TECHNICALLY, IN RECESSION?

about 6 months ago
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This was very much on expected lines. India’s GDP for Q4FY22 came in at 4.1% v/s 5.4% (QoQ) and v/s 1.6% (YoY).

GDP for FY22 was at 8.7% v/s (-)6.6% (YoY) but much below the 8.9% projected by the Statistics Ministry in Feb. This is better than 7.3% for FY21.

Internals of FY22 GDP (YoY)

  • Agriculture -  3% v/s 3.3%
  • Mining – 11.6% v/s (-)8.6%
  • Finance and Realty – 4.2% v/s 2.2%
  • Public Admin – 12.6% v/s (-)5.5%
  • Manufacturing - 9.9% v/s (-) 0.6%
  • Trade and Hotels – 11.1% v/s (-)20.2%
  • Electricty, gas -  7.5% v/s (-)3.6%
  • Construction – 11.5% v/s (-)7.3%

When GDP contracts for two consecutive quarters, technically, the country is in recession.

These macro numbers are of the past; in today’s time, where the situation is so dynamic, these numbers do not give much indication of how things will pan out in the future. RBI’s GDP estimate of 7.2% for FY23, as of now, looks very tough to achieve, what with crude beaching the $120/barrel mark after the EU announced that it will do away with 90% of Russian oil by the end of this year. This, plus the news that China is easing Covid restrictions and economy expected to gallop again, demand from China for crude is expected to push up prices further.

But there are other indicators, pointing to the fact that things are slowly but surely looking up.  Surely a quarter more of pain is certain but if the moves taken by the Govt does help bring down inflation, maybe from H2FY23, things will slowly start looking up. Yet, crude could prove to be the snake in the grass.

The drop in Covid cases in China and speculation over a potential pause in interest rate hikes by the US Federal Reserve (inferred from the minutes of May) later this year are the two factors on which the markets are expected to pan out in the next couple of weeks. Chinese Govt also offered a stimulus to support falling economic growth.

Of course, there is the RBI interest rate hike this month too but then, hasn’t the market already discounted for this? And given the macroeconomic factors, shouldn’t it be looked upon as a move in the right direction? Having said all this though, the burgeoning fiscal deficit is a cause for concern and that it what the FIIs will remain fixated about.

While on fiscal deficit, for FY22, it was at 6.7% of GDP v/s estimated 6.9% of GDP, showed data released by the Controller General of Accounts. The revenue deficit was at 4.37% of GDP.

Rains will be most looked-forward-to event of this month. IMD today stated that it expects India to have a normal monsoon and will receive 103% rainfall of a long-term average this year. A normal monsoon will also help automatically ease inflationary pressures. Normal rains mean good harvest and that will put money in the hands of the farmer, which will buoy demand. Yes, a lot hinges on normal rains this year.

Today, because all the vagaries are out in the open – inflation, crude price, slowdown, rate hike, the fear factor is low. People are less scared and less uncertain and that is what the markets will play on in the coming weeks. Volatile, yes but with a positive bias. Its always better to be hopeful than hopeless…..

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