{LONGTERMINVESTORS} Fwd: India : FY2016 growth mostly in line; recovery in growth to continue

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From: <research@icicibank.com>
Date: Tue, May 31, 2016 at 8:07 PM
Subject: India : FY2016 growth mostly in line; recovery in growth to continue
To: stockdesai@gmail.com

India's Q4 FY2016 real GVA came in at 7.4% YoY (ICICI Bank expectation: 7.4%) and the corresponding GDP print was at 7.9% YoY, which was above expectations As compared to Q3, agriculture has shown strong recovery whereas services were mostly stable. Industrial growth for Q4 slowed down compared to Q3 We expect the trend in growth recovery to continue over FY2017 supported by agriculture and private consumption demand Q4 headline on expected lines; recovery in growth to continue Q4 FY2016 real market prices growth stands at a robust 7.9% YoY as against revised prints of 7.5% YoY, 7.6% YoY and 7.2% YoY in Q1, Q2 and Q3 FY2016 respectively. The activity side print (GVA at basic prices) clocked 7.4% YoY with agriculture posting a sharp recovery and a steady services growth. On the annual estimates, full year GVA came in at 7.2% and headline GDP at 7.6% YoY, which on a trend basis are fairly encouraging numbers. Even recent high frequency activity indicators such as core sector output for April have started to show a turnaround and posted robust growth.   Key observations and implications The FY2016 growth numbers were largely on expected lines as compared to Government's advance estimates and our expectations. As far as domestic demand is concerned, private domestic demand has displayed strong growth on a sustained basis but the same cannot be said for investment. While facilitating conditions for a private capex recovery are in place but a sustainable increase is unlikely for a few more quarters.    Agriculture posted a sharp recovery based on higher than expected food grains production supported by robust growth in allied activities such as livestock, fishing, forestry etc which contribute ~39% of the value added in this sector. Strong growth in agriculture is expected to continue in FY2017 as well provided monsoons are normal. This will also support the rural sector and provide a further fillip to consumption demand. We note that although private consumption demand came in at 8.3% YoY (prior 8.2% YoY), other high frequency indicators such as consumer non-durables in IIP have been indicating stress in the consumer sector. Lower inflation and improving farm incomes should ameliorate the situation going ahead. We had observed in Q3 that the manufacturing print was much higher than activity levels warranted and was unlikely to be sustained. Consequently the Q4 manufacturing print has come in lower than a downwardly revised Q3. On the expenditure side, the gross fixed capital formation still remains a cause for concern at -1.9% YoY, which is the first negative print since March 2014. However, GVA growth in construction has surprisingly been slower at 3.9% YoY in FY2016 (prior: 4.4% YoY) despite significantly higher government expenditure focus on sectors such as roads and other infrastructure. Meanwhile, Government revenue expenditure remains on a stable and contained trajectory given fiscal deficit considerations. FY2016 fiscal deficit was pegged at 3.9% of GDP earlier today. Trade, hotels sector proxied mostly by sales tax growth showed steady growth and financial services remained strong as well. External sector growth continues to post negative growth on expected lines given a slowdown in global growth prospects and fall in oil prices and import demand. FY2017 is likely to continue to witness recovery in growth driven mostly by private consumption and some Government spending. Expectations of normal monsoons should further support growth prospects. We expect FY2017 GVA to notch around 7.7% YoY. Table 1: Agriculture improves sharply in Q4; monsoons to be crucial in FY2017 Source: Mospi, ICICI Bank Research Table 2: Consumption demand shows sustained recovery but investment slips substantially PFCE: Private final consumption expenditure GFCE: Government final consumption expenditure GFCF: Gross fixed capital formation Numbers are at constant prices Source: Mospi, ICICI Bank Research Regards, ICICI Bank Contact: Kamalika Das (+91-22) 2653-1414 (extn: 6280) kamalika.das@icicibank.com Niharika Tripathi (+91-22) 2653-1414 (extn: 6943) niharika.tripathi@icicibank.com ​

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CA. Rajesh Desai

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