HDFC Bank expects economic growth to slow down marginally to 7.6% in April - June

HDFC Bank expects economic growth in the country to slow down marginally to 7.6% in April - June quarter, compared to the 7.9% growth posted in the same period last year.

In terms of gross value added (GVA) calculation, HDFC Bank said it has pencilled a growth of 7.2% compared to 7.4% in the year-ago period.

HDFC Bank's Chief Economist Abheek Barua said that unfavourable base effect may be at play in the first quarter of the new fiscal year, coupled with a likely slowdown in the services sector activity.

"While an unfavourable base effect is at play, there is a likely slowdown in services sector activity, which alone explains more than half of the moderation in overall growth," he said.

The HDFC Bank report said that, in the quarter, bank deposits moderated from 10.8% in Q4 FY16 to 9.7%. Credit growth came down from 11.5% to 9.7%. Tourist arrivals were down, indicating a slowdown in the tourism and transport services; freight revenue for railways and air cargo growth was moderated. However, positive momentum in public administration and defence services likely continued, and showed a marginal rise in annualised growth rate (supported by base effect as well).

"Given the moderation in various lead indicators, we expect overall services sector growth to edge down from 8.7% in 4Q-FY16 to 8.5% in 1Q-FY17," the report said.

In the industrial activity sector, "apart from positive traction in mining, all other sub-components showed moderation in growth rates," Barua said.

"Growth in output for basic metals, machinery, vehicles and equipment picked up, but the heavy weight manufacturing sector output (based on IIP readings) continued to remain in the weak territory. Moreover, pressure on corporate margins (Proxy: PMI Output prices minus Input prices) aggravated between April-June quarter as commodity prices rose on a sequential basis and pass through remained weak," the report said.

Electricity generation was down in the quarter under consideration compared to the last quarter of 2016.

HDFC Bank said, "We don't expect a massive take off given the excess capacity in the manufacturing sector and subdued demand for exports."

For the whole year (FY17), we expect GDP growth of 7.8% compared to 7.6% last year.

In the rest of the year, consumer demand is likely to see a boost as the government pays out the revised salaries for nearly one crore central government employees, along with arrears from January to be paid in August. A good monsoon and the uptick in sowing coverage is also likely to lead to pick up in farm output and rural demand, the report said.