ICRA INSIGHT - Monthly Newsletter | February, 2024
Welcome to the latest edition of our monthly newsletter, where we embark on a journey through the intricate tapestry of economic developments that shape the landscape of FY2024 and beyond. As we reflect on the outcomes of the final Monetary Policy Committee (MPC) meeting for FY2024, the decision to maintain policy rates and stance unchanged underscores the cautious yet resilient approach adopted amidst a dynamic global environment.
The divergence in the voting pattern on the policy rate signals nuanced perspectives within the MPC, highlighting the deliberative nature of monetary policy decisions in response to evolving economic conditions. However, despite this divergence, the alignment of the voting pattern on policy rates with the stance reflects a cohesive approach towards achieving macroeconomic stability.
GDP growth has shown resilience, with a robust 8.4% growth in Q3 FY2024, indicating the economy's underlying strength. However, challenges persist, particularly in private final consumption expenditure, which has remained lackluster, reflecting cautious rural demand and uneven urban demand dynamics.
The real estate investment trust (REIT) market presents a promising avenue for growth, with the office REIT market size poised to increase significantly. The rise in REIT office supply underscores the potential for further expansion in this sector, with implications for both investors and the broader real estate market.
The automotive industry continues to navigate shifting consumer preferences and supply chain dynamics. While the passenger vehicle segment is expected to reach an all-time high in FY2024, moderation in growth is anticipated, partly due to a high base and waning pent-up replacement demand. Similarly, the commercial vehicle industry faces challenges, including moderation in growth and the impact of infrastructure activity on volumes.
The proposed new entity – RMBS Development Company Limited (RDCL) – aimed at promoting and developing the residential mortgage-backed securities (RMBS) market, represents a significant step towards diversifying the securitization landscape and supporting housing finance companies.
As we navigate through these economic currents, our newsletter serves as a compass, offering insightful analysis, forecasts, and updates to guide your strategic decisions. We invite you to explore the pages ahead, where we unravel the complexities of the economy and offer perspectives to navigate the evolving landscape.
In conclusion, we extend our gratitude for your continued support and engagement. We remain committed to providing timely and relevant insights to empower your endeavors in an ever-changing economic milieu. Together, let us navigate the challenges and seize the opportunities that lie ahead.
Economy
Acceleration or slowdown in growth?
On Feb 29, 2024, the NSO released the first estimate of growth for Q3 FY2024, revised data for the previous two quarters and also updated its forecast for the full year FY2024. As anticipated, India's GVA growth slowed in Q3 FY2024 to 6.5% from a revised 8.2% in Q1 FY2024 and 7.7% in Q2 FY2024, although the extent of the moderation was not as sharp as what we had feared. Agricultural output contracted after an uneven monsoon, and industrial growth slowed, whereas the expansion in services improved, in line with our expectations.
Real Estate Sector
India has REIT-ready office supply of Rs. 5.8-6.2 lakh crore across top seven cities
ICRA estimates the REIT-ready office supply market has the potential to increase the office REIT market size by 6.0-6.5 times. The REIT office supply has increased by 3.3 times in the last five years to ~82 million square feet (msf) across the top seven cities in India. As on September 30, 2023, the total grade A office stock in the top six markets stood at around 956 msf, with Bengaluru having the highest supply followed by Delhi NCR and MMR. There are three listed office REITs in India currently – Brookfield India REIT, Mindspace REIT and Embassy REIT, which account for ~9% of the total office supply as on September 30, 2023.
Automotive Sector
Automotive Sector growth momentum to moderate in FY2025
The domestic automotive industry recorded robust growth trends across segments in FY2023, aided by a low base, recovery in economic activities, and increased mobility. Following a period of robust growth and a relatively healthy base across automotive segments, the pace of growth has moderated in FY2024, and the trend is expected to continue in FY2025 as well. Aided by a preference for personal mobility and stable semiconductor supplies, passenger vehicle (PV) industry volumes are estimated to reach an all-time high of ~4.1 million units in FY2024 (representing a growth of 6-9% over FY2023). Even as the underlying demand drivers remain supportive, the volume growth for the segment is likely to moderate to 3-6% (from an elevated base).
Structured Finance
Formation of a new entity for supporting residential mortgage-backed securities could provide much-needed impetus for growth in this sector
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ICRA highlighted that the recent announcement of the proposed new entity – RMBS Development Company Limited (RDCL) – focused on promoting and developing the residential mortgage-backed securities (RMBS) in the country could be a much-needed tipping point for the growth of the pass-through certificate (PTC) market backed by mortgage loans. This segment has otherwise been a laggard in comparison to other major asset classes, mainly vehicle and microfinance loans. As per ICRA’s estimate, the share of RMBS would be modest, at less than 15% of the overall Rs. 1 trillion market in FY2024 (i.e. mortgage-backed securitisation (MBS) and asset-backed securitisation (ABS) combined, where securitisation is done through issuance of PTCs). The development of the domestic RMBS market is much desired to help raise funds for the housing finance companies and thus achieve the broader developmental goal of meeting the country’s housing needs.
Cement Sector
Cement volumes higher by 9% YoY in 9M FY2024
Indian Aviation Sector
Flying towards new highs
NBFC Sector
NBFCs riding on pre -owned vehicle assets to drive up profitability
The Financial Express, 27th February, CV sales volume to decline upto 7% in FY2025 says ICRA
Mint, 27th February, Indias GDP growth to ease in Q3 and Q4 Capex to remain tepid in run up to general elections ICRAs Aditi Nayar
The Economic Times, 15th February, India office market holds potential to increase REIT market size over 6 times, ICRA
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