Nomura’s Aurodeep Nandi & Deutsche Bank’s Kaushik Das On Q1 GDP

Nomura’s Aurodeep Nandi & Deutsche Bank’s Kaushik Das On Q1 GDP

[Music] hello and welcome to bloomberg quint we got the first quarter gdp data today uh on a year-on-year basis the increase is 20.1 obviously on a very low base of a quarter in which economic activity had come to a near standstill that was during the first wave uh sequentially between q4 and q1 there is a drop in activity and that comes as a recovering economy was hit by a second wave of infections so this is a number which is uh very difficult to try and understand and glean takeaways from so we will uh bring in the experts to help us do that uh we’ve got koshigas chief economist deutsche bank joining us joining us so we are sorted in terms of analysis over the next half hour thank you so much uh both of you for joining us here on this conversation akashic to you first uh you’re on your sequential sequential seasonally adjusted firstly tell us which of those numbers you’re looking at and what that’s telling you hi thanks for inviting me there are different ways to look at this gdp number and you should look at it in a number of ways not just by the way of uh here year-on-year growth we knew that year-on-year growth will be high so it came at 20.1 which was almost close to the bloomberg consensus estimate of 21 rbi i think was at 21.4 so no surprises over there and given what we have seen uh the severity of the uh second wave in april june i must say that this number is actually impressive uh if you remember that rbi and the june policy had revised their growth focus for april june down to 18.5 and they finally then again increased it to twenty one point four so twenty point one in that perspective given the severity of the second covet 19 wave is not a bad number that’s the first point the second point is that on a sequential basis quarter on quarter uh you know there are you know different ways to again do seasonal adjustment and sometimes i must caution that seasonal adjustment may also not make sense when you have this kind of a seismic shock in april june 20 and april june 21 uh but we are getting a number uh for example january march was up uh about two percent quarter on quarter from october december uh this is all seasonally adjusted data uh april june it’s down about one point two percent uh from that two percent so overall there has been a drag of three percent or three point two percent uh quarter one quarter inch is really adjusted terms so that’s the right way to think about how the growth has kind of slowed down from january march uh uh onwards because of the second wave if you did not have that you know a sequential slowdown obviously the year on your growth rate could have been much higher at maybe 25 or 30 percent because we had a minus 24.4 in the previous uh year same quarter uh are the same question to you what’s your pick of ways in which to analyze the headline number first well again i think this is one of those prints where sequential momentum makes much better sense in terms of figuring out what’s really happening and that’s primarily because every number would look excellent and bombastic given the negative base now um now overall i mean again as kaushik mentioned there are you know many parts to sequential seasonal adjustments so you know our estimates could differ there uh but i think uh just taking a step back the kind of key thing that we get out of this right uh without being too technical is that um yes we were anticipating some slow down that was going to come from the second wave but you know the quantum of fall during the second wave is roughly one-third of the quantum of fall that happened during the first phase if you take the seasonal the sequential momentum and just compare it um that’s how it’s coming across now part of the story was on expected line so agriculture growth being robust expected industrial growth being strong again um expected the sequential loss in industry has been a fraction of what had happened during um during the first week what really surprised us era is um actually what happened on services right now um the the hypothesis with which we entered this data release is that yes we’ve had lockdowns but these lockdowns have been more lenient um have been more focused towards um the contact intensive sectors and as a result of which um you know say and and you know we’ve we’ve developed a sense of economic pandemic resilience so to speak over the course of this one year so hey if if your sector is not locked down you’re going to do okay and and i think what’s sort of really surprising is the kind of broad-based slowdown which we’ve observed in the services sector right so the contact intensive trade hotel transport uh communication they’ve been down by around 19 percent you want qc’s readjusted um you know we’ve had construction down by minus 15 but what’s really interesting is that even beyond that financial services professional services public administration have come down quite sharply and i guess that’s where the sort of negative surprises but again overall you know if you step even further back the broad narrative that um that it’s been a light touch hit to the economy um broadly stands with this data um data release okay and i’ll get back to the uh sort of the sectoral numbers in a bit but kojic uh that is one interesting way to look at it right so uh what one would have anticipated in terms of a hit as we went into the second wave uh versus what we got is probably reflective not just of the nature of the lockdowns but