There is a broad consensus supported by contemporary forecasts that real GDP growth will exceed the Reserve Bank of India’s (RBI) projections set at 6.5 percent for the second quarter, according to an RBI bulletin for November. The projections of RBI incorporated a turn in the momentum of activity in expansion in Q2 and therefore the consensus, if actuality, would imply a stronger pace of activity than projected. This optimism seems to be confirmed by corporate results for Q2.
Consumer credit
Festival demand is very abundant. In urban areas, consumer appliances are in high demand, especially in the mid-range and premium segments. Close to 80 percent of purchases of consumer durables are reported through consumer finance plans spiced with attractive equalized monthly (EMI) offers, it said. Entry-level segment demand is relatively weak as “premiumization” shows clear signs of developing into a consistent trend. Micro, small and medium enterprises (SMEs) supplying to demand segments are also experiencing an increase in orders, especially from enterprises selling through platforms and large format stores. In turn, bank lending to MSMEs is strong. In the affordable housing space, sales have declined, discouraged by high interest rates, but increasing growth is taking hold for houses in the Rs 1-2 crore and Rs 50 lakh-1 crore segments. Festival spending and consumer gaiety are also driving record loan disbursements by non-banking finance companies (NBFCs). Almost half of the credit demand comes from the 3rd tier cities.
Rural demand accounts for a third of the revenues of consumer goods companies. Total rural volume growth is estimated to have increased by 6.4 percent (against 10.2 percent in urban areas). Non-food companies are tracking better in rural volumes than food companies, the central bank said.
Q3 forecast
In Q3, the RBI projects real GDP growth at 6 percent; although the momentum of the change in GDP is successively expected to be higher, this advantage can be offset by base effects. Early estimates of kharif production, which would be incorporated in Q2 and Q3 GDP estimates, were adversely affected by the uneven spatio-temporal distribution of the southwest monsoon across all crops. A strong increase in rabi-sown area despite lower reservoirs and deficient northeast monsoon rain may, on the other hand, compensate and improve agricultural production for the whole year.
Corporate growth
Bottom line growth has been robust and broad-based, with companies in sectors such as oil and gas, automotive and construction delivering sharp increases in profitability. Information technology (IT) companies, on the other hand, reported weaker earnings results than in the previous quarter and many of them lowered their previous revenue guidance in response to global macroeconomic uncertainty and a reduction in discretionary spending by their customers. Auto companies stood out in posting strong earnings as the main driver of profitability, spurred by volume growth, lower costs of raw materials and prices. Base effects have favored profit growth in the case of oil marketing companies. Cement, construction and transport companies recorded jumps in profits, helped by volume growth on the back of government spending on infrastructure, and housing demand.