India’s growth slowed down for the second consecutive quarter. In 3QFY23, India’s GDP grew by 4.4% YoY - slower compared to the 6.3% YoY growth in 2QFY23. The government, however, retained its target of 7% growth for FY23.
Two prime factors contributed to lower growth for India - weakness in Manufacturing, and in Consumption.
1. Manufacturing - India’s manufacturing sector sank by 1.1% YoY, a second straight quarter of contraction. This is likely to have been led by (i) pent-up demand that boosted growth in FY22 to 9.1% creating a high base, and (ii) weaker global economies have been resulting in lower export demand.
2. Consumption - Private consumption rose just 2.1% YoY, compared to 8.8% in the previous quarter - that’s a massive slowdown. Given the fact that consumption contributes to 60% of India’s GDP, the weakness in growth isn’t surprising.
The government has retained its target of 7% growth for FY23. However, actual growth may come in a little lower given the stickiness of inflation exhibited around the world. This will continue keeping global economies wobbly, raise the potential of continued rate hikes, and even continue impacting consumption.
Why Should I Care?
The performance of the Indian markets in 2022 has made other markets look rather inadequate, and has gotten global investors jumping on to the India growth story. However, the economy can’t escape the impact of a globally coordinated regressive monetary policy. With growth faltering, and more rate hikes coming in, the near-term outlook stoops a little low.
💡 Our View: We continue to remain negative on the markets in the near term. A combination of the negative impact of rate hikes on the economy, sticky inflation, and sky-high valuations makes us delay our expectations of a sustainable rebound in the markets.