also uh as already was saying an ability to sort of function within those lockdowns and i think globally it has been seen for instance there was an oecd chart uh which was showing that uh the correlation between mobility and gdp implications in any second wave is far lesser uh world over and it’s probably been the same in india as well yeah so clearly there has been a learning experience from april june 20 and you know in april june 20 when we had a national lockdown it just you know it was uh you couldn’t even know how to respond right and uh since then we have kind of got ready in the next 12 months the corporate sector has got ready how to deal with this kovid so definitely certain part of that learning experience has helped but the nature of lockdown also has made a big difference and that is also a part of the learning process that should you lock down the entire economy for three months and remember that each state would have a different starting point for the kovid wave so maharashtra had it first then some other states started contracting so how do you keep all the states locked at the same time when you know maybe maharashtra is coming out of it should you keep it locked even then so i think it was a kind of wise move to keep it like localized and let each state decide how much or which particular containment zone they want to do and that coupled with the fact that corporates have learned to live with kuwait all of us have learned to order through zomato and you know swiggy for an extended period of time you know so that way it hasn’t hurt much uh and uh what arudhiv said i think when in april may the numbers were going up uh the economist community and the analyst community i think became too pessimistic and and felt like you know you’re going to have a very very bad number and you can see that in the subsequent revisions that happened uh from march onwards till may june and then when the actual numbers started coming out in april may june even on a sequential basis when you started kind of analyzing you found out that okay growth is obviously you know hot but not as bad as we had thought and you know the bearish people could argue that this gdp probably doesn’t capture the entire impact of the informal sector and you know those realities are there but as far as you know data that is concerned that we use as analysts to you know kind of figure out the momentum uh it has been better than uh what people would have thought two months uh before i would say fair enough and i know you were steadfast in your annual numbers but we’ll get to that in a minute let me just get down to the breakups now uh already on the expenditure trends i think when the q4 data came uh one takeaway was that the rebound in consumption was slower than uh say the rebound on the investment side now again i don’t know what to understand of this q1 number because the base was also very different in terms of the fall in investment and the fall in consumption last year same time and hence obviously the level of rebound would be different is there any way to understand what to take away on consumption activity in particular from this number yeah so so either the way i’m going the way i have looked at all these numbers is is really to to not look at the year on your numbers okay so you’re doing similarly adjusted quarter on quarter or yes yes help us understand vis-a-vis right so um by by that metric uh consumption has been hit by close to seven percent by our estimates um q one q is easily adjusted um again i mean this is and what was the growth in q4 um in q4 we had um around um around three point four percent okay so a second um yeah um three point four percent and i think um let me device it’s it’s minus eight point nine by my estimate now so it’s been a fall uh but this compares to minus twenty two percent last in the first week this minus eight percent and it’s trading um similarly for uh so that’s consumption and i think that was largely on expected lines because you know as you said consumption had this very rocky kind of um ascent um there was this um this whole festive q4 thing uh la um q3 f5 21 um and then it sort of stabilized in the last quarter and then the second wave was hit it i think on the demand side the um the surprise has been on fixed investment right now by our estimates um fixed investment um has gone down by over minus 15 versus again minus 39 percent in the first week right but even minus 15 sequentially lower um it’s surprising right because you know one the lockdowns were not aimed at uh investment activity two you would have imagined that public capex um you know the focus has been there so there should be some um degree of support from there so again that’s sort of been the surprise not as much the consumption fall uh in terms of government spending also um retracted uh pretty sharply um this is the revenue spending um in this quarter uh the export import side it’s it’s interesting right now um you have a blockbuster year for global growth so exports are up even sequentially they’re up by over seven percent right versus around eight point eight percent last quarter um which which is pretty huge which is very good imports are lower so imports are minus three percent um it’s easily adjusted versus um around 17 percent last quarter and that’s okay that makes sense because you know if your growth is weak your imports are likely to be um weak but you know on a year-on-year basis imports fell further in the last um last year than exports so the net contribution and this is getting irritatingly technical but no no