ease sharply to 5.9%

Mildly helped by past downward revisions but more by very high net indirect taxes, FY24 GDP growth is now seen at 7.6% (7.3% adv. estimate), while GVA growth estimates have remained unchanged at 6.9%. Nominal GDP at 9.1% implies an estimated deflator of ~1.5% in FY24E. Implied Q4FY23E GDP/GVA growth will be the lows of 5.9%/5.4%. FY24 growth levers are likely to see the industry leading the way (9%) owing to strong manufacturing performance, while the industry’s growth would be slower (7.5%), led by Fin, RE, and other services. Expenditure-side estimates depict healthy GFCF and tepid private consumption growth, while government consumption will slow massively.

Growth momentum healthy albeit mixed; pegging FY25 growth at ~6.5%

Recovery momentum in FYTD24 has generally been better than envisaged at the beginning of the year, led by factors like much-higher positive fiscal impulse in H1 (amid front-loaded government spending) and relatively lagging negative monetary impulse (amid easier lending standards by the financial sector). Besides, robust corporate profits, leveraged consumption, and deflator-related statistical boosts also pushed up growth. The wide divergence of higher investments vs. lower consumption and moderate exports has been the key highlight of the past year. Production-side GVA growth is relatively less volatile and the massive GDP-GVA wedge in FY24 is expected to normalize by next fiscal. We see FY25 GDP moderating at ~6.5%, while GVA growth will only be a tad lower at 6.4%. The slower growth outcome will see cyclical headwinds in the form of: 1) slower GoI net spending growth, 2) fading terms-of-trade benefits of lower commodity prices on a YoY basis, 3) patchy agri performance, 4) banks’ tighter lending standards, and 5) weaker exports. Besides, deflator-related growth boost is likely to increasingly unwind, as WPI retraces the >4% territory

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