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Motilal Oswal Report
India's real gross domestic product grew 7.8% YoY in Q1 FY24, in line with the market consensus but slightly lower than the Reserve Bank of India's forecast of 8%.
GDP data is the most comprehensive macroeconomic indicator and thus, it is widely covered. It is unfortunate that the quarterly GDP data published in India does not provide much detail.
The annual data that gives details is available with a lag of 11 months, which makes it outdated.
India's gross value added data helps to understand the key drivers of economic growth (agriculture, industry and/or services) and GDP data helps to gauge consumption, investment and foreign trade trends. Nonetheless, there are many insights that one can use to understand the data further. In this note, we share seven key insights from Q1 FY24 GVA/GDP data:
Although nominal investments grew 8.6% YoY in Q1 FY24, they were largely led by the government sector, which rose 54% YoY during the quarter. It suggests that private sector investments (including public sector undertakings) grew only 2.6% YoY in Q1 FY24.
After the release of Q1 FY24 data, weak manufacturing growth (4.7% versus estimate of 7-8%) came as a big disappointment. While it was surprising initially, slower growth is compatible with the listed manufacturing companies' data, the primary input in quarterly GDP estimates.
The services sector, on the other hand, posted better growth. Within services, seven-year high double-digit growth in the ‘financial, real estate and professional sector was unexpected. Listed companies' data showed that the non-IT services sector grew at a much faster rate than IT services. It is, thus, likely that the real estate and non-banking financial sectors (such as insurance) led higher growth in the services sector.
GVA/GDP data, along with listed companies' data, gives some idea of a recovery in the unlisted, informal and/or unorganised sector. Unlike in the four quarters of FY23 when it was clear that the listed sector was growing slower than the rest of the economy (return on equity), we found mixed signals of that in Q1 FY24.
In the absence of the current account deficit, we use investments and net imports of goods and services to get an idea of gross savings in the economy. With static investments in (versus Q1 FY23) and lower net imports, it is clear that India's savings improved in Q1 FY24; however, it was likely led by the non-household sector, possibly the government.
With real GDP growth of 7.8%, nominal GDP growth of 8% probably did not get much attention. Barring a short episode in FY01-03 and FY20-FY21, the Indian economy has not witnessed single-digit nominal GDP growth during the past four decades. Nominal data is important since it affects corporate sales and profits, government tax receipts, exports and imports, and bank credit growth.
The details of the expenditure approach were very unconvincing in Q1 FY24. While net imports narrowed in Q1 FY24, real net imports dragged down real GDP growth massively during the quarter. Moreover, discrepancies contributed more than 80% to real GDP growth in Q1 FY24, indicating possible upward revisions in consumption and/or investments in the future.
Overall, although headline GVA/GDP growth was good, the details showed some improvements and some concerns.
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