India: Leading indicator yet to show sign of recovery – Standard Chartered

In view of Kanika Pasricha, economist at Standard Chartered, India’s GDP growth is widely expected to have bottomed out in Q2-FY20 (ended September 2019) at 4.5%, marking its six-and-a-half-year low and to recover in H2-FY20.

Key Quotes

“Our composite leading indicator continued to slow in October, suggesting that growth concerns remain. The indicator shows that the investment slipped more sharply than consumption, with the latter supported by festive-season demand and the impact of key state elections. Consequently, the increase in currency in circulation was much higher than seasonal trends, at INR 700bn in October 2019.”

“The consumption slowdown in urban areas was relatively less sharp than rural areas, probably due to a marginal uptick in passenger vehicle sales growth. Going forward, we expect rural demand to recover on improved incomes due to the recent spike in food prices, though urban demand may continue to lag owing to income and job uncertainty. Broadly, the indicator shows aggregate demand weakness amid cyclical and structural constraints.”

“We will continue to watch the data trends for November closely. We note that currency in circulation showed no change during the month, a sharp reversal from October. Other data released for November – bank credit, tractor sales, auto sales and production – deteriorated further. The downward pressure on the leading indicator, despite favourable base effects, signals that growth recovery related to the impact of monetary and fiscal stimulus is likely to be delayed and gradual. We maintain our FY20 GDP growth forecast of 5.3%, but see rising downside risks.”