Strong Q2 GDP effect! SBI, ICRA, Morgan Stanley raise FY24 growth forecast for India

After India’s economy recorded stronger-than-expected growth of 7.6% in Q2 FY2024, led by industry, many financial institutions have raised the growth forecast for the full financial year 2023-24 (FY24).

SBI Research, the research wing of state lender SBI, says the economy grew 7.6%, better than consensus, in Q2 FY24 on the back of “buoyant growth” in manufacturing (at 13.9%) and construction (13.3%) while the GVA grew 7.4%. Nominal GDP grew 9.1% in Q1.

"With 7.7% real GDP growth in H1 FY24, the overall growth for full fiscal would be around 7.0% (assuming 6.2-6.4% growth in H2)," SBI Research says, adding that it could also cross the 7.0% mark in FY24.

Among the core sectors, agriculture, the most consistent one since the pandemic, grew only 1.2% in Q2 (18-quarters low). Industry grew 9-quarters high to 13.2% in Q2 vs 5.5% in Q1. The services sector was the only laggard and grew only 5.8% due to 10-quarters low growth of 4.3% in ‘trade, hotels, transport, communication & services related to broadcasting’ sector. On the expenditure side, the PFCE (private final consumption expenditure) growth decelerated to 3.1%, mainly due to higher inflation.

The Q2 numbers are also in line with deflation in WPI and easing of CPI inflation.

Ratings agency ICRA says the YoY growth in GDP eased mildly to 7.6% in Q2 FY2024, sharply exceeding ICRA’s expectations. For the second half of the fiscal year, ICRA expects GDP growth to moderate in H2 FY2024 amid sub-par monsoon and slowdown in capex ahead of General Elections. It says continued headwinds such as the normalising base, weak outlook for agri output and rural demand , tepid global growth, narrowing differentials in commodity prices ad transmission of past monetary tightening will cause moderation in the second half of the fiscal year. "With a stronger-than-expected growth in Q2, ICRA has raised its FY2024 GDP growth forecast to 6.2% from 6%, amid continuous expectations of a significant moderation in H2 FY2024," it said.

Other agencies like Morgan Stanley, Citi, Goldman Sachs have also raised GDP gorwth forecasts for India for the fiscal year FY 2023-24.

Morgan Stanley revised the India GDP growth forecast target by 50 basis points to 6.9% for FY24. Goldman Sachs also revised the calender year growth forecast by 20 basis points to 6.7%. However, it left the CY24 GDP growth forecast unchanged at 6.2%. Citi, on the other hand, says the economy could grow 50 basis points higher than its earlier forecast to 6.7% on-year.

India's gross domestic product grew 7.6% year-on-year in the July-September quarter, higher than the Reserve Bank of India (RBI)’s forecast of 6.5%.

The Q2 GDP growth was slightly lower than the 7.8% growth seen in the April–June quarter of the fiscal year.

On robust Q2 GDP numbers, Prime Minister Narendra Modi stated these numbers display the "resilience and strength of the Indian economy" in the midst of such testing times globally.