Indian economy likely expanded 4.9% YoY during 1QFY15

Notable upturn in industrial output likely contributed.

As India’s GDP growth numbers for the first quarter (i.e. Apr-Jun) of FY15 are due on 29 Aug (Fri), it has been predicted that the Indian economy likely expanded 4.9% YoY, up modestly from 4.7% in FY14 (Apr-Mar14).

According to a research report from DBS, below normal rains in the crucial kharif crop-growing areas likely slowed agricultural output to 2.0% YoY from 4.8% last year. Construction activity, meanwhile, is expected to have stabilised, whilst a notable upturn in industrial output likely propped the headline GDP.

Industrial sector ex-construction is estimated at rise 3.0% from 1.3% in FY14, as export-oriented demand was supportive of manufacturing activity. Electricity generation also had a strong run in the Jun quarter.

The central bank's industrial outlook survey bottomed out, with the overall business situation and order books expectations improving notably for the Sep quarter.

Here’s more from DBS:

Meanwhile, after belt-tightening in the earlier quarter, government spending rose 8% YoY during Apr-Jun.

This should be supportive of the community and social services component, while the highly-weighted trade, transport, and communication segment likely consolidated on higher visitor arrivals, rise in shipping indicators and telecom activity.

Factoring in the still-weak credit growth cycle for the financial/business services segment, we look for the overall services sector to rise 6.7% slightly better than the quarter before.

That said, the stressed banking sector and ongoing deleveraging will limit the participation of the private sector/corporate players in the initial leg of the growth stabilisation phase.

Recent upturn in PMIs, business sentiment indices, strong capital markets, macro stability alongisde a stable political climate signal that the slowdown in the growth cycle is behind us.

We expect activity in the rest three quarters of FY15 go gradually gather momentum, taking FY15 growth to 5.5%.

However, with a tight monetary and fiscal policy expected to prevail this year and early next, the scope of a swift turnaround towards 7% is unlikely to materialise.

Shift from the consumption-based boost to investment-oriented recovery will work its way this year and next.

With the new government assuming office late in the Jun quarter, it would be premature to take the 1Q performance as an indication of success (or not) of the policy decisions and reform agenda.

Contrary to big-bang expectations, the government has opted to function in a calibrated and collaborative manner.

The initial focus has been on addressing the governance deficit, lowering inflation and boosting infrastructure investments, with the benefits expected to show with a lag into FY16.