How to Analyze GDP Numbers and Read Sectoral Trends

The Government of India releases GDP (Gross Domestic Product) number every quarter.

The press release contains information on various sectors of the economy and also includes the components of how the GDP is made up of.

Here is how you can interpret the GDP press release and apply the knowledge to pick select stocks from sectors that are faring better.

I have downloaded a copy of the latest GDP numbers (2nd quarter ended 2018, released on 1-12-18).

Though this article will age after many months, here is what you should focus on:

A. The Sector Notes

Rising Growth	Falling Growth
Agriculture, Forestry and Fishing grew from 2.6% to 3.8% YOY - This is a largely unorganized sector. But there are some fishing stocks listed, and you should track these.	Mining and quarrying fell by 2.4% compared to growth of 6.9% last year. This can be because the monsoon season may not be friendly for the mining industry and therefore you should check the September 18 quarterly results of mining company to know the impact.
Manufacturing’ grew by 7.4% compared to 7.1% YOY. Thi is a marginal rise because manufacturing activity picks up during Diwali time.	Trade, Hotels, Transport, Communication and Broadcasting grew at 6.8.% compared to 8.5% YOY. This is bad new for media companies, tourism and mobile telephone companies.
Electricity, gas and other utilities grew by 9.2% compared to 7.7%, which should be good news for power suppliers and distribution firms, and gas companies.
Construction’ sector grew by 7.8% compared to 3.1%. This is knockout news for cement companies.
Financial,Real Estate and Professional Services grew by 6.3% compared to 6.1%. This is actually good news for the real estate sector because it represents 75% of this sector's GDP.
Government spending on Public Administration, Defence and Other Services grew by 10.9% compared to 6.1% YOY. This is terrific news for government suppliers..

Reading through the notes gives you a fair idea of the sectors that are doing good business. You should track some stocks and check their quarterly results and even consider rejigging your medium term portfolio.

B. Components of GDP

From the components of GDP, it is disturbing to note that private consumption has fallen (indicating low demand for goods and services) and Discrepancies have increased to 3.4%.

Aditi Nayar, senior economist at ICRA, is of the opinion that discrepancies actually do not matter and that these are evened out in subsequent quarters.

In her words: “A larger than normal discrepancy figure in a particular quarter may be a precursor to subsequent revisions in the growth of the expenditure components and not necessarily a sizable revision in the GDP growth figure itself.”

In the article linked above, you also will learn what discrepancies are all about.

So, the discrepancies tat were 1.4% in Q1 of 2017-18 should have evened out by now. But the discrepancies have kept increasing. This is not a good sign.

Now, note this – In 2015-16, the discrepancies were negative, and this could be because the earlier discrepancies were being revised. Check the image below: