GDP Quarter -1 Results: First Cut GDP is defined as Gross Domestic Production, which is total market value of all the goods and services produces within a country in a defined time period. The values used are market values of the final goods and services. In India, GDP is calculated on the basis of GVA (Gross Value Added) by each industry at the basic prices. Previously, GDP was calculated on the basis of the factor prices. GVA is value of output less the value of intermediate consumption. GDP is sum of GVA for each sector net of taxes and subsidies.

GVA approach for calculating GDP GVA at basic prices was INR 25.80 lakh Cr for Q1 FY16 as against INR 24.10 lakh Cr for Q1 FY15. Thereby, it transcended by 7.10% y-o-y. CSO (Central Statistical Office) divided Indian industry into following subheads: a. Agriculture, forestry and fishing  Quarterly GVA at basic prices for this sector grew at 1.9% in Q1 FY16. It had grown at (1.4%) in Q4 FY 15 and 2.6% in Q1 FY15.  This sector is further decomposed into fruits, vegetables and crops; and live stock, forestry and fisheries. Share of both sub sector is shown in the graph given below:

Figure 1: Break up of agriculture, forestry and fishing industry

 Live stock, forestry and fisheries grew at 6% for FY16 while fruits, vegetables and crop grew at -1%. This is the result of lower Rabi output in Q4 FY15 compared to Q4 FY14. Output of Q4 is realized in Q1 of the next financial year.  Lower outputs are due to deficiency in rains.  Fruits, vegetables and crops slumped due to rain deficiency. As per IMD’s data, rain deficiency is at 12% as on 28th Aug, 2015.  Progress of rainfalls is expected to have an impact on the monetary policy figures as well as growth of this sector.  Poor September rains can belittle the GDP growth rates. At the same time, if rainfall bounces backs in September, it should ameliorate the growth rates of GDP for the upcoming quarter as well as year. b. Mining and quarrying  Quarterly GVA at basic prices for this sector grew by 4.0% in Q1 FY16.  This sector comprises of production of coal, crude oil, natural gas as well as mining.  Following table shows growth of each component of mining and quarrying: Q1 FY 16 Q1 FY 15 Coal production 7.3% 6.6% Crude Oil -0.9% -0.1% Natural Gas -4.2% -3.9% Mining 0.7% 2.9% Table 1: growth components of mining and quarrying sector  Crude oil prices are further expected to decline on account of demand – supply mismatch. This would trigger the growth for the industry as the costs of production as well as selling expenses (transportation expenses) are expected to reduce.  Negative growth of crude oil prices can give a boost to automobile industry. As seen in July 2015 results, sales of the passenger cars were boosted by 17.50% with sharp fall in crude oil prices.  If crude prices reduce further, automobile segment would grow further. c. Manufacturing  Quarterly GVA at basic prices for this sector grew at 7.2% in Q1 FY 16. In Q1 FY 15, it grew at 8.4%.  Composition of this sector is shown in the following graph:

Figure 2: components of manufacturing sector  On account of reduction in crude prices, it is expected that better capacity utilization rates shall be picked up in upcoming times.  This sector is further expected to grow in the coming quarters, specifically private organized manufacturing sub sector.  With the growth of this sector, credit facilities required would also grow. Thereby, banking sector is also anticipated to grow along with it. d. Electricity, gas, water supply and other utility services  Quarterly GVA at basic prices for this sector grew at 3.2% in Q1 FY 16. It grew at 10.1% in Q1 FY 15.  The key indicator of growth rate in this sector is electricity, which grew at 2.3% in Q1 FY 16 as against 11.3% in Q1 FY 15.  The slowdown in this sector is due to slowdown in the manufacturing sector. With revival of manufacturing sector, capex will be there in this sector and will revive. e. Construction  Quarterly GVA at basic prices for this sector grew by 6.9% for Q1 FY 16 as against 6.5% for Q1 FY 15.  Key components of this sector along with their growth rates are given below:

Cement production Consumption of steel

Q1 FY 16 0.9% 7.1%

Q1 FY 15 9.6% 0.7%

Table 2: growth components of construction industry  Decline in cement consumption is majorly on account of slowdown in real estate sector.  Real estate sector, specifically housing sector, has supply more than demand.  As per JLL, a property consultant, inventory levels (unsold housing units) in Bangalore in housing industry is 84000, which is calculated to be inventory levels for 32 months.  Due to this, there will be rise seen in the asset backed loans by EPC contractors.  While housing industry is facing stiff times, highway, aviation, port construction industries are having reckonable growth rates. The same can be considered to be true as consumption of steel has increased.  Consumption of steel has increased on account of cheaper prices. Manufacturing of steel is still having rugged times due to dumping of steel by China in India. f. Trade, hotels and Transport & communication  Quarterly GVA at basic prices for this sector grew at 12.8% in Q1 FY 16 as against 12.1% in Q1 FY 15.  Key indicator used for measuring trade sector is collection of sales tax. It grew at 9.4% for Q1 FY 16.  In case of transport sectors, passengers handled by the civil aviation, cargo handled by civil aviation and cargo handled at major ports reckoned growth rates of 15.3%, 8.7% and 4.5% respectively for Q1 FY 16 as against growth rates of 7.5%, 6.2% and 4.2% respectively for Q1 FY 15.  Sales of commercial vehicles registered growth of 3.6% for Q1 FY 16 as against growth of (16.1%) for Q1 FY 15. g. Financial, insurance, real estate and professional services  Quarterly GVA at basic prices for this sector grew at 8.9% for Q1 FY 16 as against 9.3% for Q1 FY 15.  Main components of this sector are as shown in the pie chart below:

