India’s GDP Q1FY23: Economy recovers from Covid-19, RBI to raise repo rate by 50 bp from September to December, Barclays says

India is set to release its Q1 2023 GDP figures on 31 August, with ICRA analysts predicting a low base and strong recovery in contact-intensive sectors following an increase in vaccination coverage could boost the economy. expects double-digit growth of 13%. Meanwhile, Barclays estimates that India’s economic growth accelerated to 16% year-on-year in the April-June quarter. The company expects the Indian economy to fully recover from his COVID this quarter, with the services sector fully open, trade activity peaking and domestic demand holding strong.

Barclays analysts Rahul Bajoria and Virinchi Kadiyala report that the strong streak of recovery since Q1FY21, when the Delta variant of COVID-19 forced widespread lockdowns, is expected to continue in Q1FY23. He said it was likely to hit another all-time high. “The economy has fully opened up and all activity restrictions have been lifted. Despite supply headwinds in the form of persistent shortages of intermediate goods and rising input costs, domestic We expect a remarkable recovery in both the sector and services.”

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Agriculture growth likely to slow, mining GDP likely to grow

Regarding the sectoral breakdown, Barclays expects agricultural production and demand for rural commodities to remain resilient despite weather-related challenges and rising costs. However, the pace of expansion in the rural sector may slow as workers are likely to return to urban areas for employment. “We expect agriculture growth to slow to about 3.0% in the first quarter of FY2023, down slightly from 4.1% in the fourth quarter of FY22.” Despite the reported depletion of electricity, we expect overall growth to remain strong due to increased electricity demand and infrastructure spending. Mining GDP should grow about 12% year-on-year in the April-June quarter, the strongest growth since the second quarter of fiscal 2021, they said. rice field.

Manufacturing, power and mobility sectors likely to show growth

Barclays reports that the manufacturing and power sectors could see double-digit growth as strong exports and an unusually hot summer add to power demand. “This expected manufacturing surge comes despite a relative underperformance in the automotive sector, which is expected to continue to recover through the second half of 2022,” it added. Export trade volumes were high during the quarter, but higher commodity prices boosted India’s imports, dragging down overall economic activity. Fuel sales remained flat over the period, but given the very low base, strong performance in mobility indicators such as air and rail traffic could add to economic activity. expected.

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RBI to hike rates by another 50bp at next MPC meeting

Analysts also said in the report that even credit expansion is accelerating amid resilient deposit growth, which will support financial services GDP. “Even though subsidy spending has likely started to rise, government spending remains steady, which could weigh on net taxes. We believe this means that the RBI will continue to focus on keeping inflation under control.” Barclays expects the RBI to raise rates by another 50bp at its two meetings in September and December, raising its repo rate to 5.90%.

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