Growth to ease modestly in the Dec quarter - DBS Asian Currency Research

Monday's GDP numbers are likely to signal that growth eased modestly towards late-2015 and remained uneven across sectors. Real GDP growth likely expanded 7.2% YoY in Oct-Dec15 (3Q FY15/16), from 7.4% the quarter before. This will take growth in first three quarters of FY15/16 to 7.2%, slightly below our full-year 7.4% estimate. Underlying drivers in the Dec quarter are expected to be little changed. Consumption and fiscal support should remain firm, while investment spending and external trade underwhelm. Urban consumption improved in the Dec quarter, as indicated by a pick-up in consumer durables production, passenger car sales and easing inflation.

Rural spending, however, was subdued on weak wage growth and successively sub-par harvests. The upcoming Budget might unveil some agriculture-specific measures to lower monsoon-dependency and increase rural productivity. Government spending, especially current expenditure, rose 3.3% in the Dec quarter from 2.7% in quarter before. Capital spending meanwhile hit a soft patch end of last year on weaker private sector interests, even as public capex rose on the year (but eased QoQ). A slump in new investment proposals was accompanied by a drop in commissioning of projects, according to the CMIE.

Rising debt to service ratio, under-pressure balance sheets and excess capacity have hamstrung a quick revival in investment cycle. Meanwhile exports continue to suffer due to the uncertain demand outlook, fall in commodity prices and real rupee gains. A concomitant fall in imports meanwhile helped to narrow the trade deficit modestly. Net exports made up-2.3% of GDP last year, before weakening to -3% in 1H FY15/16. Apart from the headline GDP, focus will also be on nominal growth, especially as the latter slipped below real GDP in the Sep quarter.

We expect a modest improvement in the nominal GDP pace as GDP deflators bounce off lows, mirroring CPI/ WPI price indices. The central bank has meanwhile maintained itsFY15/16 GDP estimate at 7.4% with downside risks, matching our expectations. An impaired policy transmission has lowered the boost to growth from an easy monetary policy stance.

Source : Equity Bulls

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