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MOSL: ECOSCOPE-Economic activity growth improves in Nov’19 but expect real GDP growth to weaken further in 3QFY20

ECOSCOPE: Economic activity growth improves in Nov’19 but expect real GDP growth to weaken further in 3QFY20

 

• Our in-house Economic Activity Index (EAI) for India's real GVA (called EAI-GVA) suggests that economic growth improved to 5% YoY in Nov'19, the highest in the past four months and much better than the all-time low of 1.8% in Oct'19. The improvement was broad-based with non-farm GVA growth picking up from 2.1% in Oct'19 to ~6% in Nov'19.
• EAI-GDP also grew at 4-month high of 6.1% YoY in Nov'19, as against 5% YoY a month ago, driven primarily by a lower decline in investments. Consumption activity, on the other hand, posted decent growth of 6.4%, supported by fiscal spending, passenger traffic and fuel consumption.
• Overall, while EAI-GVA growth improved in Nov'19, economic activity growth was still weaker in the first two months of 3QFY20 (Oct-Nov'19) v/s that in 2QFY20. Thus, only if economic activity grows much faster in Dec'19 (which seems unlikely), will the real GDP growth in 3QFY20 be similar to that in 2QFY20. Consequently, we rule out higher than 4.5% growth in 3QFY20 and continue to believe that real GDP growth could weaken further - toward 4% in 3QFY20 - which will mark the trough. Real GVA/GDP growth, thus, could be closer to 4.5% in FY20 as compared to 6.8% in FY19.