Powered by

Home Podcasts

High Tax Collections, Base Effect Takes India Q3 GDP To 8.4%

BOB Research says Q3 has been propped up mainly by the net tax effect as value added has grown at 6.5% this quarter while GDP is at 8.4% due to exceptional tax collections and control over subsidies.

By Govindraj Ethiraj
New Update
India Q3 GDP
On today’s episode, financial journalist Govindraj Ethiraj talks to Vivek Kumar of QuantEco Research as well as Rama Bijapurkar, consultant on all things consumer markets and director on boards of leading companies.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (04:12) High tax collections, base effect takes India Q3 GDP to 8.4%, beats all estimates.
  • (14:23) Tata’s lead Rs 126,000 crore worth semiconductor projects to kick off in next 100 days.
  • (15:47) India’s electronics exports to the US, as a ratio of China’s, tripled last year. 
  • (17:21) Are Indian companies giving up on mass market products too soon in shift to premiumisation?
  • (26:03) Why Hong Kong has had the world’s worst-performing major stock market in a quarter of a century.

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


The Markets Are See Sawing

The markets were see-sawing ahead of GDP numbers which have beaten expectations of all and sundry. More on the GDP numbers themselves shortly but the BSE Sensex swung 631 points before closing at 72,500, up 195 points. The Nifty50, on the other hand, ended the Feb derivatives series at 21,983, up 32 points or 0.14 per cent. 

More on the sensitive small and medium cap funds who are already being asked to rejig their portfolios and keep cash handy where investors come charging in.

Reuters is reporting that the Securities & Exchange Board of India has asked money managers to consider restricting one-off investments from clients in small- and mid-cap stock mutual funds and cut commissions offered for their sale.

This was apparently communicated to the money managers in a meeting earlier this month.

There have been several noises on this score in recent days, all mostly emanating from an apparent broader concern that smaller investors have put money into relatively or potentially volatile small cap stocks.

Small cap stocks are defined as those with a market capitalisation of less than Rs 5,000 crore while mid cap are between Rs 5,000 crore and Rs 20,000 crore. 

Reuters has computed that in the last 10 months the assets managed by small cap funds rose almost 86% to around Rs 240,000 crore as of end January while mid cap funds rose 58% to around Rs 290,000 crore. In contrast, assets with large cap funds stood at around Rs 299,000 crore. 

Like we mentioned yesterday as well, The Nifty small-cap 100 index  has risen 74% in the last year while the Nifty midcap 100 index  is up 61%, as of Wednesday's close. 

And in contrast, the Nifty50 has risen 26.21% over the same period.

All good and nice to know but also the kind of data which would keep any market regulator on the edge of the seat

Meanwhile, the rupee, which we have not spoken much about or actually not spoken about in recent days, is at Rs 82.93 to the dollar, having edged higher yesterday.

Inflation rose in line with expectations in January, according to an important gauge the Federal Reserve uses as it deliberates cutting interest rates.

The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected according to the Dow Jones consensus estimates. The monthly gain was just 0.1% in December and 2.9% from the year prior.

The moves came amid an unexpected jump in personal income, which rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% versus the estimate for a 0.2% gain.

GDP Beats All Expectations

How did the economists get this wrong ? I mean the ones in Government since arguably they have better access to data than the ones outside who could not be faulted for groping in the dark on a bright summer day. 

So, India's Gross Domestic Product (GDP) growth rate in the quarter ending December 31, 2023 (Q3FY24) came in at 8.4 per cent, according to the data released by the National Statistical Office at the Ministry of Statistics and Programme Implementation on Thursday.

Thanks to this, the full year or 2023-24 estimate has been revised to 7.6% from 7%. 

As quarters go, the Oct to December quarter was the fastest pace in the last year and a half, thanks also to strong manufacturing and construction activity. 

The 8.4% figure is even higher than the Reserve Bank of India's (RBI's) estimate of 6.5 per cent. Even SBI Research, whose predictions are usually generous, said that growth would be in the range of 6.7-6.9 per cent. 

Other estimates include the 6.6% arrived at from a Reuters poll of economists.

So what drove this ?

Well, the figures we have are that the construction sector grew at 9.5%  followed by manufacturing at 11.6per cent though in both cases, the figures were a little lower than in the previous quarter.

Incidentally, the last quarter also saw a fall in agricultural production by 0.8%.

BOB Research says Q3 has been propped up mainly by the net tax effect as value added has grown at 6.5% this quarter while GDP is at 8.4% due to exceptional tax collections and control over subsidies. 

According to the BOB research team, this would get corrected in Q4 to lead to more modest growth for the full year as seen in the data. 

A big boost has come from construction which has been supported all through by high thrust on roads and housing. The steel and cement data for the year have been robust all through.

I reached out to Vivek Kumar of Quant Eco and began by asking him what the economists missed and also how they were interpreting this data from a wider perspective ?


Interestingly, the growth of eight key infrastructure sectors slowed to a 15-month low of 3.6 per cent in January, on account of poor performance of sectors like refinery products, fertiliser, steel and electricity, according to the official data released on Thursday and reported by Business Standard.

The growth of eight core sectors -- coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity -- was 4.9 per cent in December. It was 9.7 per cent in January 2023. The previous low level of growth rate was recorded at 0.9 per cent in October 2022.

