New Delhi, Aug 22 (Mayank Nigam) Despite headwinds, In India, global economic activity remained resilient in the Q1FY24, driven mainly by the services sector, according to Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India. This is in sharp contrast to IMF’s latest forecast estimating global growth to fall from 3.5% in CY22 to 3% each in CY23 and CY24 with rapid rate hikes by central banks to fight sticky inflationary trends weighing on economic activity. Also, globally, nonservices sectors, including manufacturing, have shown weakness, and high-frequency indicators for the Q1FY24 point to a broader slowdown in activity. Plus, gross fixed capital formation (GFCF) and industrial production have slowed sharply or contracted in major advanced economies, dragging international trade and manufacturing in emerging markets as a corollary.
The balance of risks to global growth remains tilted to the downside as extreme climatic events and enhanced geopolitical tension upend the drivers of risk multifold. Notwithstanding the headwinds, IMF has projected India’s growth at 6.1% in 2023, a 0.2 percentage point upward revision compared with the April projection, due to stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment. In Q1FY24, Manufacturing is sustained as reflected in better IIP, automobile sales, PMI data etc. Further, agriculture sales has been strong and power supply has been high. On the services side, passenger traffic picked up in Q4FY23 has sustained while Air cargo traffic increased. The SBI composite leading indicator (CLI) Index (a basket of 43 leading indicators which includes parameters from almost all the sectors) based on monthly data shows continued positive economic activity in Q1FY24, compared to Q4FY23.
RBI has estimated Q1FY24 Real GDP growth at 7.8% and full year FY24 growth at 6.5% . At SBI, we have developed an Artificial Neural Network (ANN) model with 30 high frequency indicators. ANN has been trained for the quarterly GDP data from 2011Q4 to 2020Q4. The in- sample forecast performance of the model in the training period has been precise. ” Out of Sample Forecast Performance, of the last four quarters have been precise. On the basis of the ANN model, we forecast that the quarterly GDP growth for the Q1FY24 would be at 8.3%. Given that the GDP deflator at -0.6% (due to negative WPI), we expect nominal GDP growth at 7.7-7.8% for Q1 FY24. This the first time since Q4 FY19, when nominal GDP growth is expected to be less than the real GDP growth, ” he said. Most importantly, there has been a surge in capital expenditure in Q1, with Central government spending 27.8% of budgeted, while states at 12.7% of budgeted. States like Andhra Pradesh, Telangana, Madhya Pradesh where are elections are due have registered capital expenditure growth upto 41%.
Analysing Corporate results strengthens the faith in our growth numbers. In Q1FY24, Indian Inc. reported top line growth of around 3% while EBIDTA and PAT grew by more than 30%, as compared to Q1FY23, contributed by sectors like Banks, Auto, IT, Pharma, FMCG, Refineries etc. Corporate results, for Q1FY24, ex BFSI, represented by more than 3000 listed entities shows almost flat topline. However, EBIDTA and PAT grew by 23% and 33% respectively as compared to Q1FY23. Further, it is pertinent to mention that corporate margin, which was under pressure for last few quarters, shown sign of improvement since Q4FY23. EBIDTA margin, on aggregate basis of more than 3000 companies, improved by 274 bps to 15.81% in Q1FY24 as compared to 13.07% in Q4FY23 and 12.60% in Q1FY23, contributed by low input prices. Bolstering the faith further are the statistics from banking system. Credit growth continued to grow in double digits and has become broad based across sectors.
ASCB’s credit growth (y-o-y) has been accelerating since early 2022. In 2023-24 (up to 28 July), ASCB’s Deposits grew by 12.9% (last year 9.2%), and credit grew by 19.7% (last year: 14.5%). The growth in incremental deposits growth has almost doubled at Rs 11.3 lakh crore, compared to last year incremental growth of Rs 5.0 lakh crore (Rs 2.73 lakh crore received through Rs 2000 banknotes and Rs 1.5 lakh crore from HDFC merger. Despite rising interest rates, the overall economic growth led to higher credit demand leading to banks reporting a robust rise in advances. Both the PSBs and private sector banks logged in equal pace of loan growth during Q1FY24. All the major financial parameters viz., credit deployment, profitability, asset quality, capital adequacy etc. indicate that the performance of PSBs has significantly improved. They’re adequately capitalised, resilient, and have sound financial health. In Q1FY24, PSBs declared net profit of Rs 34418 crore and seem likely immune to any visible macroeconomic shock while being ready to anchor credit needs, he added.