Mumbai, India’s gross domestic product growth could be below 5 per cent for Q2FY20 due to “considerable slump” in the overall economic activity, said Brokerage firm Centrum ahead of the release of second quarter GDP numbers by the National Statistical Office (NSO) on Friday.
The slump, caused by consumption slowdown, had pulled the GDP growth rate lower to 5 per cent in Q1FY20 from 5.8 per cent in Q4FY19.
According to the brokerage firm, the reading of economic activity index for GDP suggested that growth weakened to 78.26 in September from 95.65 registered in June.
Further, the index indicated that only 39.13 per cent of leading indicators showing expansion relative to 47.83 per cent seen in June and 86.96 in the year-ago month.
“On the basis the index, we expect economic activity to witness mere 4.5 per cent growth relative to 7 per cent YoY growth in Q2FY19,” the brokerage firm said in a statement.
“Because of relatively more subdued performance of the leading service and industry indicators in Q2, the moderation in growth is largely anticipated to be of such magnitude,” it said.
As per the statement, a late monsoon affected kharif output and a slump in mining, manufacturing and electricity production in all probability is largely attributable to the broad-based slowdown and lacklustre growth.
“Significant slowdown in global economic activity has also weighed on the export performance. Higher central government spending in Q2FY20 relative to the previous quarter is most likely to limit the downside,” the brokerage firm said.
Rural demand indicators, like tractor and motorcycle sales, continued to contract in July-September.
The urban demand indicators, like passenger vehicle sales, contracted for the 11th consecutive month in September and posted a decline of 29 per cent YoY in Q2FY20.
Another key indicator, construction activity weakened with contraction in cement production in August-September and a deeper deceleration in growth of finished steel consumption in September.
“Production of capital goods – a key indicator of investment activity – contracted sharply in September and witnessed a contraction of 17 per cent on YoY basis,” the statement said.
“The slowdown in credit growth has been broad based, with slowing for large industries accompanied by shrinkage in credit to MSMEs. This is in accord with subdued industrial performance amid lacklustre domestic and global demand,” it said.
However, higher central government spending in Q2FY20 compared with Q1FY20 was likely to limit the downside, the brokerage firm said.
“Going ahead, we expect H2FY20 GDP prints to turn out to be better than H1FY20 GDP prints because of the impact of surplus rains on crop output, better terms of trade with rising food prices coupled with the augmentation of government fiscal spending in rural areas,” Centrum said.
“The aforementioned favourable factors are likely to stimulate rural consumption via fostering rural incomes,” it said.
In addition, RBI’s announcement of linking home loan and personal loan rates to external benchmark along with continuous support in infusion of liquidity is likely to support growth in the H2FY20, the statement added.
