Q3FY23 GDP: Growth still fragile

1 Mar 2023 , 10:55 AM

Starting with Q3FY23, real GDP came in at 4.4% YoY while GVA grew 4.6% YoY – largely in line with consensus, but above IIFL Capital Services’ expectation of 3.9%/ 3.7% (growth partly affected by strong base effects). On a 3-year CAGR basis, real GDP & GVA accelerated to 3.7% & 4.1% respectively, from 3.1% growth in Q2FY23. Current GDP growth is still below pre-COVID growth trend, resulting in real GDP still being 8% lower than trend GDP level at pre-COVID growth rates. Analysts at IIFL Capital Services worry global growth slowdown may impact India too.

Q3FY23 GDP release

• Real GDP growth accelerated on a 3-year CAGR basis (3.7% versus 3.1% previous quarter), still way below the pre-pandemic growth trends of 6.5-7% — resulting in real GDP gap of 8% even then.
• Nominal GDP growth came in at 11.2% due to high inflation, but gap with real growth narrowing due to fall in WPI.
• Within sectors, Agri had stable growth of around 3.8% on a 3-year CAGR basis; there was an acceleration in Industry (4.4%) & Services (4%).
• On the consumption side – private consumption (PFCE) was a major drag, growing only 2.1% YoY impacted partly by strong base (growth on a 3-year CAGR was 4.7%).
• Government expenditure support (GFCE) continues to fade – contracting YoY for the 2^nd consecutive quarter (-0.8% YoY), 3-year CAGR was a meagre 0.2%. GFCF posted a strong 8.3% YoY growth and 4% 3-year CAGR.
• Within Industry, Manufacturing continues to struggle (contracting for the 2^nd consecutive quarter on a YoY basis and a 3-year CAGR stagnant at around 4%). However, acceleration in others viz. Construction, Utilities and Mining — more than makes up for it.
• In Services, growth was led by Financial, RE & Prof. services; while contact-intensive services of Trade, Hotels & Transport continued their recovery path. Public Admin & Defence saw muted growth.

Key charts in IIFL Capital Services’ chartbook on the Indian Economy & Markets

• Government finances look promising. Fiscal deficit up to January 2023 stood at Rs11.9 trillion or 68% of FY23RE. Tax revenues continue to see robust growth. Government is on track to deliver higher capex growth, as April-January has seen a strong growth of 29% (YoY & 3-year CAGR)
• Household outlook on income has been improving since the past few months, and is at its highest in over three years. Consumer outlook on non-essential spends has turned positive for the first time since the pandemic, indicating improved willingness to spend.
• Consumer sentiments have firmed up. Naukri job index is well above pre-COVID levels, but MNREGA demand has seen some gradual pickup in recent months.
• UPI Payments have been gaining in market share of digital payments considerably, with its value and volume of transactions both rising steadily every month.
• Liquidity has come down significantly and has turned into marginal deficit in February. The sovereign yield curve has almost flattened, as the term spread (10-year-3 month) has come off sharply and is now below its long-term average.
• Dollar Index, after cooling off significantly, has again picked up a bit recently. In CY23YTD, INR has remained fairly stable versus USD, compared to other currencies.
• FDI/FII flows have dropped in the last two months. MF equity flows continue to remain positive, indicating continuous buying by DMFs.
• So far in CY23, large caps have outperformed small and mid-caps, while Cap Goods and IT have outperformed all other sectors. Valuations continue to remain near ~1SD above average for large, mid and small cap indices
• Consensus estimates for earnings projecting a marginal PAT growth in FY23, followed by a better FY24 for the BSE200 companies. FY23 and FY24 EPS estimates for Nifty Index have so far seen a 3-6% cut from their peak a year ago.