How India's Q4 GDP Figures Impacted the Markets

17 Jun 2022  Read 576 Views

Talking about results- they always make us anxious. We all like to hear good results. Good results make our sentiment about the future positive, whereas bad or less than satisfactory results can make our perception of our future pessimistic.

The stock market and the investor sentiments are no different. 

Recently, on May 31, 2022, the NSO (National Statistical Office) released the data for India’s GDP (Gross Domestic Product) growth in Q4 (the fourth quarter). The announcement of the Q4 GDP result not only ended the 3-days upward trend of the stock market but also sent it on a downward trend.

In this blog, let us understand Q4 GDP figures and the relationship between market sentiments and economic results.

What do the Q4 GDP figures say?

The economy grew at 4.1 per cent during the last quarter. This was the slowest the Indian economy grew over FY2021-22. In the earlier quarters, the GDP grew by 5.4 per cent (third quarter), 8.5 per cent (second quarter) and 20.3 per cent (first quarter). 

As per the Q4 GDP figures, the CPI general index for Q4FY22 was 6.3 per cent. This was comparatively more than the inflation rate last year, which was 4.9 per cent for Q4FY21. This indicates that the inflation rate at present is way more than it was last year during the same time. 

According to the GDP data, the number of telephone subscribers declined by more than two per cent. Also, the sales of commercial vehicles declined to 18.8 per cent, which was more than 40 per cent last year. The production of crude oil and cement also showed sluggish growth. 

Another impacted sector was the aviation sector, where not only the number of passengers declined but also there was a lesser amount of cargo transported than the last year. 

So, was it all negative? 

No, the overall economic growth for the financial year 2021-22 was 8.7 per cent as against the low growth rate of 6.6 per cent during the financial year 2020-21. 

The manufacturing sector grew at 9.9 per cent, compared to -0.6 per cent in the previous year, the same quarter. Sectors like mining and quarrying, utility services (water, gas, electricity etc.), hotel, transport, communication and trade also performed well compared to the last year, same quarter. Other than these, sectors that have shown signs of recovery are the construction sector, which grew from 11.5 per cent in FY2021-22 against -7.3 per cent in FY2020-21. 

What does it mean for the stock market investors?

With the announcement of Q4 2021-22 GDP figures on Tuesday, May 31, the SENSEX fell by more than 0.5 per cent. A few stocks lost more than three per cent on that day. Notable among these were Reliance Industries, Kotak Bank, HDFC, HDFC Life, SBI, Sun Pharma and Shree Cement which fell up to 3.5 per cent. 

But what led to this immediate downward move in the stock market? 

Here’s a fascinating insight into the GDP and the market relationship:

When the economy grows well, there is an increase in production, consumption and employment in the economy. There is adequate demand for goods and services. This help in reaching the production, service, growth and distribution system of the economy. As a result, there can be profit across various sectors. 

When the industries make a profit, the profit of the shareholders of the company also increases. Thus, the investors have a positive sentiment toward the future of their investments. 

Similarly, when the growth of the economy is less than satisfactory, the is a decline in the demand for goods and services. Due to the lack of demand, the supply also declines. This reduces the revenues of the industries across sectors. Since their focus here would be on cutting losses, there can be layoffs, pay cuts etc. As people’s income declines, their demand for goods and services further decreases. Thus, business profit declines or they even make losses. With the companies making losses, the investment value of the shareholders also decreases. By forecasting all of these, the investor sentiment turns negative and most of them withdraw their money from the stock market. 

For the fourth quarter, when the Indian economy witnessed slower growth compared to the previous quarters, the investor sentiments towards their investments might have turned negative. Therefore, the stock market plunged. 

What has led to the slower growth of the economy?

Recently, there has been a lot of uncertainty in the economy. Not just in India but all over the world, supply chains are hampered due to the ongoing war between Ukraine and Russia. These supply chain shortages and the decline in international business have led to the slow recovery of the economy. 

Furthermore, there has been a recent spike in the Covid19 cases in a few countries like China. This has again impacted trade and led to high inflation and a decline in the value of the rupee. 

Therefore, with the contagion effect of the ongoing Ukraine-Russia war, the reappearance of Covid19 risk and the resulting domestic production uncertainties, the Indian economy witnessed slower growth in Q4 FY22. 

To Conclude

The stock market has shown a negative sentiment due to the slowing down of economic growth. This impact on the economy is more or less due to global factors. Therefore, as these uncertainties ease up, different sectors can normalise their economic activity and regain their path for growth. 

Until the economy is not back to normal, it can be better for a stock market investor to stay put and not panic. Also, this period can be suitable for investors buying the dip and averaging out your buy price. 

The historical study of the benchmark indices like the NIFTY50 and SENSEX says that the stock market can undergo a lot of such short-term uncertainties. Still, in the long run, the market marches forward. Therefore, it can be better to wait for the silver lining that might burst the dark clouds of uncertainty.

About the Author: Devashree Patel | 11 Post(s)

Devashree is a freelance financial content writer and a full-time Digital marketer with more than 2 years of experience. Currently, she's pursuing her MBA from NMIMS, and has gained several accomplishments in digital marketing knowledge.

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