India's economic activity faded in August 2017

As per our in-house monthly economic activity index (EAI) for Indian economy, July-August 2017 were no better than April-June 2017. However, with the festive season beginning early this year, we pin our hopes on a rebound in September-October 2017. Accordingly, we expect real GDP to grow in the range of 6-6.5% in 2QFY18.

Given below are the key highlights:

• India’s monthly economic activity index (EAI) grew 2.7% YoY in August 2017, slipping from 4.4% in July 2017. EAI growth averaged 3.5% YoY in July-August 2017, same as in 1QFY18.
• A broad-based deterioration in consumption demand, which grew only ~4% in August, offset the improvement in investment demand, which grew at a 14-month high of 4.8%. Higher investments were majorly driven by an expected improvement in IIP for capital goods and 15-month highest growth in industrial auto sales and electricity generation.
• Though July-August 2017 data do not suggest a significant pick-up in 2QFY18, we believe GDP growth has bottomed in 1QFY18. With the festive season beginning early this year (Diwali in mid-October rather than early November normally), the economy should witness a pick-up in September. We expect real GDP to grow 6-6.5% YoY in 2QFY18.