The Central Statistics Office (CSO) will be presenting India’s Gross Domestic Product (GDP) numbers for the second quarter of fiscal FY19 (Q2FY19) later today. Last time around, the economy surprised markets and experts by clocking 8.2% growth rate during Q1FY19 as against 7.7% in Q4FY18, with Gross Value Added (GVA) growth rate at 8%.  Ahead of GDP numbers, the stock markets are performing on a positive note, with Sensex trading at 36,288.15 above 117.74 points or 0.33%, and Nifty 50 above by 35.55 points or 0.33% trading at 10,894.25. Meanwhile, the Indian rupee was also trading stable at 69.675 down by 0.040 points or 0.06% against US dollar benchmark index at interbank forex market. Many analysts are predicting the GDP growth rate between 7.4% to 7.6% during Q2FY19. This would be lower than the performance of GDP witnessed in Q1FY19.

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However, analysts believe two mis-firing sectors alone will be responsible for this slowdown in GDP growth. Sumedha Das Gupta, analyst at ICICI Bank said, “GDP growth is expected to print at ~7.6% YoY in Q2, decelerating on a sequential basis. We believe Q2 FY2019 GDP growth will still be supported and impact of adverse base effects and tightening financial conditions would be visible Q3 onwards.”

Interestingly, Gupta expects GVA growth to have moderated to ~7.4% YoY from ~8.0% YoY in Q1, led by slowdown in momentum for agriculture and industry. Services sector is expected to clock a sequential improvement.

Hence, agriculture and industry sector will be the cause of Indian economy not touching over 8% mark. Here’s why, as per ICICI Bank.

Industry sector!

Mining is likely to show seasonal loss of traction in Q2 owing to monsoons, and as indicated by sharp slowdown in the output of coal, crude oil and natural gas in July-September 2018.  Electricity value addition will likely show a pickup as indicated by rise in electricity output (core industries).

Credit growth to the power sector has also returned to the green after de-growth in nine quarters.  Under the construction head, while output of the steel sector has shown traction in Q2, the cement sector output has slowed, and credit to the cement sector has contracted. This, in conjunction with an adverse base, is likely to constrain value addition in construction.  

Manufacturing PMI has improved very marginally on an average in Q2 FY2019 as compared to the previous quarter.  Industrial credit growth has picked up sharply over August and September, with much of the improvement captured by medium enterprises, while micro & small enterprises have seen negligible credit growth this FY.

Net exports are likely to have slightly lower contribution to headline growth in Q2 as compared to Q1, as exports recorded a de-growth in September, and average imports growth was sharply higher over Q2.  

Corporate earnings: Corporate earnings were muted in Q2 as compared to the double digit growth witnessed in the previous quarter. The sustainability of the double digit growth is questionable even though base effect is expected to wane.

Agriculture!

Kharif sowing for 2018 has been ~1% higher on an annual basis, with rice and oilseeds showing higher acreage as compared to last year. However, sowing of pulses and coarse cereals has been slightly lower on an annual basis. A 9% monsoon deficiency as compared to normal was registered for India as a whole over July-September, with acute shortfall in East & Northeast (24% below normal), and more moderate shortfalls in Central India (7% below normal), Northwest and South India (2% below normal). This has led to more than 250 districts of the country facing monsoon deficit and a drought-like situation.

Thus, pockets of agricultural distress coupled with nonremunerative farm produce will imply agricultural value addition may be modest for the remainder of FY2019. Additionally, if farm prices do not pick up, then consumption growth will be further impacted in FY2019, with rural areas probably consuming only essentials for the rest of the year.

Apart from above two sectors, every other category is seen to perform well this Q2.

Teresa John, Research Analysts at Nirmal Bang expects the services sector’s growth (including construction) to come in at 8.1% YoY in 2QFY19, up from 7.5% in the previous quarter and 6.4% a year ago. Construction sector activity is expected grow 7% YoY on a low base, but slow down from 8.7% YoY in the previous quarter. Public administration, defence and other services - which are expected to grow 15.5% YoY - will provide the biggest boost to growth.