Economy Recovering From September Lows, Says Jefferies, Confirming India's 'Temporary Blip' Stance

The improvement in India's economic growth after the slowdown seen in the September quarter is visible, said Jefferies, corroborating the Modi government's view that the growth shocker was only a "temporary blip".

Movement indicators like fuel consumption, vehicles tolled and air traffic have strengthened, Jefferies said in a note on Dec. 17. However, the consumption indicators, such as auto sales and card spending, are still mixed, it said.

Jefferies economy tracker composite indicator shows growth pick-up sustaining in November with the indicator up 6.4% year-on-year, the second fastest growth pace in 13 months. "The festive season created month-on-month volatility due to Diwali timings."

The combined October-November activity growth at 6.5% is a "substantial improvement" over recent months, with growth fastest in five quarters, Jefferies said. "We believe that the revival in government capex and liquidity rise on relaxed RBI policies should improve GDP growth in the quarters ahead."

Finance Minister Nirmala Sitharaman described on Tuesday the lower-than-expected growth in the gross domestic product in the September quarter as a "temporary blip".

The minister highlighted that India has experienced "steady and sustained" growth, with an average GDP growth rate of 8.3% over the past three years.

India's gross domestic product grew at the slowest pace in nearly two years in the second quarter, led by slower growth across the industrial sector.

"I think steps that we are taking to push for growth and to sustain growth are going to this route of capital expenditure, so that the multiplier effect will spread through the economy and therefore give a greater traction," Sitharaman said.

"Broad-based indicators mostly improved," Jefferies said. During November, "significant" improvement was seen in diesel consumption which saw the highest jump in 13 months, on a year-on-year basis, the brokerage said.

Monetary tightening should be behind us, analysts at Jefferies said in the note. The RBI's stance on liquidity also reflected well in overnight liquidity being in surplus for past three months, it said. "We believe monetary conditions will continue to ease in early 2025."