India GDP: Weak Patches Start To Appear, Says Emkay Global

India's growth slowed at a sharper-than-expected rate to stand at 5.4% in Q3FY22 (Emkay: 6.2%; Consensus: 5.9%), reflecting a concoction of unfavorable base effects and consolidation of activity, Emkay global has said in a report.

The country's gross domestic product (GDP) grew at 5.4 per cent in the third quarter of fiscal 2022, according to government data released on Monday showed. "GDP at Constant (2011-12) Prices in Q3 of 2021-22 is estimated at Rs 38.22 lakh crore, as against Rs 36.26 lakh crore in Q3 of 2020-21, showing a growth of 5.4 percent," a release by the government stated.

"The GVA growth at 4.7% was led by industrial sector slowdown. Growth plunged in manufacturing (and mining), partly owing to supply-chain disruptions, driven by the auto sector and sequential easing in corporate profitability. Construction contracted, while electricity demand remained resilient. Services clearly was the linchpin of Q3FY22 growth, again helped mainly by government spending. Agricultural growth weakened further to 2.6% due to uneven monsoons and weak rural demand," Emkay Global has said.

FY22 growth now revised down to sub-9%.

The mild GDP growth revision to 8.9% in FY22 (CSO's prelim est.: 9.2%) partly captures past revisions, it noted.

"The supply-side estimates show that agriculture remains steady at 3.3%, while industry (10.3% vs. -3.3% in FY21) and services (8.6% vs. -7.8% in FY21) fully reverse the contraction seen in FY21. Within industry, manufacturing is likely to print a robust 10.5% in FY22. Services growth is likely to be led by public admin and other services, growing at close to 12.5%, while trade, transport and communications should also print ~12%. That said, this particular sector is still ~6% below pre-Covid levels, though all other sub-sectors have crossed pre-Covid levels. From the expenditure side, private consumption and GFCF grew robust in FY22 on a low base, while government consumption remained healthy," Emkay global has noted.

...with Q4FY22 likely depicting further decline

"The implied Q4FY22 GDP print of 4.8% depicts that the economic recovery might see a minor bump down further, led by a mild omicron wave, with the ex-agriculture slowdown being led by services. A moderation in output of contact-intensive services, trade, etc. could be seen in Q4, along with those hit by supply-chain disruptions. However, amid quick control of infections, healthy vaccination rates and reversal of movement restrictions, activity impact should be short-lived," the brokerage added.

Geo-politics weigh on near-term growth pressures...

Even as the Omicron impact in Q4FY22 is likely to be mild, the current geopolitical escalation may lead to potential global energy trade and price disruptions and weigh on near-term growth, it noted. "While the magnitude of the shock and the evolution of geopolitical reverberations are uncertain, we assume the energy supply shock may resolve in the coming months and likely will not leave a lasting mark on the global and domestic expansion," the brokerage has said.

Emkay's view reflect the view of many others, which believe that there has been some slow down that has been happening. Stock markets have not yet reacted to the GDP data as they were closed for a public holiday on Tuesday.