Vijay Kumar Gaba

3QFY22 – Overall deceleration in growth

·         GDP grew 5.4% yoy, despite a favorable base (3QFY21 growth was 1%).

·         Private consumption witnessed decent growth of 7% in 3QFY22. But the public consumption expenditure growth was poor at 3.4% (3QFY21 at 9.3%).

·         Capital expenditure growth was weak at 2% (2QFY22 was 15%).

·         Industrial growth weakened to 0.2% vs. 7% in 3QFY21, mainly due to weak growth in manufacturing and electricity generation.

·         Agriculture and allied sectors growth was also weak at 2.6%

·         Service sector also grew at a slower rate of 8.2%.

·         Nominal GDP grew 15.7%, against a contraction of 6.2% YoY in 3QFY21, highlighting strong inflationary pressure.

·         Domestic Savings may have declined further to 24.7% of GDP (26% in 3QFY21).

·         Imports grew (32.6%) much faster than exports (20.9%) resulting in wider trade deficit.

·         Construction has slipped into contraction.

·         On a trailing 4 quarter basis, nominal GDP is now 16% higher than pre Covid level, while real GDP is higher just by 1%. This trend is reflected in strong tax collections and Corporate profit data, despite weak real growth numbers.

FY22- growth estimates downgraded

·         FY22 GDP is estimated to grow 8.9% (FY21 growth was negative 6.6%). Growth estimates downgraded from earlier 9.2%.

·         The latest estimates for FY22 imply that 4QFY22 growth may be even slower at 4.8%.

What experts are saying?

Kotak Institutional Equities

GDP growth in 3QFY22 softened even as momentum remained steady driven by manufacturing, construction and financial/real estate sectors. We maintain FY2023E real GDP growth estimate at 8.1% (FY2022: 8.9%)….Growth is likely to be shaped by (1) marginal revival in private investment cycle, (2) medium-term risks to consumption, (3) reversal in domestic and global monetary policies, (4) moderation in global demand, (5) relatively muted fiscal impulse, and (6) supply-chain issues expected to continue for 6-9 months.

Heading into FY2023, we expect the services sector to gain momentum with most economic activities returning to normal with trade, hotel, transport, etc. (contact-based services normalization), and financial and real estate sectors posting steady growth. Industrial sector growth will likely continue on a firm footing with construction (real estate and government capex) and manufacturing sector growth remaining steady.

Overall, we factor in pulls and push factors such as (1) marginal revival in private investment cycle, (2) medium-term risks to consumption, (3) reversal in domestic/global monetary policies, (4) moderation in global demand, (5) relatively muted fiscal impulse, and (6) supply-chain issues expected to continue for another 6-9 months. The lingering geopolitical risks and its impact on various raw materials and commodities remain key risks weighing on the growth prospects. If crude oil prices were to sustain around US$100/bbl, we could see 45-50 bps of downside risk to our base case GDP growth estimate.

Edelweiss Research

The large miss in Q3FY22 GDP numbers, along with a weaker start to Q4FY22 has forced our hand to lower FY22 GDP forecast by 60bp to 8.9%. If our forecasts are met, then it implies FY19-22 real GDP CAGR growth of 1.8% with agriculture growth outpacing industry and services. Further, risks to outlook have only risen

First, rise in oil prices along with Fed tightening is likely to weigh on global reflation and thus India’s exports - lynchpin of recovery so far. Second, India too is facing a negative terms of trade shock, which could further weigh on the already weak domestic demand. Third, if Fed tightening and elevated crude stays, India’s BoP situation could deteriorate, making policymaking challenging (see link). What is comforting though, is that balance sheets of the banking system and India Inc are in far better shape than has been the case in the past.

Motilal Oswal Financial Services (MOFSL)

Details of GDP suggest that real consumption expenditure growth decelerated to 6.5% YoY in 3QFY22….Within consumption, while private consumption weakened to 7% YoY, overnment consumption expenditure slowed down to only 3.4% YoY. Real GCF (or investments) too weakened to 8.3% YoY in 3QFY22. Within investments, GFCF grew a mere 2% YoY as compared to a growth of ~15% YoY in 2QFY22. Additionally, faster growth in imports v/s exports led to a negative contribution of 3.2pp from foreign trade

The CSO has revised its FY22 real GDP growth estimate to 8.9% YoY from 9.2% YoY earlier. This implies that it expects real GDP to grow at 4.8% YoY in 4QFY22, in line with our expectation. With real GDP growth expected at sub-5% YoY, our fear of a slower recovery in India’s economic growth is turning out to be true.

ICICI Bank

Q3FY22 growth is at 5.4% versus our estimate of 6%. With this, we now peg our GDP growth forecast for FY22 at 9.1% (earlier estimate of 9.2%) with a downward bias on the back of geo-political tensions. CSO estimate is 8.9% implying Q4 growth of 4.8%. The downside emanates from higher oil and commodity prices which will be a drag on output and competitiveness. Global demand for Indian exports may also be lower as demand falls in Europe. Over the medium-term, we remain constructive on India’s growth led by manufacturing sector—PLI led investments and gradual increase in capacity utilization. Start-up ecosystem should continue to be a growth driver as well. Real estate sector is witnessing an improvement and IT exports will continue to scale up. Higher vaccination coverage will support growth in contact intensive services. We expect growth at 8.2% in FY23.

Bandhan Bank

The GDP growth of 5.4% in Q3 FY22 was lower than our estimated 5.7%. Strong government spending was not adequate to compensate for softer prints in case of manufacturing, construction and agriculture. During Q4 FY22, the economy faces headwinds like rising commodity prices, nagging patches of weather aberrations during key winter crop months, Covid third wave, and most recently major geopolitical uncertainty. Against this backdrop, the challenge for policymakers intensifies manifold to strike the right balance between supporting growth recovery and tackling inflationary concerns while ensuring financial market stability.

Yes Bank

The main drag on the GDP came from the sharp decline of net exports. Import of goods and services came at INR 10.2 tn - highest in the series so far. With oil prices elevated in Q4 FY22 so far and global growth momentum waning, the outlook for net export looks challenging.

On the industry side, the manufacturing sector remained weak. With elevated commodity prices and supply chain disruption squeezing into profit margins, the sector is likely to see further moderation.

Overall, RBI’s dovish twist in this month’s policy is reflecting through the GDP numbers. As such, we expect the RBI’s MPC to opt for a longer pause in repo rate and stance unless growth surprises on the upside.

We expect FY23 GDP growth at 7.6%. In our view, downside risks to the government's 2nd AE of 8.9% in FY22 remains on the table.

Remarks

The economic growth in India has been facing serious challenges for the past 5years. With rise in inflationary pressures, stagflation has also become a challenge. Even though the economy is not facing stagflation in technical terms, a large part of the population is struggling with stagnant or declining incomes and rising cost of living. Household savings are declining and debt is rising. This is certainly not a great augury for capex led growth, as is being targeted by the policymakers.

The geopolitical concerns may also cloud exports and put pressure on current account balance, further accentuating the inflationary pressures as the INR weakens.

Overall not a comfortable position, but given the strong forex reserve position, comfortable fiscal balance (on the back of strong tax collections) the chances of a crisis like situation are remote. Hopefully, this shall passé with minimal damage to the basic structure of the economy.