GDP print, DeMo data adverse; but D-Street still sees silver lining. How?




Some experts noted that GST collections for July exceeded the targeted figure, and the front-loading by the govt could be due to an early Budget. NEW DELHI: A slew of official data releases on Thursday showed chinks in India’s economic armour; but Dalal Street doesn’t care, and why!

India’s June quarter GDP growth print came way below expectations, slumping to a 13-quarter low. Official data also showed a sharp 2.4 per cent degrowth of eight core sectors of the economy in July. Meanwhile fiscal deficit levels crossed 92 per cent of Budget estimate for FY18 by the end of July.

And the Narendra Modi government’s robust-looking reformist image took a dent when central bank data showed the ineffectiveness of the Modi government’s demonetisation drive last year.

Critics slammed the government after official data showed most of the banned currency notes are back in the system, which belied the official hypothesis that the move will flush out the unaccounted money stashed in cash form.

But the domestic stock market didn’t appear to care much, and the benchmark Sensex rallied over 150 points, while the Nifty steadily headed towards the 10,000 mark.

Analysts say Street-smart investors knew what’s in the offing.

Real GVA: Analysts noted that in the GDP print, the gross valued added (GVA) growth of 5.6 per cent was much lower than 6.4 per cent that the market was factoring in. Yet growth in core growth remained intact, growing at 5.5 per cent compared with 3.8 per cent in Q4 of FY17. That’s the silver-lining.

A close look at the growth numbers showed agriculture, manufacturing, construction and mining activities got hurt during the quarter. But the services sector showed much better growth than last few prints.
Analysts noted that 43 per cent of agriculture estimates were based on winter crop output for the FY17 season, while livestock products, forestry and fisheries actually registered combined growth of about 3.4 per cent in June quarter. Destocking and rising costs, though, hurt manufacturers.

“The growth recovery post-demonetisation has been slow despite the economy being fully remonetised and strong global growth. This was corroborated by high frequency data such as credit growth and cement dispatches. However, the impact of GST rollout was muted in Q1 of FY18. Because while destocking slowed down manufacturing growth, growing consumption lifted services activity. If both these components are added, growth was at 6 per cent, same as in Q4FY17,” Edelweiss Securities said.

Foreign brokerage UBS said despite the gradual pace of recovery on the ground, the structural reforms pushed by policymakers (including GST rollout, adoption of inflation targeting, new bankruptcy code, financial inclusion, FDI liberalisation, measures to curb black money and digitisation) should help improve productivity dynamics and lay the foundation for sustainable growth.

UBS believes that GST should add 0.6-0.9 percentage points to India’s GDP growth in the medium term.

Tax collections: Analysts remained positive on tax collections in July. Data showed a total of Rs 92,300 crore tax was collected in the first month after GST rollout. July CGST (including share in integrated goods and service tax (IGST) would likely be Rs 40,000-45,000 crore, they said.

“This might seem low given that around Rs 78,000 crore is expected to be garnered from indirect taxes every month on an average as per Budget estimates. However, it is too early to assess the impact on government accounts. We view this data positively given that only 46 per cent of the potential taxpayers have filed GST till now. We need to await data over the next 2-3 months for more clarity,” Kotak Securities said in a note.

Besides, the brokerage noted that out of the 6 million taxpayers (70 per cent of the expected total tax base) eligible to pay taxes in July, only 3.8 million ( or 64.4 per cent) had filed their returns in July.

“Assuming complete migration and compliance, we believe potential July CGST would have been around Rs 90,000-95,000 crore. This makes us optimistic that there can be upside to CGST collections over the next few months from the current levels. We note that the government had expected total July GST collections of Rs 91,000 crore,” it said

99% banned notes are back: With almost all the banned currency notes back with banks, analysts say the cash ban seems to have failed to unearth black money. Besides, analysts noted that the argument of digitisation being the objective of demonetization, too, doesn’t hold water.

“In the short term, the cost of demonetisation – including a slack in activity and loss of jobs – has weighed heavy on the economy. However, benefits including increased tax compliance and financialisation of savings will likely play out in the medium term,” Nirmal Bang Institutional Equities said in a note.

Fiscal deficit: RBI’s recently-released annual report raised concerns over a drop in fixed investment and risks to fiscal deficit from implementation of farm loan waiver, GST and restructuring of state electricity distribution companies. The rise in fiscal deficit to 92 per cent of FY18 forecast has been worrisome.

But some experts noted that GST collections for July exceeded the targeted figure, and the front-loading by the government could be due to an early Budget. “We remain apprehensive about the upside risks such lower RBI dividend announcement, expectation of lower telecom revenues higher allowances under the 7CPC,” JM Financial said in a note.




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