India Q1 GDP preview: Strong double-digit growth expected; economy unfazed by Covid wave, base effect in play

India’s economy is expected to have grown in double digits during the April-June quarter of this financial year, helped by a low base of the previous year.

India GDP, India Economy
The expected rebound in economic growth would also stand testament to the strong consumer activity, unfazed by the second wave of the covid-19 pandemic. (Image: REUTERS)

India’s economy is expected to have grown in double digits during the April-June quarter of this financial year, helped by a low base of the previous year. The expected rebound in economic growth would also stand testament to the strong consumer activity, unfazed by the second wave of the covid-19 pandemic. A recent poll of 41 economists conducted by news agency Reuters indicated that the gross domestic product (GDP) rose 20 per cent in the June quarter, compared to the record contraction of 24.4% in the same period a year ago. Meanwhile, the Reserve Bank of India’s Monetary Policy Committee expects June quarter GDP growth to be at 21.4%.

RBI Monetary Policy Committee:

Domestic economic activity is starting to recover with the ebbing of the second wave. Looking ahead, agricultural production and rural demand are expected to remain resilient. Urban demand is likely to mend with a lag as manufacturing and non-contact intensive services resume on a stronger pace, and the release of pent up demand acquires a durable character with an accelerated pace of vaccination. Elevated levels of global commodity prices and financial market volatility are, however, the main downside risks. Taking all these factors into consideration, projection for real GDP growth is retained at 9.5% in 2021-22 consisting of 21.4% in Q1; 7.3% in Q2; 6.3% in Q3; and 6.1% in Q4 of 2021-22. Real GDP growth for Q1:2022-23 is projected at 17.2%.

State Bank of India Ecowrap:

Based on the SBI Nowcasting model, the forecasted GDP growth for Q1 FY22 would be around 18.5% (with upward bias). The GVA is estimated at 15%. What is important is the possibility of a wide divergence between GVA and GDP because of strong tax collections. This is lower than RBI’s expectations of 21.4%. If the corporate results announced so far are looked at, a substantial recovery is visible in corporate GVA (EBITDA + Employee cost) in Q1 FY22. Overall, the corporate GVA of 4069 companies registered a growth of 28.4% in Q1 FY22. However, this is lower than growth in Q4FY22, thereby corroborating the lower GDP estimate than what was anticipated earlier. 

Rahul Bajoria, Chief Economist, Barclays:

We forecast India’s economy expanded 21.2% y/y in Q2 21 (April-June, or Q1 of fiscal year 2021- 22), as a low base and a much smaller loss of activity due to the second COVID wave push growth to an all-time high for a single quarter. Our forecast suggests upside risks to our FY 2021- 22 GDP projection of 9.2%, and if our forecast is realized, GDP growth could be close to double digits for the current fiscal year. In our view, the Q2 data will show a clash of two contrasting themes. Although sequential momentum slowed due to COVID outbreak, the robust performance of India’s tradables sector and a much smaller-than-expected decline in services activity should support much faster GDP growth than we previously expected.

Suman Chowdhury, Chief Analytical Officer, Acuité ratings & Research:

Q1 FY22 enjoys strong support from a favorable base from last year’s near-complete nationwide lockdown which had led to a massive 24.4%YoY contraction in Q1FY21 GDP. While the intensity of the second wave of Covid and the subsequent lockdowns across almost all states have disrupted the contact intensive services again in Q1, the growth print is likely to be supported by the relative resilience of the industrial sector in this phase of the pandemic, steady uptick in exports and improved government capital expenditure levels apart from the base factor. A lower impact of the lockdowns on the industrial sector is manifested in the IIP print for Q1 which recorded 44.9%YoY growth. The buoyancy in the export sector is reflected not only by the 86.0%YoY growth but also an 18.0% growth over that in Q1FY20. We have projected a GVA YoY growth of ~20.0% and a GDP growth of ~22.0%-23.0% for Q1FY22. However, the absolute levels of output will still be lower compared to the pre-Covid levels i.e first quarter of FY20, implying that the economy still needs to cover some lost ground before embarking on a sustainable growth path. A double-digit sequential contraction in GVA and GDP is also expected vis-à-vis Q4FY21, given the severe hit on the services sector.

Nirmal Bang Institutional equities:

We peg GDP growth for 1QFY22 at 16%, up from our earlier estimate of 10% on a relatively swift recovery in June’21 as the economy opened up after the second covid wave in India. In addition, since lockdowns were mainly concentrated in May’21, the economy was functioning at least at 90% capacity even as the second wave was hitting a peak. Finally, while the formal economy was resilient amid the second covid wave, even the informal manufacturing economy did not go into a complete shutdown, unlike in 1QFY21. With the better-than-expected performance in 1QFY22, we raise our GDP forecast for FY22 to 8.5% from 7% earlier. Our GVA forecast for FY22 stands at 8.3%. While we do not rule out a third covid wave and consequently intermittent containment restrictions, we believe that its economic impact is likely to be more muted compared to the second covid wave and is largely factored into our Forecasts. Moreover, as vaccination picks up pace, the impact of any third covid wave, even on contact intensive services may be more subdued. We expect growth in 1QFY22 to be led by industry (excluding construction) growing by 35% YoY while agricultural and allied sector growth may moderate to 2.5% YoY. Services (including construction) are expected to grow by 12.7% YoY, led by the construction sector.

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