Are we in a state of quasi growth slowdown?

By Arjun Deshpremi

Are we currently facing a quasi growth slowdown? The apparent nervousness is clearly reflected in the trends exhibited in key stock indices. Initial trends in Q4FY19 exhibit overall decline in sectors such as Telecom Equipment & Infra Services; Agro Chemicals; Petrochemicals; Infrastructure Developers & Castings, Forgings & Fasteners. Pharmaceutical companies dependent on exports are likely to report poor growth numbers. In Q4FY19, of 384 companies more than 330 companies exhibited negative growth in mid-line and bottomline. Perhaps, significantly depressed rural prices is disturbing rural income and weak demand is affecting the FMCG sector.

According to SBI report, Behind the veil of corporate results, one issue that is engaging attention of the market is the recent data issues. For example, the existence of shell companies in MCA 21 has reinvigorated the debate of the veracity of GDP numbers. However, we would like to draw a similar analogy with the fact that all transactions, whether legitimate or illegitimate, form a part of GDP estimates and hence shell companies will not change GDP numbers, purely going by definition. Additionally, we would also like to point out the significant data difference between estimates given out by independent agencies in public domain, like say CMIE and Projects Today. For example, Government investment estimates by CMIE is lower by a staggering Rs 7 trillion compared to Projects Today! Let these numbers be also a part of a comprehensive data debate!

Leaving aside this debate, consumption demand is also showing signs of moderation as revealed by various leading indicators. Automobile sector has also shown lackluster performance with domestic sales, production and export all witnessing deceleration in growth. Also, percentage of leading indicators of both urban as well as rural demand showing acceleration has significantly reduced in recent months. Moreover, our Composite Leading Indicator (CLI) which has a one-quarter lead over non-agricultural GDP growth, is signaling a contraction in GVA for Q4 FY19 towards 6%. Interestingly, food inflation and retail inflation in general have not picked-up despite increase in MSP. For NBFCs, relying more on borrowed funds with limited capital, there seems to be more of solvency issue rather than a liquidity crisis being faced by the sector. Even the mutual fund industry is witnessing decline in investment flows. Though credit growth has picked-up after dipping in FY17, but it has not been broad based with credit off take seen mostly in Government and high rated customers.

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