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MOSL: ECOSCOPE-India’s economic activity weakens in July 2018; primarily due to a sharp drag from foreign trade

ECOSCOPE: India’s economic activity weakens in July 2018; primarily due to a sharp drag from foreign trade

 

• According to our in-house economic activity index (EAI) for India, real GDP grew 6.2% YoY in July 2018, marking the slowest growth in nine months and compared to the last-eight-month average of 8.2%.
• Deceleration in our EAI-GDP was broad-based, but most adversely affected by foreign trade, as imports growth outpaced exports growth significantly. Investment activities, however, posted double-digit growth for the ninth consecutive month.
• While EAI-GDP weakened, our EAI-GVA grew at the six-month highest pace, as net indirect taxes (NIT) declined sharply in July 2018. Improved services sector and a continued surge in manufacturing activities supported GVA growth.
• Overall, we believe that real GDP/GVA growth has peaked in 1QFY19 and should moderate in 2QFY19 before decelerating sharply in 2HFY19. Accordingly, notwithstanding 8.2% growth in 1QFY19, we continue believing that real GDP growth should come in at ~7% in FY19, much lower than the RBI's and market consensus of 7.5%.