MOSL: ECOSCOPE-Economic activity weakened in October 2017-Investments stagnated and net imports widened

​ECOSCOPE: Economic activity weakened in October 2017; Investments stagnated and net imports widened

• India’s monthly economic activity index (EAI) grew at 2.1% YoY in October 2017, the slowest in four months. The average growth in 2QFY18 was 5% YoY. High base and continued decline in fiscal spending led to the weaker growth.
  
• While the deceleration was broad-based, stagnancy in investments – driven primarily by renewed weakness in construction activities and imports of capital goods – was the key driver of slower headline growth. As exports contracted for the first time in 15 months, net imports also acted as a serious drag on EAI growth.
  
• Consumption index grew decently at ~5% YoY in October 2017, driven by 11-month high growth in passenger traffic. Fiscal spending, however, contracted for the second consecutive month.
  
• Overall, we believe that real GVA growth could fall below 6% again in 3QFY18 before recovering to ~6.5% in 4QFY18. It implies real GDP growth of ~6% in 3Q and ~7% in 4QFY18.