SBI Research projects India’s Q2 FY27 GDP growth at 7.8%, driven by strong corporate earnings and bank credit. However, challenges persist in manufacturing input costs and agricultural output due to weather risks and the ongoing El Niño effect.
India’s Q2 Economic Outlook
India’s Gross Domestic Product (GDP) growth is estimated at around 7.8 per cent in the second quarter of the financial year 2026-27 (Q2 FY27), while Gross Value Added (GVA) growth is expected to remain between 8 per cent and 8.2 per cent, according to a report by SBI Research. The report also projected nominal GDP growth, which includes the impact of inflation, at 11-11.5 per cent during the quarter.
“Our Dynamic Factor Model using 54 high frequency indicators across agriculture, industry and services indicate Q2 FY27 GDP growth ~7.8%. GVA growth may be between 8% to 8.2%. We are expecting the nominal GDP growth in the range of 11-11.5%,” the report said. SBI Research estimated the GVA deflator at 4.1 per cent and the GDP deflator at 3.4 per cent. It noted that manufacturing growth in real terms was higher than nominal growth as the sector’s deflator remained negative. Meanwhile, the agricultural deflator increased to 6.4 per cent, while the services sector deflator stood at 3.5 per cent.
Manufacturing Challenges and Sectoral Performance
The report also highlighted continued pressure on manufacturing companies due to higher input costs, which have not been fully passed on to consumers through higher selling prices.
“Despite the recent moderation in input-output price differentials, input prices continue to remain higher than output prices across several manufacturing sectors, indicating incomplete pass-through of input cost pressures by producers,” the report noted. The price gap was particularly high in electrical equipment, computer, electronic and optical products, furniture and fabricated metal products.
On the banking front, the report said strong credit growth supported profitability in the banking sector, with public sector banks (PSBs) performing better than private sector banks in terms of asset quality. India’s corporate sector also recorded strong growth during the quarter. An assessment of around 2,300 listed companies, excluding those in the banking, financial services and insurance (BFSI) sector, showed that earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 35 per cent year-on-year. Profit After Tax (PAT) of these companies also rose by 33 per cent compared to the corresponding quarter of the previous financial year.
Risks to Agricultural Output
However, the report flagged potential risks to agricultural production due to irregular rainfall and the impact of El Niño, which is expected to affect the Rabi season.
“The impact of El Niño has postponed from Kharif season to Rabi season (Government expect 11.4% less production this year), we assess the potential impact of rainfall deficiency on agricultural production.” SBI Research estimated that combined agricultural production losses could reach around 3.86 crore tonnes, including 0.89 crore tonnes during the Kharif season and 2.97 crore tonnes during the Rabi season. The impact is expected to vary across regions. During the Kharif season, Rajasthan, Punjab, Uttar Pradesh and Maharashtra are projected to face the highest production losses. For the Rabi season, Madhya Pradesh, Uttar Pradesh and West Bengal are among the states facing greater risks. The report’s projections indicate that while economic activity and corporate earnings remain strong, manufacturing cost pressures and weather-related risks to agricultural output remain key areas to watch. (ANI)
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