20 February 2025
E
CO
S
COPE
The Economy Observer
Expect real GDP growth at ~5.7% YoY in 3QFY25
Real GVA growth could improve to 6.1-6.3%
India’s real GDP grew by an unexpected 5.4% YoY in
2QFY25,
compared to the market expectation of 6.5%,
RBI’s projection of 6.7%, and our forecast of 6.2%. Naturally, the market participants were surprised and
revised their GDP growth projections for FY25 and FY26.
Various growth forecasts for 3QFY25 and 2HFY25:
The
RBI
reduced its growth forecasts, though it still projects
real GDP to grow 6.8% YoY in 3QFY25 (down from 7.4% projected in Oct’24), according to the Monetary Policy
Committee (MPC) meeting of Dec’24
1
. The
Economic Survey 2024-25
pegs FY25 real GDP growth at 6.4%, and
the market consensus – according to Bloomberg
2
– is 6.4% YoY in 3Q and 6.3% for the full-year FY25 (down
from 6.7%/6.9% in Oct’24). It means that with 6% YoY real GDP growth in 1HFY25, the RBI is projecting growth
of ~7% YoY in 2H, the Economic Survey sees it at around 6.8%, and the market consensus is close to 6.5%. We,
at MOFSL, had
predicted
a growth of 6.1% in FY25 in Sep’24, which was
revised down
slightly to 5.8% after
2QFY25 data was published by the Government. We also expected that real GDP growth would remain muted
at 5.4% in 3Q, the same as in 2QFY25.
We expect real GDP growth at ~5.7% in 3Q; real GVA growth could pick-up and reach 6.1-6.3%:
Now that
almost all high-frequency data
3
related to 3QFY25 is available
(Exhibit 1),
we update our 3QFY25 forecast. We
have slightly revised up our 3QFY25 growth projection. While real GVA growth could pick up to 6.1-6.3% YoY
in 3Q from 5.6% in 2Q, real GDP growth could remain below 6% for the second consecutive quarter in 3QFY25
(Exhibit 2).
This would broadly be due to very weak growth in net indirect taxes because of a very unfavorable
base effect
(Exhibit 3).
This is in line with our in-house
economic activity index (EAI)
published early this
month for 3QFY25.
Sub-6% real GDP growth to reignite concerns:
Weak GDP growth must be analyzed in conjunction with an
improvement in real GVA growth. However, a real GDP growth of sub-6% would be another big setback for
the economy and the financial markets. Real GDP growth projections would again be revised downwards.
Questions and doubts will be raised over the corporate earnings cycle. Pressure could build on the INR against
the USD, and the demand for quick and sharp rate cuts by the RBI will intensify.
A 6.0-6.5% growth in 3Q could soothe the markets:
In contrast, a real GDP growth of 6.0-6.5% in 3Q would
ease market sentiments, helping to overcome the forgettable 2QFY25 growth data. Official growth projections
will still be cut, and it will likely make the 3QFY25 data more like a non-event. This would also help
participants realize that very high economic growth in FY24 was exceptional and help orient their
expectations to a moderate level.
Real GDP growth of above 6.5% in 3Q to reset expectations positively:
Anything above 6.5% in 3QFY25 would
confirm that the 2QFY25 dip was actually a one-off, and we will revise our forecasts upward though high
official projections will be retained for FY25. If so, financial markets will surely cheer the strong growth,
confirming India’s place as the fastest-growing economy amid the uncertain global economic outlook.
1
The RBI
did not publish GDP growth projections for 3QFY25 or FY25 in the recent monetary policy in Feb’25
(BMBG) consensus taken on 20
th
Feb’25
2
Bloomberg
3
These
are the monthly indicators used by the CSO to estimate quarterly GDP/GVA data; included in Annexure B of
official data releases.
