Q1 FY2020 GDP growth muted

Indian Economic Update

  • Gross Domestic Product (GDP) growth was muted at 5.0% YoY, led by a slowdown in private consumption expenditure, investment spending and export growth. Gross Value Added (GVA) growth for Q1 FY2020 fell sharply to 4.9% YoY led by a higher than expected moderation in the manufacturing sector.
  • Agriculture growth is at 2.0% YoY compared to 5.1% YoY in Q1 FY2019. Industrial growth has come at 2.7% YoY, which is a big fall from 9.8% in Q1 FY2019. The prime driver is the manufacturing sector growth at 0.6%. Construction sector growth moderated to 5.7% YoY.
  • The services sector showed sequential moderation, led by a slowdown in financial, real estate and professional services. Growth in this sector moderated to 5.9% YoY vs. 9.5% YoY seen last quarter. The Government expenditure component of services grew at 8.5% YoY compared to 7.5% YoY seen in Q1 FY2019.
  • Reflecting the trends in the GVA series, growth in private consumption spending moderated to 3.1% YoY this quarter vs. 7.3% in Q1 FY2019.  Gross fixed capital formation grew at 4.0% YoY, a marginal improvement on a sequential basis. Export growth moderated to 5.7% YoY compared to 10.2% YoY seen in Q1 FY2019.
  • India Growth of eight core industries dropped to 2.1% in July compared to 7.3% in July last year, while it improved sequentially from a 50-month low of 0.2% growth in June 2019.
  • Manufacturing Purchasing Managers’ Index (PMI) came in at 51.4 for August signalling an expansion, however fell to its slowest pace in the last 15 months. Services PMI declined to 52.4 in August from 53.8 in the previous month as new business orders softened pace.
  • India’s gross Goods and Services Tax (GST) collection in August 2019 stood at INR 98,202 crore, up 4.5% compared to INR 93,960 crore in the same month last year. However, the collection was below Government’s expectation of INR 1 trillion.

Global Update

  • According to the statement released by China’s commerce ministry, China’s Vice Premier Mr Liu He has agreed to meet US Treasury Secretary Mr Steven Mnuchin and Trade Representative Mr Robert Lighthizer in Washington early next month.
  • Hong Kong Leader Ms Carrie Lam has officially withdrawn the bill allowing extraditions to China after three months of violent demonstrations, meeting one of the demands of the pro-democracy activists and lawmakers.
  • UK’s Prime Minister Mr Boris Johnson faced another round of defeat after the opposition MPs were successful in passing up the legislation which will now stop UK from leaving without a deal next month. The House of Commons has also rejected his appeal for a snap election.
  • Bank of Canada kept its interest rate unchanged at 1.75% in its policy meeting on Wednesday.
  • The spread between the US 10-year and 2-year sovereign yield steepened, which would indicate reduced concerns about the growth outlook.


Indian equities ended lower, as concerns around the domestic economic growth weighed on market sentiment.


During the week Sensex lost 0.94% to close at 36981.77 while Nifty declined 0.70% to close at 10946.2.


Indian bonds remained stable. Concerns over Centre’s finances weighed on the prices.
Most bonds gave up gains on profit booking post earlier rise in prices. Bonds maturing in 9-14 years gained on anticipation of Centre issuing new 10-year bond in coming weeks. Trade volumes were muted.


The 10Y benchmark yield ended at 6.59% as compared to the previous week’s close of 6.56%.


Oil is trading steady. Hopes of progress in resolving the US-China trade row boosted investor sentiment. Oil prices are weighed down by a report showing US crude inventories rose unexpectedly, as well as rising oil output by Organisation of Petroleum Exporting Countries (OPEC) and Russia.
Oil prices recovered some ground due to easing of demand concerns after the release of China’s services PMI which rose to 3-month high in August. However, the gains will remain under pressure.


Gold prices continued to trade strong, as uncertainties surrounding U.S.-China trade relations and Britain’s departure from the European Union offset pressure from a stronger dollar.


Indian Rupee weakened against the US Dollar today as banks bought Dollar to place fresh long bets. Further, broad based strength in the Dollar index amidst the risk off sentiment weighed on the Rupee.
The improvement in the risk appetite of investors as concerns about Brexit and the trade-war appears to have moderated that is in turn weighing on the demand for Dollar.
EUR/USD and GBP/USD are trading higher.
The risk on sentiment is weighing on the demand for safe haven asset, Yen.

Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.