India’s economic growth likely to have stabilized during the June quarter

Economic growth in India during the second quarter of this year is likely to have stabilized, following a pick-up in the service sector activity that is expected to have compensated for soft industrial and farm growth numbers.

India is due to release Apr-Jun16 (first quarter of fiscal year 2016-17) gross domestic product (GDP) numbers on Wednesday. On Gross-value added basis, growth is expected to have stabilized at 7.4 percent y/y in the June quarter, modestly higher than 2Q15’s 7.2 percent, DBS reported.

While cement output and electricity generation rose in the month, capital goods extended its weak run. The infra structure index steadied from quarter before but was better than 2Q15’s 2.4 percent. The Purchasing Managers’ Indices during the period of May-Jun steadied from April’s drop but pipeline order growth lost steam towards late2Q.

"For the year we look for growth to average 7.8 percent this year from FY15/16’s 7.2 percent," DBS commented in its recent research report.

Moreover, dry conditions in some parts of the country and unseasonal warm conditions likely slowed agricultural output to 2 percent y/y in the June quarter from 2.3 percent in Q1. Under real GDP, consumption demand likely fared better than investment spending, while the drag from the external sector eased, the report added. The positive momentum in auto sales, particularly passenger cars and two-wheelers, durables output and consumer credit growth, points to an improvement in urban and rural spending.

Merchandise exports meanwhile fell less that the same period last year, while the drop in imports accelerated on firmer commodity prices, signalling that he external sector was not a drag on growth. However, while corporate earnings edged off lows, investment spending continues to be weighed by high leverage, excess capacity and slower global trade.