India Q2 GDP preview: India’s growth likely moderated to about 7% in Q2; experts expect further moderation

The Indian economy continues to rank among the world's fastest-growing large economies. Forecasts indicate sustained momentum in the upcoming financial year. Nevertheless, factors such as the global economic slowdown, insufficient rainfall, and a decrease in government capital expenditure might lead to a moderation in the country's growth trajectory.

Experts believe India's Q2FY24 GDP expanded in the range of 6.8-7.1 per cent, lower than the 7.8 per cent in Q1FY24.

India's Q2FY24 GDP print is expected on Thursday, November 30.

Analysts at Barclays believe India’s GDP in Q2FY24 expanded by 6.8 per cent year-on-year, slower than the 7.8 per cent print in Q1FY24, but still showing robust sequential growth.

"Underlying growth trends continue to look robust in India, with activity underpinned by domestic consumption, high levels of state-led capex, and strong growth in the utilities sectors," Barclays said in a report.

Services will continue to be the largest contributor to growth in Q2, despite slower expected growth in the financial services and 'trade hotels and transport' categories, Barclays believes.

"Growth in services is likely to moderate from double-digit seen in Q1FY24, but still strong nevertheless (nearly 7.7 per cent), according to our estimates," said Barclays.

Also Read: India's Q2 GDP number will surprise everyone: RBI Governor Shaktikanta Das

For FY23-24, Barclays forecasts GDP growth of 6.3 per cent, but sees upside risks, emanating largely from very strong consumption demand, which is visible across a variety of high-frequency data.

"Credit growth, electricity consumption, and mobility indicators all paint a picture of economic resilience, hence we believe that the domestic economy will continue to drive growth," said Barclays.

SBI Research forecasts that the GDP growth for the Q2FY24 should be at 6.9-7.1 per cent.

"We forecast that the quarterly GDP growth for the Q2FY24 should be at 6.9-7.1 per cent, though there could be still a forecasting bias. The mean growth rate thus comes at around 7 per cent for Q2FY24. This will firmly push up the FY24 growth rate over RBI projections at 6.5 per cent," said SBI Research in its Ecowrap note.

Also Read: Morgan Stanley sees India GDP growth near 6.5% in FY24 and FY25

SBI Research observed in its report that the domestic economic activity in Q2 has been supported by robust agricultural performance, sustained buoyancy in services, strong capital expenditure by the Centre (49 per cent of budgeted) and states (32 per cent of budgeted) and a robust pick up in consumption expenditure.

ICRA has projected the year-on-year growth of the GDP to moderate sequentially to 7 per cent in Q2FY24.

"The GVA growth is estimated to ease to 6.8 per cent in Q2 from 7.8 per cent in Q1, driven by the services sector (to +8.2 per cent from +10.3 per cent) and agriculture (to +1 per cent from +3.5 per cent), amidst an improvement in the industry (to +6.6 per cent from +5.5 per cent)," said ICRA.

Also Read: India’s GDP likely grew 7% in September quarter, surpassing RBI’s projections: ICRA estimates

Further moderation ahead

Experts remain positive about India's growth outlook but they believe the economy will see further moderation in the coming quarters.

Sujan Hajra, Chief Economist at Anand Rathi Shares & Stock Brokers expects the GDP to grow at 6.9 per cent in Q2 but it will moderate going ahead.

"Going ahead, we will see a drag coming from a slowdown in the US. Further, we think lower reservoir levels and volatile food inflation need to be watched out for. Finally, the uncertainty around the election will also pressure private investments in the upcoming quarters," said Hajra.

Also Read: Moody's retains India 2023 growth at 6.7% on strong domestic demand

Kapil Gupta, Executive Director at Nuvama Institutional Equities believes Q2 GDP could be closer to 7 per cent, which will be better than RBI’s estimates.

Gupta pointed out that better-than-expected earnings of the corporates during the quarter would aid the GDP growth, although growth rates will decelerate in the second half of the current financial year (H2FY24).

Gupta believes in the next year, India’s outlook will be shaped by global factors and if the US economy goes into a recession, it will have a bearing on India’s growth momentum. On the domestic side, government capex, too, could moderate and tax revenue growth could normalise from elevated levels.

Further, the lagged impact of RBI’s tightening and the latest RBI announcement regarding the increase of risk weights for consumer loans could weigh on lending growth.

"Unless private capex accelerates and broadens, overall growth momentum could moderate. That said, India’s macro vulnerability remains low. Current account deficit is largely contained and the balance sheet of the domestic banking system is in a very good shape, which should work to limit the downside," Gupta said.

Also Read: India set for strong growth, macro-stability in FY24

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