Figure 3: components of finance, insurance, real estate and professional services sector  Slowdown was seen in banking deposits and credit. Credit growth declined due to fall in the manufacturing index.  Also, as global growth remains weak, exports are expected to decline and thereby export credit facilities are expected to remain unutilized and thereby further decline in credit growth is expected. h. Public administration, defense and other services  Quarterly GVA at basic prices for this sector grew at 2.7% in Q1 FY 16 as against 2.8% in Q1 FY 15.  Union government expenditure, key indicator of this sector, grew at 4.2% in Q1 FY 16 as against 8.2% in Q1 FY 15.  Growth slowed down in this category signaling fiscal consolidation efforts by the government. Quarterly GDP components approach for calculating GDP: Basic formula for calculating GDP is as follows: Y=C+I+E+G Where Y = GDP C = Consumer spending I = Investment made by industry E = Excess of exports over imports G = Government spending

a. Consumer spending:  Private Final Consumer Expenditure is expenditure incurred on final consumption of goods and services by the resident households and non-profit institutions serving households.  Consumer spending has grown by 58.7% in Q1 FY16 as against 58.4% in Q1 FY15. This means that standard of living has increased and thereby cost of living has increased b. Government spending:  Government Final Consumption Expenditure is the total value of goods and services produced by government.  Government is planning to invest 8.5 lack crore in Indian Railway.  Government spending has grown by 11.4% in Q1 FY16 as against 12.1% in Q1 FY15. c. Investment made by the industry:  Investment made by the industry is measured in terms of gross fixed capital formulation. It shows capex made by the industry.  Gross fixed capital formulation grew by 29.8% in Q1 FY16 as against 30.4% in Q1 FY15.  This shows slowdown in the manufacturing industry. d. Excess of exports over imports  Deficit was INR 39102 Cr in Q1 FY 16 as against deficit of INR 34550 Cr in Q1 in FY 15. Deficits have increased in spite of lowering of crude oil prices.  The reason behind this suggests that exports have reduced significantly on account of global slowdown in the demand levels.

Appendix – 1 Quarterly estimate of GVA at basic prices in Q1 (April – June) of 2015 – 16 (Basic price at 2011-12) April – June (Q1) GDP for Q1 (in INR Cr.) Percentage change over Industry previous year 2013-14 2014-15 2015-16 2014-15 2015-16 1. Agriculture, forestry and fishing 350052 359258 366124 2.6 1.9 2. Mining and quarrying 67555 70488 73289 4.3 4.0 3. Manufacturing 419403 454620 487134 8.4 7.2 4. Electricity, gas, water supply and 52498 57794 59657 10.1 3.2 other utility services 5. Construction 182284 194168 207580 6.5 6.9 6. Trade, hotels and Transport & 406716 communication

456125

514487

12.1

12.8

7. Financial, insurance, real estate 480626 and professional services 8. Public administration, defense 284255 and other services

525122

571740

9.3

8.9

292195

300044

2.8

2.7

2243389 2409770 2580056 7.4

7.1

GVA at Basic Price

Appendix 2 Quarterly estimates of expenditures of GDP in Q1 (April – June) of 2015 – 16 (at 2011- 12 prices)

1. 2. 3. 4. 5.

April – June (Q1) GDP for Q1 (in INR Cr.) Percentage change over Item previous year 2013-14 2014-15 2015-16 2014-15 2015-16 Private Final Consumption 1397414 1483613 1592806 58.5 58.7 Expenditure Government Final 301793 306488 310018 12.1 11.4 Consumption Expenditure Gross Fixed Capital Formation 708280 769880 807225 30.4 29.8 Change in stocks 40016 41969 44076 1.7 1.6 Valuables 32902 41528 49589 1.6 1.8

6. Exports

546989

596944

558269

23.6

20.6

7. Less imports 8. Discrepancies

655135 4164

631494 (74273)

597371 (51615)

24.9 (2.9)

22.0 (1.9)

2376424 2534654 2712998 6.70

7.00

GDP

References: 1. GDP quarterly estimated by CSO as given on http://mospi.nic.in/Mospi_New/upload/nad_PR_31aug15.pdf 2. http://www.livemint.com/Consumer/pJJ7hXT1CjRgnH3yUvinCM/Bengaluru-hasthe-second-highest-unsold-housing-units-surpa.html 3. http://www.businesstoday.in/current/economy-politics/railways-to-get-rs-8.5-lakhcrore-from-government-says-jayant-sinha/story/223403.html

ABOUT THE AUTHOR This report is primarily prepared by Virali Shah who is an MBA from Institute of Management, Nirma University. Virali Shah is a credit analyst at State Bank of India. This report solely represents the author’s views and not the views of State Bank of India. Monil Shah is a student of finance and member of Economics Team, eRT Capital. Disclaimer This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidelines only.