India Q2 GDP data today: From rural demand to govt capex—here are five key indicators to watch

India Q2 GDP data today: The Indian economy likely moderated to 6.5 per cent in the July-September quarter of the current fiscal (Q2FY25) due to an uneven performance across sectors and a decline in private consumption, especially in urban areas amid high food inflation. Heavy rainfall, weak corporate margins, and subdued exports weighed the overall GDP print.

According to credit rating agency ICRA, India’s GDP growth likely slowed marginally to 6.5 per cent in the second quarter of FY2025 from 6.7 per cent in the previous quarter. ICRA also predicted a slowdown in gross value added (GVA) growth, an economic metric that measures the value of goods and services produced in an economy, to 6.6 per cent in the September quarter.

Also Read: India’s GDP growth likely slowed to a six-quarter low in Q2: Mint poll

According to the median estimate of 26 economists in a Mint poll, India's economic growth likely slowed to 6.5 per cent in the September quarter, its slowest pace in six quarters. Gross domestic product (GDP) data for the second quarter of FY25 is scheduled to be released on Friday, November 29, 2024.

India Q2 GDP: Here are five indicators to watch

1.Rural consumption

Private consumption rebounded at 7.4 per cent YoY in Q1 but decelerated in Q2. Rural demand showed resilience over higher FMCG sales, at six per cent YoY in Q2 compared to two per cent YoY seen in urban markets. For the year (April-October), two-wheeler and tractor sales increased 13.2 per cent YoY and 3.2 per cent YoY, respectively.

According to an ICICI Bank research report, the dichotomy between rural and urban India is explained by the much higher demand for rural workers for construction, rising land prices, and much higher kharif output (estimated to be 5.7 per cent higher YoY). 

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Government transfers under various schemes are also beneficial for supporting consumption. At the same time, urban demand is muted. It has been impacted by relatively high food inflation (8.3 per cent YoY since April 2024), moderating wage and credit growth, particularly for unsecured loans.

Going forward, favourable agricultural output and a 5.9 per cent YoY hike in MSP for the Rabi crops should ensure rural demand remains buoyant. Urban demand should improve with a lag once hiring improves in coming quarters and inflation moderates.
 

2.Industrial activity

Industrial activity, as measured by the index of industrial production in Q2, averaged 2.6 per cent YoY (5.5 per cent YoY in Q1), compared to 7.8 per cent YoY in the year-ago period. According to ICICI Bank, while manufacturing activity slid to 3.1 per cent, compared to 6.8 per cent YoY, there was a larger drop in electricity output at 1.1 per cent, compared to 10.8 per cent YoY in Q1.

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Mining activity contracted compared with a double-digit growth last year. Pharma, metals, food products, and motor vehicles have dragged down manufacturing activity. Cement output in Q1 was impacted by lower government spending, which has somewhat reversed at three per cent YoY in Q2. Steel consumption has grown double-digit in Q2 even as quarterly steel production has been relatively muted.

3.Services Sector

Services PMI for India averaged 59.6 in Q2 as against 60.5 in Q1. For October, services PMI came in at 58.5, and the preliminary number for November is 59.2. During Q1, services activity expanded by 7.2 per cent YoY, compared to 7.6 per cent YoY seen in FY24 and 10 per cent YoY in FY23. 

Despite weak government spending in Q1, the public administration and defence segment saw an acceleration of 9.5 per cent YoY, led by private services. With government revenue (ex-interest) spending picking up in Q2 at 6.7 per cent YoY, economists expect this segment to see an acceleration in growth in Q2 as well.

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Corporate performance of the services sector shows that margins remain buoyant at 10.1 per cent in Q2, with a marginal uptick this quarter driven by the IT sector along with the hospitality and real estate sectors, respectively.

4.Corporate Earnings

Indian Inc. reported a disappointing September quarter (Q2FY25), with several companies posting weaker-than-expected results. This underwhelming performance triggered a sharp selloff in the equity markets, raising investor concerns about a potential slowdown in the Indian economy.

Domestic brokerage JM Financial's analysis of Q2FY25 results shows that 45 per cent of companies within its coverage universe missed earnings estimates. "We have analysed the results of 227 companies (out of the 275 company JM Financial coverage universe) and concluded that 45 per cent of companies have missed estimates," said the brokerage.

Also Read: BFSI Stock Picks: ICICI Bank, SBI among Mirae Asset’s top 10 picks for investors after mixed Q2; Should you buy or hold?
 

5.Government capex

After a slow start to capital expenditure by the government (both states and centre), during April-June 2024, ICICI Bank economists believe central government capex has picked up by 10 per cent YoY in Q2. Capex by states is still contracting at -5.6 per cent YoY. During H1, the Centre’s capex is down 15.4 per cent YoY. In H2, the centre’s capex must grow by 52 per cent to achieve the FY25 budget target. Hence, economists expect government capex to rise in H2, but government capex this year will likely be lower than the budget target.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.