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com)
Tanisha Ladha
– Research analyst
(Tanisha.Ladha@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Exhibit 1:Summary
of key monthly indicators used in estimating quarterly GDP
3QFY24
% YoY
1. Production of coal
13.0
2. Production of crude oil
0.0
3. Production of cement
5.1
4. Consumption of Steel
14.7
5. Telephone subscribers
1.7
6. CVs sales
2.4
7. Cargo at major sea ports
10.2
8. Cargo at airports
9.8
9. Air passenger
10.8
10. Rail - Freight traffic
6.4
11. Bank deposits
13.0
12. Bank credit
19.6
13. Core revex
-7.5
14. Exports of G&S
4.0
15. Imports of G&S
0.4
16. IIP: Mining
8.2
17. IIP: Mfg
5.4
18. IIP: Electricity
9.0
19. IIP: Metallic minerals
6.8
Monthly indicators*
7.0
Official real GVA growth
6.8
*Simple average of all 19 indicators
4QFY24
10.2
3.4
7.6
10.4
2.3
0.6
2.9
18.4
7.3
8.4
13.3
19.8
-5.2
5.5
3.9
4.9
4.8
7.3
-3.1
6.5
6.3
1QFY25
10.8
-0.7
0.4
15.0
2.7
3.3
3.9
13.9
7.4
3.0
10.9
17.1
-1.5
9.1
9.5
7.9
4.3
10.8
8.7
7.2
6.8
Nov-24
Dec-24
7.5
5.3
-2.1
0.6
13.5
4.0
12.3
11.4
0.1
0.0
-1.0
4.1
2.6
2.7
9.7
8.0
13.2
10.5
1.2
1.4
11.1
9.7
11.1
11.0
-12.2
1.3
4.9
9.2
19.5
9.0
1.9
2.6
5.5
3.0
4.4
6.2
-2.1
1.9
5.3
5.4
…
…
#MOFSL forecast
Source: Ministry of Finance (MoF), RBI, Various national sources, CEIC, MOFSL
2QFY25
0.5
-3.4
3.2
12.0
0.8
-4.3
6.2
16.1
7.8
1.9
10.2
12.4
7.2
4.3
5.4
-0.1
3.3
1.4
2.1
4.6
5.6
3QFY25
6.8
-2.1
6.5
7.8
0.0
-2.3
-1.7
10.8
11.1
1.4
9.7
11.0
11.2
11.4
10.8
1.8
4.3
4.1
-1.5
5.3
6.2#
Dec-23
10.8
-1.0
3.8
14.8
1.7
-4.9
5.0
10.8
9.9
6.4
13.0
19.6
-5.2
1.9
-4.6
5.2
4.6
1.2
0.1
4.9
…
Oct-24
7.8
-4.8
3.1
12.7
0.5
0.6
3.7
14.5
9.8
1.5
11.4
11.8
47.1
20.4
4.9
0.9
4.4
2.0
-4.5
7.8
…
Worse than previous month/quarter and a year ago
Worse than the previous month/quarter but better than a year ago
Better than the previous month/quarter but worse than a year ago
Better than previous month/quarter and a year ago
Exhibit 2:Monthly
indicators suggest some improvement in
economic activity in 3QFY25
16
12
8
7.0
5.6
6.8
4.6
Monthly indicators*
(% YoY)
Official real GVA growth
Exhibit 3:Weak
growth for net indirect taxes (NIT) in
3QFY25
Nominal net indirect taxes (% YoY)
90
60
30
28.2
GDP-GVA data
Monthly center's data
40.8
15.4
1.1
7.9
1QFY23
3QFY23
1QFY24
3QFY24
1QFY25
3QFY25
4
0
5.3
0
-30
3QFY22 1QFY23 3QFY23 1QFY24 3QFY24 1QFY25 3QFY25
*Simple average of all 19 monthly indicators
Source: Various national sources, Central Statistics Office (CSO),
RBI, MoF, CEIC, MOFSL
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20 February 2025
2
 Motilal Oswal Financial Services
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20 February 2025
3
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20 February 2025
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