India’s surprisingly fast GDP growth and the ongoing surge in Sensex
24th Dec, 2023
According to a study, India Inc. corporate performance as well as the boost to private capital formation has been quite uneven — almost in line with the K-shaped consumption recovery.
So, let us understand the K-shaped recovery and details.
Key Highlights of the Study
- Surprising Growth in Q2: Contrary to expectations, Q2 2023 witnessed a robust 7.6% GDP growth, primarily fuelled by a remarkable 14% expansion in the manufacturing sector.
- Stock Market Rally and Political Wins: The GDP surge coincided with BJP's electoral victories, igniting a rally in Indian stock markets. Foreign investors showed renewed interest while retail investors reached historic highs.
- Consumption Struggles Amid Urban-Rural Divide: Despite positive economic indicators, data reveals a persistent struggle in average Indian consumption levels, with a noticeable urban-rural gap.
- Unravelling the GDP Surge: Analysts question the triggers behind the unexpected GDP growth, exploring whether it marks the end of the economic slowdown or signals a new growth phase.
- K-Shaped Industrial and Consumption Recovery:
- India's recovery exhibits a K-shaped pattern, with disparities in consumption and industry performance. While some sectors thrive, others face challenges.
- India's consumption recovery follows a K-shaped trajectory, accentuated by an urban-rural divide and a shift toward premium products.
What is K-shaped recovery?
- The “K-shaped” economic recovery is characterised by a stark split in the recovery pace of the economy— some sectors are bouncing back ahead of the rest at a much faster pace, while others are continuing a downward trajectory.
- K-shaped recovery occurs if different sectors recover at different rates.
- Manufacturing Output Surge: The surge in Q2's manufacturing output is dissected, revealing a 14% growth in gross value added (GVA). Company profits soar despite modest net sales growth.
- Impact on Sensex and Stock Prices: The rise in company profits resonates in stock markets, enticing investors. This, coupled with falling input prices, contributes to the surge in stock prices.
- Investment Trends and Private Sector Participation: Examining investment patterns, some sectors benefit from the government's capital expenditure push, potentially signalingprivate sector resurgence.
- Uneven Capacity Expansion: While profits surge, the study indicates uneven growth in capacity utilization across sectors. Industries linked to premium consumption and government capex outperform.
Impact of India's Economic Recovery-
Stock Market Boost:
- The robust economic recovery reflected in GDP growth has energized stock markets, attracting domestic and foreign investors.
- Increased market participation could stimulate capital inflow, fostering economic stability and expansion.
- The economic upturn coinciding with political wins may bolster the ruling party's image.
- Positive economic indicators may enhance public perception, potentially influencing political landscapes.
- The K-shaped recovery accentuates the gap between urban and rural consumption
- Addressing this divide becomes crucial to ensure inclusive growth and social stability.
Manufacturing Sector Surge:
- A significant surge in manufacturing output contributes to overall GDP growth.
- Strengthening the manufacturing sector can lead to job creation and increased export
Uneven Investment Patterns:
- Sectors benefiting from government capex witness growth, while others lag.
- Addressing imbalances in private sector participation becomes essential for a more uniform and sustained recovery.
Capacity Utilization Dynamics:
- Varied capacity utilization levels across sectors indicate a nuanced recovery.
- Tailoring policies to support sectors with lower capacity utilization could optimize overall economic performance.
Private Sector Resurgence:
- Signs of private sector resurgence align with government objectives.
- Encouraging private investment can amplify the economic recovery, creating a more sustainable growth trajectory.