no no it’s fabulous peace corps but the net contribution from exports net exports it’s it’s still a drag um on on on gdp so i mean to sum up on the demand side uh consumption hit which is expected investment hit which took us by surprise uh government spending hit um exports doing well uh imports have retracted so that’s sort of how i would look at it okay uh kaushik do you agree so yeah so the way to think of it is uh from my point of view what are the factors when i was forecasting the number for april june what has that surprised on the upside or downside and for me uh the surprise that i’ve got not actually surprised but the extent of the fall is government consumption expenditure so government consumption expenditure is down minus 4.8 on a year-on-year basis and that was 12.7 year-on-year up uh in the previous april june 20. now if you look at the nominal uh expenditure government consumption expenditure that’s up two percent year-on-year but the deflator is six point 6.8 so therefore you have got a real you know government consumption expenditure minus 4.8 because your inflation is more than the actual nominal expenditure so if you look at the april june fiscal spending of the government total expenditure was up 0.7 year on year you must be remembering when you summed up the apron june fiscal data we got like 0.7 here on your total expenditure so this was expected but i did not expect it to be minus 4.8 uh and that is where the problem is uh you’ve got the july fiscal data and if you look at the july fiscal spending year on year compared to last year uh it’s down again 23 year on year and we don’t know what has happened in august so the point is in july september gdp growth when i do the forecasting what do i take as the government consumption expenditure which is mostly a function of the fiscal spending now ideally the government should be spending a little bit more uh to support the growth and you know private investment you don’t have a complete control it’s up to the corporate sector when they want to invest or when they’re ready to invest and uncertainty calms down but the government should be kind of unloading growth now that can come about in the second half of fy 22. it’s not that the government is planning to cut expenditure and reduce fiscal deficit but as of now we still do not have that support from the government consumption expenditure point of view and that’s why you know growth is maybe 20.1 it could have been 22 if you had more support from the government sector in this particular quarter and uh what are they talked about exports imports if you just look at the net contribution of net exports to growth that is down minus 3.7 percent that is expected because your investment side is up uh 55 year-on-year so imports are imports growth has been higher than the exports growth just on a year-on-year basis and that was a huge uh kind of surplus if you remember in april june of 20 uh when we moved into a current account surplus so you know so those kind of dynamics are playing out uh now the question is the more important question i’m sure you’ll ask is what will sustain this momentum that we are seeing i mean obviously we have had a negative uh sequentially i’ll get i’ll get to that that you can think of in fact uh agricultural sector growth at 4.5 is pretty impressive coming on the back of 3.5 so all the other areas are fine but the government consumption expenditure in my view is the biggest disappointment in the whole gdp data okay understood uh on the industry trend side uh on manufacturing agriculture i think you already mentioned already but uh feel free if you want to add anything there uh should we make anything of the manufacturing number again it’s very high on a year on your basis i don’t know all the seasonally adjusted numbers according to you look like so this easy adjusted number so you know you shouldn’t be worried about manufacturing sees the adjusted numbers uh the the rough calculations you are getting is around minus one point seven percent this compares to around minus thirty point five percent a much lower speed much lower right um and um and so overall industry is fine and as kaushik mentioned um agriculture at uh at um at around four and a half percent is is is obviously um a surprise i think the the um the biggest negative surprise is services right so services overall um it’s around minus 12 versus minus 23 in the in sequential momentum terms so every so to get a flavor of this overall the sequential momentum of say gdp is is just one third of what it was last in q2 but as far as services is concerned it’s half of what it was in um in during the first phase so say that again so the contraction that took place in the first wave yeah overall as a basket of goods services etc gdp it’s been roughly one-third okay but in the case of services it’s been half okay unless right so so so the drop has been uh more significant and as i mentioned at the very beginning um you you’ve seen a lot of drag come across in trade hotel transport communication um close to minus 20 uh versus minus 43 then and that is understandable because um you know you’ve had lockdowns and you’ve had restricted timings and people not getting out um so so that’s um understandable construction is also down by around minus 15 sequential momentum um but what’s really surprising is um is again um your financial services professional services um there shouldn’t be a reason why it’s sequentially contracting by four percent um whereas in fact in the last um in the first wave it contracted by around three point five