People buy vegetables at a local market in Noida, Uttar Pradesh on August 22, 2023. (Photo by Chandradeep Kumar/The India Today Group via Getty Images)
The India Today Group | The India Today Group | Getty Images
This week’s report from CNBC’s “Inside India” newsletter brings you timely, insightful news and market commentary on the emerging powerhouse and the big deals behind its meteoric rise. Do you like watching? You can subscribe Here.
Great story
When India’s new fiscal year began in April, the next 12 months were expected to bring strong economic growth, impressive stock market returns and a leg-up towards its goal of becoming the world’s third-largest economy by 2027.
Few expected a plot twist in India’s latest gross domestic product (GDP) numbers to match the Bollywood blockbuster.
India’s growth stood at 5.4% in the quarter ended September, according to data released on November 29. This was the slowest expansion in the past seven quarters and comfortably fell short of the 6.5% growth rate expected by economists. In a Reuters poll.
To be sure, analysts expect a modest slowdown compared to the 6.7% growth generated in the June quarter, partly due to the impact of higher inflation on the cost of households and businesses. Few thought the slowdown would be too drastic.
According to Macquarie’s analysts, growth will be compromised by “a slowdown in urban consumption demand”. India’s burgeoning middle-income class has been touted as the nation’s engine of growth, with spending on goods and services critical to boosting consumption levels — and corporate earnings.
India’s retail inflation rate is a 14-month high of 6.2% in October In the wake of the exponential rise in the prices of vegetables, a staple in most Indian households. Vegetable prices rose 42.2% from a year ago in October and 36% in September.
Even corporates, feeling the pinch of lower spending from Indian households, reported weak earnings momentum in the September quarter, analysts at Macquarie noted.
Analysts added that other factors such as slower capital expenditures, investment activities, slower exports and a significant fall in credit growth will further weigh on the Indian economy.
Macquarie analysts added that overall credit growth “driving GDP” was roughly 11% in the September quarter, slower than the 16% expansion a year earlier.
It is worth noting that the latest GDP data has not caused undue alarm.
The benchmark Nifty 50 index rose modestly after the GDP release and is up 13.7% year-to-date. For comparison, the MSCI Asia Ex Japan Index – It allocates about 23% of its funds to India – down about 0.05% so far this year.
The Reserve Bank of India, which will announce its latest rate decision on Friday, is expected to keep interest rates steady.
What’s next?
Determining the outlook for the rest of the fiscal year is tricky.
For Alicia García Herrero, India’s economy is “definitely” heading for a slower growth environment in 2025.
“When we say slow growth, we don’t mean the same as a slowdown. We mean just moving towards 6% – 6.4% (but) this is our current forecast (but) it could be 6%,” the head of Natixis told CNBC last week, hours before the Asia-Pacific GDP numbers were announced. An economist told Squawk Box Asia.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, expects some “downside risks” to the Indian economy in the coming months. While he did not expect “that big of an impact” over a longer horizon of about 20 years, Bhimavarapu stressed the need for policy action to address gaps in the economy to avoid further complications.
Investors hoping the Indian growth story remains intact are betting to avoid a sequel to the September numbers.
Must know
Gautam Adani broke his silence. At an event on Saturday, Adani Group’s founder said the company maintains “absolute commitment to world-class regulatory compliance”, though he did not elaborate on that assertion. Adani Group CFO on Friday Rejected All charges, and on Wednesday, Adani Green Energy He denied that Impeachment rights, Pushing stocks Adani Group.
India’s largest automaker has announced two electric vehicles priced around $25,000. At that competitive price, the company is striving to gain market share in a country where adoption of EVs is low and EV sales are dominated by a single domestic manufacturer. Analysts More bullish After the announcement of the company. (Subscribers only)
What happened to the markets?
Indian stocks continued their gains this week. The Nifty 50 The index rose 2.4% this week to 24,708.40 points. The index has risen 13.7% this year.
The benchmark 10-year Indian government bond yield fell more than 10 basis points to 6.67% since the end of last week as the GDP growth rate slowed.
On CNBC TV this week, TCW Group’s Jay Lee said India “shouldn’t be a direct target for Trump and the coming tariffs.” However, if China’s yuan depreciates in the wake of tariffs, it will be difficult for India Maintain a strong currencyLee added.
What’s happening next week?
December 6: India interest rate decision, US nonfarm payrolls for November, China inflation rate for November, Suraksha Diagnostics IPO
Dec 9: Property Share Investment Trust REIT IPO, Japan GDP for 3Q Final Reading
December 11: US Consumer Price Index for November
December 12: India Inflation Rate for November, US Producer Price Index for November, European Central Bank Interest Rate Decision, UK GDP for October
