India’s gross domestic product (GDP) growth witnessed a setback, by hitting a staggering 5.4% which is the slowest growth in two years. Q2 GDP data missed market estimates of 6.5%, and RBI’s target of 7%. As per experts, the latest GDP comes as a negative surprise. Despite the latest print, the majority of experts believe that GDP growth is likely to pick up momentum in H2 of FY25. After the Q2 GDP, the Indian stock market is expected to react in a range-bound on Monday, December 2nd, 2024, which is the first trading session of that month.

Q2 GDP Growth Rate:

India’s real GDP came in at 5.4% in Q2 of FY 2024-25 over the growth rate of 8.1% in Q2 of FY 2023-24. Despite sluggish growth observed in Manufacturing (2.2%) and Mining & Quarrying (-0.1%) sectors in Q2 of FY 2024-25, real GVA in H1 (April-September) has recorded a growth rate of 6.2%.

Meanwhile, real GVA has grown by 5.6% in Q2 of FY 2024-25 over the growth rate of 7.7% in Q2 of the previous financial year. Nominal GVA has witnessed a growth rate of 8.1 % in Q2 of FY 2024-25 over the growth rate of 9.3% in Q2 of FY 2023-24.

Explaining in detail the performance of GDP, Palka Arora Chopra, Director of Master Capital Services said that reasons attributing to the moderation reflect a combination of external shocks and internal economic challenges. Urban consumption, which is one of the highest contributors in India’s GDP, remains subdued, majorly due to the interplay of high borrowing costs and modest earnings growth, despite growth in rural demand. The elevated food inflation repeatedly above the RBI target is impacting household costs and corporate earnings. Weak corporate results for the latest quarter are also signalling a slowdown in expenditure.

Other factors like slowdown in global economies, geopolitical uncertainties and slow recovery in key markets are also significant contributors to GDP growth. India’s economy remains resilient, also, rural consumption and increased government expenditure could act as stabilizing factors for India’s economy amid near-term challenges, as per Arora.

How Indian Economy To Fair Ahead?

Rajani Sinha, Chief Economist, CareEdge Ratings said, “We expect GDP growth to pick up in the second half of the year as the government pushes up its capex spending. Agri production is estimated to be healthy and that should help further bolster rural consumption. Food inflation is also expected to moderate by the fourth quarter and that would be supportive of a pick up in consumption. Beyond that urban consumption would be dependent on improvement in the employment scenario and real wage growth. Sustained momentum in consumption growth would be critical for private investment to pick up. The order book of capital goods companies and road development companies are showing a significant pick up in the first half of the year and that bodes well for overall pick up in capex.”

However, Sinha added, “weak growth in China and consequent flooding of markets like India would remain a deterrent for pick up in private investment. On the external front, while merchandise exports growth is likely to remain muted in midst of global uncertainties, we expect the momentum in services exports to continue. Overall, we expect GDP growth of around 6.8% in H2, taking our projection for FY25 to around 6.5%.”

Meanwhile, ICRA expects GDP growth to pick up in H2 FY2025, on the back of Government capex, agri output and rural consumption, resulting in a full-year expansion of 6.5-6.7%.

Furthermore, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers said, “While we are not revising our full-year growth projection of 7% thus implying a 7.9% growth in H2, we will closely monitor the momentum going forward. We believe that growth in the second half (H2) will be driven by continued strength in agriculture, which is expected to boost rural demand further and increase capital expenditure (capex) from both central and state governments. Additionally, moderation in the industrial sector’s base should support stronger growth, especially with the complete monsoon season. However, certain headwinds could impact our outlook. Risks include the potential impact of Chinese imports (“China dumping”) and policy uncertainties following the US elections, both of which could dampen a revival in private sector investment.”

Market Outlook Next Week:

Siddhartha Khemka, Head – Research, Wealth Management, Motilal Oswal Financial Services is expecting the market to be range-bound on Monday.

Khemka said, “The market will be seen reacting to the weak Q2 GDP data for India which came at 5.4% against an expectation of 6.5% and China’s manufacturing PMI which will be declared on Saturday. Investor sentiments going forward will be directed by geo-political developments and FII activity. We expect the market to remain range-bound amidst mixed global cues and lack of domestic triggers.”

Moreover, Vinod Nair, Head of Research, at Geojit Financial Services expects the prospects of H2 earnings to remain positive due to a good monsoon, festival and marriage season, which could ease the impact of earnings downgrades that happened in Q2. Investors’ attention also turned to US and Eurozone inflation indicators, which will influence central banks’ December policy rates. Stability in the market will depend on the steadiness of the incoming economic data next week.

“While the market is likely to witness some repercussions from the fall in Q2 FY25 GDP to 5.4%. On the other hand, investors will be more inclined to act on the upcoming RBI monetary policy. Though the consensus shows status quo, the probability of a rate cut in February is high due to the subdued growth in Q2. Other economic indicators like service and manufacturing PMI data, auto sales, and US job data will also influence investors’ attention and accordingly shape the market momentum,” Nair said.

On November 29, which is the last trading day of November 2024, Sensex surged by 759.05 points or 0.96% to close at 79,802.79. While Nifty 50 finished at 24,131.10, higher by 216.95 points or 0.91%. Meanwhile, Bank Nifty regained over 52,000 mark to close at 52,055.60. Except for realty and PSU bank stocks, all other sectoral indices were on a positive note. Healthcare, oil and gas, media, auto and metal stocks were top bulls.

Overall, despite the latest surge, Sensex ended the trading week of November 25-29, down by 379.35 points or 0.47%, while Nifty 50 slipped by 180.35 points or 0.74% underperforming its counterpart.