India Q2 GDP print shows slump in manufacturing sector; where should investors park money?

The Indian economy slowed down significantly in the quarter ended September, due to the weakness in the manufacturing sector which offset the strong growth in the services sector.

India’s GDP growth was 6.3% in July-September compared with a 13.5% growth in April-June. While the services sector grew by a sharp 9.3% in Q2, the manufacturing sector’s growth decelerated 4.3%.

Some economists expect this trend to continue even in the second half of the current fiscal year as global macroeconomic risks pose risks to domestic growth.

“Even as recovery in domestic economic activity is yet to become broad-based, protracted global drags, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on output,” said Madhavi Arora, lead economist at Emkay Global Financial Services.

Arora expects the above-mentioned factors to put pressure on domestic growth, which, according to her, lacks the next levers of secular growth.

So, should Dalal Street investors increase their investments in services sectors and trim exposure to the manufacturing sectors?

Market experts definitely don’t think it’s time to shun stocks in the manufacturing sector as the long-term growth prospects remain intact with the comeback of the private sector capital expenditure cycle.

“We think there are very strong signs that the private capex cycle is coming back, obviously the government has continued to focus on infrastructure,” Sunil Koul, executive director at Goldman Sachs, told ET Now in an interview.

“They are growing progress on the make in India and PLI schemes as well, so when you put all of that together, we think the manufacturing sector as a whole should also do well,” he said.

So far in FY23, private corporates’ capex in the listed space has hit an all-time high of Rs 7 lakh crore on a trailing twelve-month (TTM) basis, compared to Rs 6.4 lakh crore in FY22, driven mainly by capital intensive industrial corporates, brokerage ICICI Securities said in a report.

The combined government capex has also risen to an all-time high of Rs 12.3 lakh crore on a TTM basis.

The brokerage believes that the combined capex of private sector and government is all set to exceed the Rs 21 lakh crore-mark by the end of FY23.

Similarly, analysts are bullish on the services sectors such as airlines, travel and tourism, and hotels given the strong recovery in travel both for business and leisure travels.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)