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MOSL: ECOSCOPE-India’s economic activity accelerated in August 2018 however, expect real GDP growth to moderate in 2QFY19

ECOSCOPE: India’s economic activity accelerated in August 2018… however, expect real GDP growth to moderate in 2QFY19

 

• As per our in-house economic activity index (EAI) for India, real GDP grew 7.8% YoY in August 2018, implying 7% growth in the first two months of 2QFY19, much weaker than 8.5% in 1QFY19.
• The month-on-month (MoM) acceleration in our EAI-GDP was primarily driven by consumption activity, led by fiscal spending. Investment spending posted double-digit growth for the 10th consecutive month, and drag from the external sector was also lower than in the previous month.
• While EAI-GDP accelerated, our EAI-GVA grew at a slower pace reflecting higher growth in net indirect taxes (NIT). A weak manufacturing sector dragged GVA growth in August 2018.
• Overall, we believe that real GDP/GVA growth has peaked in 1QFY19. We expect it to moderate in 2QFY19 towards 7-7.2% before witnessing a sharp deceleration in 2HFY19. Accordingly, notwithstanding 8.2% growth in 1QFY19, we continue to believe that real GDP growth will be ~7% in FY19, much lower than the RBI's and market consensus of 7.5%.