percent so in fact you know there it’s the momentum has dropped quite significantly there and also i mean and this this goes down to the government spending side the public administration side is down by around minus nine percent which is again pretty steep um so on the um on the supply side i think agriculture great industry the it’s it’s it’s a small tent but whether you know where the accident is gotten gruesome is is services which is being hit um on on a really broad base fashion yeah so uh you know i mean i’m just uh hearing uh arubi talking about seasonal adjustment quarter on quarter and i’m just thinking what will happen after a few quarters when all those numbers are revised in the previous year whether you know the narrative will change and you’ll see yeah you folks should ask for a double bonus here no so i’ve been doing this for a long time and you know you have to be i mean even the cso they if you look at the way they compile the numbers at that point of time they don’t have all the numbers so they would often try to put things under discrepancy so i don’t know we didn’t discuss the component called discrepancy in this quarter also discrepancy subtracted uh 70 basis points from growth so if you were to add the back so 20.1 becomes 20.8 and in january march uh you remember that we had this problem with calculating subsidies net uh transfers because a lot of subsidies were given in the last quarter of january march 21. so the entire subsidy that component was taken as part of discrepancy and therefore you got a 1.7 gdp growth whereas uh your gva growth was 3.7 percent in january mark so these numbers are subject to you know uh changes and i i i will not read too much into all these seasonal adjustment uh details because first of all one is the numbers will change for sure and then this whole narrative also may change the second is that uh you know uh the other problem that we are facing and you know this is a constant problem that we don’t have the breakup of investment between private and government on a quarterly basis so all i can infer is from the you know fiscal spending or you know the amount of capital expenditure that has happened from the government side but that data comes with the lag of one year on an annual basis and then only you’ll be able to figure out from the gdp data uh whether private you know investment is picking up or not so these uh technical issues are there but the broad point is growth is better than what people had uh kind of feared it to be for april june and therefore going forward i think you know rbi and most market participants will find it more comfortable uh to think about the outlook uh given the shock that the economy has been able to withstand and the resiliency with which india has managed to move on despite the severity of the second group okay let me just get to those points as uh the last sort of round of conversation uh more qualitative than quantitative uh or the what are you uh thinking the current quarter will uh sort of look like having seen already that mobility indicators for instance have a loser connection with what actually happens in terms of output given what we’ve seen in the q1 numbers we’ve seen a sharp rebound in some of these you know concurrent indicators many of which are based very heavily or at least reasonably heavily on mobility so if one uses what we have there such as you know your business resumption index plus uh you know draws from the current quarter numbers what do you think q2 looks like and what are your annual numbers now looking like right so um in terms of um okay so i think one way to look at it is just to kind of chart out in the air how the trajectory has been going month on month right so um you had april which was relatively stable despite the second wave then you had a small but sharp fall in may because of the second wave and then in june you saw a rapid rise in some sectors it almost reached back to pre-second wave levels in others it’s it’s it’s been still lower and what we’ve seen is uh in july it’s kind of plateaued right so there’s been a sense of fatigue that we’ve seen especially in consumption and um especially in um in the external sector the non-oil import side you know we’ve seen some degree of of of easing now again um these are these are not based on just year-on-year numbers um this is you know we do a normalization index that kind of normalizes it to the pandemic levels um and i think what we are sort of so the july uh data seems to suggest that there is there’s some plateauing after a rapid rise um but you know through um on on in the case of industry in the case of services it’s still improving right um the august and you mentioned the nomura india business assumption index now for august we really don’t have too much of this conventional monthly data to talk off right so we are now in the realm of ultra high frequency data and and what’s this ultra high frequency data telling us well um that the momentum is pretty much there in in august so in august um our our business resumption index the number india business assumption indexes has cross-pre-pandemic levels right so for the first time and for the past three weeks it’s been above those pre-pandemic levels um and um and yes part of it is because of better mobility and again you’re absolutely right um that the correlation of mobility with growth um reduces as you know you go forward in in terms of pandemic waves um but hey you know the other indicators have also shown that overall um the economy remains in a constructive mode it is recovering now