India's Q2 GDP confusion continues, but data less alarming

India released its Q1 FY16 (Q2 2015) GDP data on Monday, 31 August. The data, however, gives a conflicting signal. As per the release, GDP grew by 7% yoy in Q2 2015, much weaker than the market expectation of 7.5% yoy . More importantly, growth was lower than the 7.5% rate recorded in Q1 2015. On the other hand, GVA (Gross Value Added) grew by 7.1% yoy, much higher than the 6.1% yoy growth of the previous quarter.

"Additionally, it is interesting to note that while both CPI and WPI are showing signs of slowing down, we actually saw a pick-up in the GDP deflator in June", says Societe Generale.

Nevertheless, disaggregated GDP data indicate a much less gloomy picture than the headline data. Domestic demand was expectedly weak compared to the previous quarter but is not slowing down to worrying levels. More importantly, investment is showing signs of picking up, led by the fast-tracking of road construction. This is also reflected in improving construction activity. However, growth remains uneven.

"Manufacturing grew by 7.2% yoy vs 8.4% in the previous quarter. Service sector activity also slowed down. Overall, the much lower than expected headline GDP growth number poses some downside risk to our GDP forecast. We, however, continue to remain constructive in the longer run", notes Societe Generale.