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MOSL: ECOSCOPE | EAI-Cut in fiscal spending keeps Mar’19 EAI growth subdued-Expect 4QFY19 GDP growth at ~6.5%

ECOSCOPE | EAI: Cut in fiscal spending keeps Mar’19 EAI growth subdued; Expect 4QFY19 GDP growth at ~6.5%

• Our in-house Economic Activity Index (EAI) for India's real GDP (called EAI-GDP) suggests growth of 3.9% YoY in Mar'19, following growth of 5.6% in the previous month. If so, we continue to expect 6.4-6.5% real GDP growth in 4QFY19, slightly lower than 6.6% in the previous quarter.
• The deceleration in EAI-GDP was driven by sharp cuts in fiscal spending (in order to meet deficit target) due to which consumption activity grew at a record low of 0.7% YoY in Mar'19. Investments, on the other hand, are expected to grow faster at 5-month high of ~4% on expected revival in IIP for capital goods. Since exports grew much faster than imports, foreign trade also contributed positively in Mar'19.
• EAI-GVA index also posted 17-month lowest growth of 5.4% in Mar'19, compared to 7.7% a month ago. While industrial activity growth remained intact, services and farm sector weakened considerably.
• Overall, the cut in fiscal spending - as expected - led to subdued economic growth in Mar'19. Consequently, while the first two months posted higher-than-expected growth, we expect real GDP to grow 6.4-6.5% in 4QFY19. If so, it implies real GDP growth of ~7.0% for full-year FY19, lower than 7.2% registered in FY18.