Indian economic growth likely to record strong quarter in Q2 2018

In spite of the increasing worries regarding the global recovery from trade tensions, the Indian economy is seemingly immune and is likely to record another solid quarter in the second quarter, noted Commerzbank in a research report. Growth recovered sharply in the first quarter to 7.7 percent year-on-year and is likely to stay above 7 percent in the second quarter after the dual shocks in the second half of last year which saw growth slipped to just 5.9 percent. This is partially because India is less dependent on trade with domestic demand being the more important driver.

This includes the volatile agriculture sector that still accounts for 17 percent of the economic growth, a low 17 percent for manufacturing which the government is trying to improve, and 54 percent from services. Corporate profits are likely to increase 29 percent year-on-year, the best in eight quarters and the latest signal of the firm rebound.

This is also occurring in spite of the continued softness in the Indian rupee. INR is the softness currency in Asia in 2018, down 7.6 percent against the USD year-to-date, more than the average decline for Asian currencies including CNY of about 4 percent. But, INR’s depreciation to date does not seem to be a major concern for policy makers given that it helps to cushion the impact of any export softness; and it provides the leeway for the RBI to hike rates, stated Commerzbank.

RBI’s rate hikes are justified because of rising inflation. The central bank is probably comfortable to lift rates in a period of economic growth as this provides ammunition for RBI to cut when the downturn comes.

“We suspect RBI is contented on an orderly decline in INR for now. USD-INR is holding around this year’s high at 68.95 and we look for sideways trading near term between the 68.00-69.50 range”, added Commerzbank.