Around 55% of the Indian economy continues to grow positively, says HSBC Global Research

Despite the fluctuations, the majority (55%) of the Indian economy continues to grow positively, a report by HSBC Global Research said. The report added that after a period of rapid stock market gains and impressive GDP growth, the Indian economy appears to be settling into a more moderate phase.

The report, which analysed 100 indicators of growth, added that, while a majority, represents a decline from 65% just a quarter ago, hinting at a cooling of sentiment.

As per the report, certain sectors are outperforming, and long-term prospects are promising.

However, indicating the slowdown, it adds, "While a lower proportion of the economy seems to be growing positively compared to a quarter ago (55% vs. 65%), the majority of indicators are still positive. And while investment activity (especially construction and public sector led) is holding up, consumption-related ones are slowing."

Recognising the growth in some sectors, the report adds that agriculture, which accounts for 15% of the GDP, witnessed a sign of improvements, with 60% of its indicators exhibiting a positive trend.

Inconstant rains and heatwaves during the monsoon season disrupted production earlier in the year, but a return to normal temperatures and well-filled reservoirs have bolstered prospects, the report added.

Except for unexpected shocks, the agriculture sector is showing signs of further growth in the coming months. Going further with the analysis, it says that the government current and capital expenditure spending has been growing, spurring investments.

It highlights that credit to industries, especially small and medium enterprises, is expanding rapidly, and robust digital public infrastructure has enhanced credit accessibility.

The construction activities have been strong, buoyed by ongoing real estate and infrastructure projects, though the pace has slightly moderated.

It adds that India's export basket has begun to diversify. "Diversification of the export basket towards professional services is helping to hold up export growth," it added.

The report highlights that consumption in both rural and urban centers has witnessed sluggishness. Manufacturing output related to consumer goods has dipped, even as construction-related goods hold steady.

The slowdown in consumer loans, especially uncollateralized ones, reflects the Reserve Bank of India's (RBI) efforts to temper excesses in credit growth, the report added. Mining and utilities have also experienced a sharp decline, with none of their indicators showing positive growth this quarter. The normalization of weather conditions has reduced electricity demand, which had spiked during the heatwave earlier in the year.

The communication sector has seen growth stall, likely due to the impact of tariff hikes earlier this year. Trade and transport continue to lag in their recovery, but tourism-related activities are thriving, driven by pent-up travel demand. The financial sector is also showing contraction, as per the report.

It highlights that while industrial finance is robust, supported by expanding credit to small enterprises, consumer finance has softened, following regulatory measures to curb over-leverage in the personal loans market.

It recognised the contribution of sectors such as electronics manufacturing, digital startups, and global capability Centres but noted that these sectors are normalising.

"The exuberance in electronics manufacturing, Global Capability Centres, and digital start-ups led to high growth and incomes at the top of the pyramid. But after a few heady years, the base is rising, and growth in these sectors is normalizing to more sustainable levels," the report adds.

"Overall GDP growth is gradually converging from 7%+ levels to a more sustainable but still strong 'potential growth' level of 6.5%. If the improved prospects for agriculture stick, this new growth clip could be more equitably spread," the report adds.

Says Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA (Investment Information and Credit Rating Agency), “Q2 FY2025 saw tailwinds in terms of a pick-up in capex after the parliamentary elections as well as healthy expansion in sowing of major kharif crops. Several sectors faced headwinds on account of heavy rainfall, which affected mining activity, electricity demand and retail footfalls, and a contraction in merchandise exports. Further, margins appear to have weakened for corporations in a variety of sectors in this quarter. As a result, we project a slight dip in India’s GVA and GDP growth in Q2 FY2025
to 6.6% and 6.5%, respectively.".

“The benefits of the healthy monsoons lie ahead, with upbeat kharif output and replenished reservoirs likely to lead to a sustained improvement in rural sentiment. However, we are watchful of the impact of a slowdown in personal loan growth on private consumption as well as geopolitical developments on commodity prices and external demand. On balance, ICRA expects a back-ended pick-up in economic activity to boost the GDP and GVA growth in H2 FY2025, resulting in a full-year expansion of 7.0% and 6.8%, respectively.” she continued.

A recent report by the ICRA Business Activity Monitor noted that the year-on-year (YoY) growth in economic activity, which is largely an index of high frequency indicators, improved markedly to an eight-month high of 10.1% in October 2024 from 6.6% in September 2024, despite an unfavourable base.

The index surged by 9.9% month-on-month (MoM) in October 2024, higher than 6.5% growth seen in October 2023, partly led by an early onset of the festive season. This is the highest sequential growth in any month since March 2023, where the index had inched up around 10.5%. Per the report, as many as 10 of the 16 high-frequency indicators saw an improved YoY performance in October 2024 vis-à-vis September 2024.