India Q2 GDP: Economic growth likely moderated; should Indian investors be worried?

India's July-September quarter (Q2FY25) gross domestic product (GDP) prints are expected to show moderation due to excess rainfall, weak corporate earnings and subdued rural and urban consumption. The Q2 GDP numbers will be out on Friday, November 29.

Growth losing steam?

According to Rahul Bajoria, Head of India and ASEAN Economic Research at BofA Securities India, India's Q2FY25 GDP may grow by 6.3 per cent YoY, a six-quarter low, while gross value added (GVA) growth is expected to be 6.3 per cent YoY as well.

"The projection of 6.3 per cent is below RBI’s projection (7.0 per cent), and if it materialises, will pose downside risks to our FY25 GDP projections of 6.8 per cent and to RBI’s projections of 7.2 per cent as well," said Bajoria.

"For FY26, we maintain our GDP growth estimate of 7.0 per cent but see growing downside risks given an uncertain trade backdrop, but some relief may come from lower energy prices and other input costs. We estimate nominal GDP growth to moderate slightly to 9.2 per cent YoY, down from 9.7 per cent YoY in Q2 2024," said Bajoria.

Nirmal Bang Institutional Equities expects India's Q2FY25 GDP to grow by 6.4 per cent YoY, down from the earlier estimates of 6.8 per cent, mainly on account of modest growth in net taxes on products estimated at nearly 5-6 per cent in Q2FY25 versus 4.1 per cent in Q1FY25.

GVA growth is also seen at 6.4 per cent against an earlier estimate of 6.6 per cent, led by cyclical moderation in industry growth, Nirmal Bang said.

"Industry (excluding construction) is expected to grow by 4.4 per cent YoY in Q2FY25 on a high base of 13.6 per cent in Q2FY24. Core GVA growth is seen moderating to 6.3 per cent in Q2FY25 versus 7.3 per cent in Q1FY25 and 8.6 per cent in Q2FY24," said Nirmal Bang.

According to rating agency Icra, India’s GDP growth is likely to have slowed marginally to 6.5 per cent in the second quarter of FY2025 from 6.7 per cent in the previous quarter, primarily due to heavy rainfall, weak corporate margins, and subdued exports.

Should Indian investors be worried?

Experts do not appear too concerned about India's growth prospects. They believe the growth-inflation dynamics will evolve favourably due to a healthy monsoon and strong festive season sales in late October.

Anitha Rangan, Economist at Equirus, underscored that the Indian economy this year may have had a slow start due to elections and heat waves. The election disrupted the pace of spending, especially capex, and the heat wave in Q1 did impact demand and mobility. However, Rangan underscored that it would be incorrect to categorise the same as a slowdown as there have been event-related disruptions.

"Prospectively, with the healthy closure of monsoon season and strong festive season sales in late October, we are seeing a healthy revival of the economy. Prospects look upbeat, especially with a strong harvest of kharif crops and an upbeat outlook on the next cropping season (Rabi) as moisture conditions are healthy," said Rangan.

"While there may have been some temporary disruptions leading to slower demand, the recovery is likely to be upbeat, which should help to regain momentum. We are already seeing that in retail vehicle sales and PMI indicators in October. The key challenges going ahead will be global factors that could bring back imported inflation, either from tariffs, currency, or the multipolar world, driving rises in prices and challenging the path of rate cuts for the RBI," Rangan said.

Abhishek Jain, the head of research at Arihant Capital, observes some headwinds, particularly in urban consumption, which has witnessed a slowdown and shows signs of tapering growth. However, the rural economy appears relatively resilient despite its challenges. Rural consumption continues to outpace urban consumption, offering a glimmer of positivity amid broader concerns.

"Indian exports have experienced a slowdown, adding another layer of complexity to the economic landscape. However, the manufacturing sector stands out as a bright spot, demonstrating consistent growth and serving as a critical driver of financial resilience. The uptick in manufacturing activity suggests a healthy pace of industrial production, which could support overall GDP growth," said pointed out.

Jain says investors should adopt a balanced approach.

"While the Indian economy continues to present growth opportunities, the challenges in consumption patterns and export performance could lead to tempered expectations for returns in the near to medium term. It may be prudent for investors to stay cautious, reassess their portfolios, and focus on sectors and opportunities that show resilience or potential for steady performance amid economic volatility," said Jain.

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