India: GDP growth for FY2015/16 surprises to the upside - TDS

Cristian Maggio, Head of Emerging Markets Strategy at TD Securities, notes that India’s Central Statistics Office (CSO) released the provisional estimates for Q1 2016 (fourth quarter of FY2015/16) GDP and the FY2015/16 national income data.

Key Quotes

“Figures for the quarter and the full financial year surprised to the upside notwithstanding a 0.1ppt downside revision for each of the three prior quarters.

Accordingly, the strong upside surprise in growth has materialized in the January-March 2016 quarter (+7.9% Y/Y vs the consensus’ 7.5%). As a result, the advanced estimates for FY2015/16 growth released on February 8 by the CSO have proved accurate at 7.6% Y/Y, against the consensus expectation for a weaker 7.5% print today.

From a supply side standpoint, all sectors but ‘construction’ and ‘services’ accelerated in Q/Q terms in Q1.

Based on the 4-quarter rolling data, FY2015/16 exhibited a particularly sharp rebound in manufacturing, which is the sector that had previously held growth back in India. The financial year has seen the cumulative 4-quarter data gaining momentum in manufacturing to 9.3% Y/Y (Q1 2016) from 5.4% (Q2 2015). This is quite a dramatic acceleration in industrial activity that was not entirely visible in the monthly IP data and leading indicators.

On the other hand, growth in services have been softening throughout the year, albeit to a modest pace compared to the acceleration in manufacturing.

From an expenditure viewpoint, ‘private consumption’ recorded a modest acceleration to 8.3% Y/Y in Q1 from 8.2% in Q4; ‘government consumption’ fell 0.1ppt to 2.9%; finally, exports rebounded to -1.9% from -8.9%, while imports also improved to -1.6% from -6.4%.

In conclusion, throughout FY2015/16, growth has been mostly supported by private domestic consumption (+7.5% Y/Y), while government consumption has been subdued at 2.2%. The pace of growth of investment declined to 3.9% in the four quarters to Q1 2016, down from 4.9% in the same period of 2015, which highlights a still unattractive business environment and uncertainties. Exports have been a drag on growth for the whole year, with a full financial year performance of -5.2% Y/Y vs +1.7% in FY2014/15, only partly compensated for by the contraction in imports down to -2.8% in FY2015/16 from +0.8% in FY2014/15.”