India rates: Strong 3Q growth
Better growth to fuel resilience
Group Research - Econs, Radhika Rao1 Dec 2023
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India’s 3Q23 (2QFY24) real GDP rose 7.6% yoy, ahead of estimates, with strong domestic investments a key counterweight to global uncertainties. Government spending on capex (investments at five-quarter high), boost from lower input prices, real estate pick-up and inventory restocking were main catalysts for the quarter, while private consumption slowed. On the supply end, non-farm sectors registered a broad-based acceleration in activity, led by manufacturing, construction, mining, and utilities, driven by higher volumes as well as wider margins. These made up for the slower pickup in the trade-related services and agriculture output. A firm 1HFY24 lifts the quarterly growth profile, necessitating an upward revision to our full-year growth forecast to 6.8% yoy from the previously held 6.4% yoy. A strong growth report card and a likelihood of food driving up inflation anew in Nov23 will convince the RBI to maintain their cautious policy stance next week. Instead, the authorities would seek to gradually withdraw incremental liquidity and undertake a targeted approach via macroprudential measures to check excesses, as demonstrated by the recent move to tighten risk weights on consumer loans.


A strong GDP outcome would further fuel resilience of the domestic markets. The market cap of the benchmark equity index hit US$4trn this week and emerged as the top five in the world, just behind the US, China, Japan, and Hong Kong. In the near-term, focus will be on the early exit polls for the state elections, ahead of the official count on 3-Dec. At the time of writing, exit polls put the ruling party BJP in the lead in Rajasthan, but in a tight race against the opposition in Chhattisgarh, Madhya Pradesh, and Telangana. Signs of underperformance in these polls might nudge the parties to adopt a populist tone in the run-up to the general elections in Apr-May24. Separately, expectations of a Fed pivot have drawn $1.8bn worth inflows into high-yielding INR debt this month ($5.5bn CYTD). Bulk of these are in the fully accessible route (FAR) window, in effect frontrunning the upcoming bond inclusion into the JP Morgan global debt benchmark.

Radhika Rao

Senior Economist – Eurozone, India, Indonesia
[email protected]

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