The economy grew 6.3 per cent in the three months ending in September from a year earlier, faster than the 5.7 per cent in the previous quarter, government data showed on Thursday.
TCA Anant, Chief Statistician of India, said the GDP or gross domestic product growth marks a reversal after almost five quarters of decline. "This is very encouraging," Mr Anant said.
The growth recovery was driven by the manufacturing sector, which grew at 7 per cent. But the agriculture sector recorded a sluggish growth rate of 1.7 per cent as compared to 4.1 per cent in the year-ago quarter.
GDP growth had slowed to a three-year low of 5.7 per cent in the April-June quarter, hit by destocking ahead of the July 1 rollout of the goods and services tax (GST) regime and the lingering impact of demonetisation.
Earnings for companies in the broader NSE Nifty rose at their best pace in six quarters during July-September, according to Reuters. Today's data, say analysts, are an indication that firms are starting to recover after being hit earlier this year by uncertainty tied to the rollout of the Goods and Services Tax (GST) and last year's notes ban.
Tushar Arora, senior economist at HDFC Bank, said: "The GDP number is exactly in line with our expectations. Upbeat corporate earnings results have been reflected in the manufacturing sector."
Economists expect the GDP growth to accelerate further in coming quarters as GST-related disruptions fade and global growth picks up. Rating agency Moody's, which earlier this month upgraded India's sovereign rating, expects the economy to grow at 6.7 per cent this fiscal year and further accelerate to 7.5 per cent in 2018-19.
According to Wall Street brokerage Goldman Sachs, the economy is likely to grow at 8 per cent next fiscal year, benefitting from the massive Rs. 2.11 lakh crore bank recapitalisation, which, it says, will help revive the long-stalled credit demand and private investments.
Sectors such as construction, cement and commercial vehicles are likely to improve in the months ahead as the government focuses on infrastructure, say analysts.
Goldman Sachs has set the Nifty target of 11,600 by next December. Domestic stock market benchmark has been on a roll this year as investors expect India Inc earnings to pick up as GDP growth gains momentum.