Semiconductor Projects Back On Launch Mode With Rs 126,000 Crore Outlay

The Government on Thursday approved the setting up of three semiconductor plants in India, the Minister of Electronics & Information Technology Ashwini has said, adding construction of these plants will start in the next 100 days. 

The first commercial semiconductor fab will be set up by Tata and Powerchip-Taiwan whose plant will be in Dholera in Gujarat, the minister said. The second will also set up the Tatas in Morigaon in Assam and worth Rs 27,000 crore.  

The third one will be Mumbai-based CG Power who will set up a semiconductor unit in Sanand, Gujarat in a tie-up with Renesas Electronics Corp, Japan, and Stars Microelectronics, Thailand.

The Government said the units will generate direct employment of 20,000 advanced technology jobs and about 60,000 indirect jobs.

Tata Electronics' plant will have a capacity of producing 50,000 wafers per month. One wafer has 5,000 chips so the total will be around 3 billion chips per annum. 

Out of the total, Rs 91,000 crore will be invested in Dholera, Rs 27,000 crore in Assam and Rs 7,600 crore in Sanand. 

These factories will be additional to the Rs 22,516 crore plant announced by US-based Micron in Sanand last year. 

India Gaining On China Dominance In Electronics

Speaking of semiconductors in specific and electronics in general, a new study reported by Bloomberg says India is chipping away at China’s dominance in electronics exports in some key markets as manufacturers diversify supply chains to other parts of Asia, a new study shows.

The impact is most pronounced in the UK and US, where geopolitical tensions with China have increased in recent years.

India’s electronics exports to the US as a ratio of China’s increased to 7.65% in November last year from 2.51% in November 2021, according to London-based Fathom Financial Consulting. 

In the UK, the share rose to 10% from 4.79%.

India has been steadily bumping up production as more and more electronics manufactures like Taiwan’s Foxconn ramp up capacity in India, including in areas like iPhones.

Samsung Electronics Co.’s biggest mobile phone factory is in India while Apple Inc. makes at least 7% of all its iPhones in India via Foxconn and  Pegatron Corp.

India’s progress in gaining market share has been more limited in Europe and Japan, “suggesting a move towards dual supply chains (China plus one) rather than a complete abandonment of China-based production, at least for now,” Harris said. 

Are Companies Giving Up On Mass Market Too Soon?

The latest Household Consumption Expenditure survey out last weekend, after a gap of 12 years has triggered off a series of discussions, debates, columns and of course conversations right here on The Core Report.

Rama Bijapurkar, consultant on all things consumer markets and director on boards of leading companies says India’s consumption pattern is confusing if you search for a singular thread instead of embracing multiple narratives in a column in Business Standard newspaper.

She says there are three discourses about our consumption story that are running parallely at this moment in business and the media.

One revolves around Lamborghinis selling like hot cakes and a long waiting list for high-end SUVs, thus demonstrating that “people have so much money”. 

The second is about disappointing quarterly results showing“the K shaped divide” in consumption , the evaporating mass market and rural market consumption and how ‘premiumisation’ is the new success strategy. 

The third discourse is around data from the new Household Consumption Expenditure Survey (HCES), which some say shows exaggerated improvement in the past 10 years, while others are appalled by how small the numbers are. 

While there may be good reasons for consumption being constrained right now, she feels that companies saying “let’s premiumise and ignore the enfeebled mass” are seeking short-sighted safety. When mass markets start growing again, will they have irrevocably conceded space to the ever-improving band of small local players?

I spoke with Rama Bijapurkar and began by asking her how she was reading the consumption survey and also the fact that incomes had increased sharply over a longer period.


The Story of Hong Kong

Well known author Stephen Roach and former chair of Morgan Stanley Asia writes in the Financial Times about how he was energised by his first trip to Hong Kong in the 1980s.

Well, I went later in the late 1990s and felt similarly.

There is a certain oriental mystique coupled with raw and infectious energy that seems to flow on the streets of Hong Kong, the old and new islands.

Or at least it used to argue Roach.

The now faculty member at Yale and author of “Accidental Conflict: America, China, and the Clash of False Narratives”  says while it pained him to admit it, Hong Kong is now over. 

The reason: he says Hong Kong has had the world’s worst-performing major stock market over the past quarter of a century. 

Since the handover to China in 1997, the Hang Seng index has been basically flat, up only about 5 per cent. Over that same period, the S&P 500 has surged more than fourfold; even mainland China’s underperforming Shanghai Composite has far outdistanced the Hong Kong bourse. 

Roach says Hong Kong’s demise is driven among other reasons by the confluence of three factors. domestic politics where a 50-year transition to  full takeover by the People’s Republic of China had been effectively cut in half. 

In the spring of 2019 at the onset of the democracy protests, the Hang Seng index was trading at nearly 30,000. It is now more than 45 per cent below that level at 15,750. 

Next, the China factor. The Hong Kong stock market has long been considered as a levered play on mainland China. For a variety of reasons, the Chinese economy has hit a wall. 

These forces have sparked a three-year bear market that has taken China’s broad CSI 300 index down more than 40 per cent from its spring 2021 peak. 

Since 2018, the US-China rivalry has gone from bad to worse. Hong Kong has been trapped in the crossfire. 

Roach says in the 1980s Hongkongers had both a vision and a strategy. China was just beginning to stir, and Hong Kong was perfectly positioned as the major beneficiary of what turned into the world’s greatest development miracle. It all worked out brilliantly, for longer than anyone expected. And now it’s over.