the key risk the way i see it is a third wave right that’s that sort of you know the big elephant in the room and no one knows what’s going to happen um the way to insulate yourself from a third wave is the vaccination so currently in fact i mean the next couple of quarters it’s not a deep intellectual debate it’s it’s it’s all these you know cyclical factors that you’re talking off right um if for instance you keep your vaccination pace to see over seven million doses a day right if you manage if you manage to get that momentum rolling and you manage to get say half of the population vaccinated by the end of the year you do have a vaccine pivot so to speak in the sense that you will have sectors that have still been in a relatively locked situation unlocked so you know the rbi keeps saying look capacity utilization is low well one of the reasons it’s low is because you know we’ve really not reached to pre-pandemic conditions of operation and that happens once you have the vaccine pivot the other thing is that over the coming quarters you will have the festive season kick in you’ll have the areas coming from uh of dearness allowance right which have been um sort of in the pipeline for such a long time and it will sort of come in in the form of areas plus you’ve got easy financial conditions so um you know the inter-sensitive sectors should do uh reasonably well um and then you know this is a blockbuster year for global growth there’s a party going outside so typically india’s growth cycle is linked pretty closely to the global growth one um so i mean you put all these factors together and add to that the general fiscal activism towards capex um i i think we are decent we are decently optimistic in terms of the growth recovery sort of continuing across the next few quarters uh we lost the connection there for a minute uh i think all of the fed more or less sort of concluded his answer i think if we still have kosher questioning let me just throw that one last question to you which is uh the big question as to whether uh the data we have plus what we’re seeing in the july to september quarter will give enough comfort to the reserve bank of india and the mpc uh to start moving along their normalization path i think uh already mentioned a couple of points uh why growth trajectory should be moving you know in the right direction and i agree with him and uh remember that last year july september we were down minus three 7.3 so the base is still positive so i think we can get a seven and a half eighty percent positive growth in july september if you look at the core infrastructure production data which came out today uh july was about nine point four percent so you know things are looking good as far as the future growth trajectory is concerned uh third wave of kovitt is obviously a risk we’ll only get to know in the coming months and when the festival season is over whether you know cases are increasing or not as of now you know 70 of the cases are being contributed by kerala so it’s not broad-based so if you can take uh care of kerala i think india’s numbers will look pretty good and the vaccination doses have increased quite significantly in the last one week if you can maintain that momentum all that uh will you know give a lot of you know kind of uh positive uh kind of feeling to the whole corporate sector and they can feel more uh kind of uh comfortable to start investing uh there are a couple of risk factors which i want to mention one is obviously the big story about china slowing down and we know that you know there are big you know trade linkages with china uh uh nowadays it’s not just u.s and europe so we need to also kind of keep in mind whether exports grow the kind of growth that we have seen in the last few months whether that momentum will sustain or not and as china slows down whether the global economy uh slows down to some extent it’s not that the level of growth will fall significantly but the sequential momentum can slow down in the next few quarters so that’s something we need to keep in mind uh agriculture growth uh has been good so far uh but the rainfall has been a bit patchy so that’s more of a risk on inflation than growth to your question about rbi i think you know the growth numbers that we got today and the trajectory that we are going forward i think it doesn’t make any change to rbi’s plan of normalization in our view output gap only closes by the end of this fiscal year uh you know so therefore i think the next step that rbi will look for is uh taking care of the you know huge amount of surplus liquidity that we have and the only option that i can think of is uh you know increasing the longer 10 or vr’s more than 14 they are moving to 28th day or 56th day or final 2 trillion and sucking out liquidity over a longer period of time but while keeping the uh stands uh still accommodative and only changing it probably in february uh of next year but we expect a reverse report rate hike in december of 20 basis points followed by another 20 basis points in february but the stands from accommodative to neutral we expect it to change only in february of next year okay i’ll leave it at that uh kosher can already thank you both so much for joining us apologies for that small technical pitch towards the end but thanks for that discussion it’ll be up on bloombergwin.com shortly as well thanks for watching thank you [Music] you
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Nomura\'s Aurodeep Nandi & Deutsche Bank\'s Kaushik Das On Q1 GDP

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