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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Indian Economy
PM’s EAC Report: The devil lies in the details. The Prime Minister’s Economic
Advisory Council has retained its growth forecast of 9% in FY2012E — stated earlier in
its Economic Outlook for FY2011 ofJuly 2010. However, the internals of the GDP
suggest a downward revised industrial segment. CAD is projected at a higher level than
earlier estimated while forecasts on the capital account balance have been moderated.
Inflation is expected at 7% for end-March 2011. The note indicates that monetary and
fiscal policies have to be appropriately tight to protect the economy from inflation and
that monetary policy has an important role to play even in situations where inflation is
triggered by supply constraints.
We see downside risks to growth forecast of 9%
The PMEAC kept its growth forecast for FY2012E unchanged at 9%, in line with its estimates of
July 2010. We believe this could entail considerable downside risks in a situation of hardening
interest rates and constraints on liquidity. The growth in the industrial sector is likely to moderate
as higher cost of borrowing may hamper industrial growth marginally along with higher allocation
to food items by consumers can reduce allocations towards industrial produce. The EAC expects
manufacturing to grow at around 9% for FY2012E while the services sector is expected to stay
buoyant with robust growth in most of the sub-segments. Despite the PMEAC remaining bullish
on India’s GDP growth for the next fiscal, we continue to expect a moderation in the GDP growth
and project it to be at 8.1% for FY2012E. The risk to our forecast comes from oil prices that could
lead to RBI turning more hawkish and enhancing the pace of monetary policy tightening.
Inflation forecasts up by 50 bps to 7% in end-FY2011E
The EAC revised up its inflation expectation for end-FY2011E to 7% from 6.5% in its July 2010
outlook. It attributed the correction entirely to the recent fall in vegetable prices. It also
acknowledged that price normalization would not be immediate and owing to the downward
sticky nature of prices, it would take around two months to correct. This is in line with our view
that prices would be sticky and correction is likely only in 2HFY12E. For FY2012E, our reading
suggested some cautiousness from global prices which would affect domestic prices. The report
notes that energy prices on account of possible reforms would be on the upside along with global
prices of basic commodities as “worldwide monetary and fiscal accommodations…continue to
create conditions where inflationary pressures have considerable headroom”. We continue to
expect inflation to be sticky in FY2012E. The EAC highlights that macro-economic policies, both on
the fiscal and the monetary side and also to some extent trade policies should “re-anchor”
inflation expectations to the 4-5% comfort zone.
Capital flows expectations revised downwards; CAD/GDP at 2.8% for FY2012E
For FY2011E, the Council expects CAD to the tune of around US$51 bn (CAD/GDP at 3%) and
US$55.8 bn in FY2012E (CAD/GDP at 2.8%). The report indicates that net invisibles have been on
a sluggish path on account of ITES exports showing slower growth due to the global crisis. The
PMEAC has, however, now reduced its outlook on the capital flows. It indicates that the flows
have slowed down in the recent periods and extending these projections into the next fiscal,
PMEAC factors in an increment in the net foreign investments for FY2012E at US$45 bn compared
to its July 2010 estimates of US$65 bn. Net FDI is expected now at US$20 bn from the earlier
US$30 bn while the portfolio capital inflows are likely at US$25 bn, against US$35 bn earlier. The
overall size of capital inflows is now estimated lower for FY2012E at US$76 bn compared to
US$90.5 bn earlier. Our own estimates for overall capital flows in FY2012E are close at US$73 bn
with foreign investments totaling at US$41 bn, of which FII inflows are expected at US$30 bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Indian Economy
PM’s EAC Report: The devil lies in the details. The Prime Minister’s Economic
Advisory Council has retained its growth forecast of 9% in FY2012E — stated earlier in
its Economic Outlook for FY2011 ofJuly 2010. However, the internals of the GDP
suggest a downward revised industrial segment. CAD is projected at a higher level than
earlier estimated while forecasts on the capital account balance have been moderated.
Inflation is expected at 7% for end-March 2011. The note indicates that monetary and
fiscal policies have to be appropriately tight to protect the economy from inflation and
that monetary policy has an important role to play even in situations where inflation is
triggered by supply constraints.
We see downside risks to growth forecast of 9%
The PMEAC kept its growth forecast for FY2012E unchanged at 9%, in line with its estimates of
July 2010. We believe this could entail considerable downside risks in a situation of hardening
interest rates and constraints on liquidity. The growth in the industrial sector is likely to moderate
as higher cost of borrowing may hamper industrial growth marginally along with higher allocation
to food items by consumers can reduce allocations towards industrial produce. The EAC expects
manufacturing to grow at around 9% for FY2012E while the services sector is expected to stay
buoyant with robust growth in most of the sub-segments. Despite the PMEAC remaining bullish
on India’s GDP growth for the next fiscal, we continue to expect a moderation in the GDP growth
and project it to be at 8.1% for FY2012E. The risk to our forecast comes from oil prices that could
lead to RBI turning more hawkish and enhancing the pace of monetary policy tightening.
Inflation forecasts up by 50 bps to 7% in end-FY2011E
The EAC revised up its inflation expectation for end-FY2011E to 7% from 6.5% in its July 2010
outlook. It attributed the correction entirely to the recent fall in vegetable prices. It also
acknowledged that price normalization would not be immediate and owing to the downward
sticky nature of prices, it would take around two months to correct. This is in line with our view
that prices would be sticky and correction is likely only in 2HFY12E. For FY2012E, our reading
suggested some cautiousness from global prices which would affect domestic prices. The report
notes that energy prices on account of possible reforms would be on the upside along with global
prices of basic commodities as “worldwide monetary and fiscal accommodations…continue to
create conditions where inflationary pressures have considerable headroom”. We continue to
expect inflation to be sticky in FY2012E. The EAC highlights that macro-economic policies, both on
the fiscal and the monetary side and also to some extent trade policies should “re-anchor”
inflation expectations to the 4-5% comfort zone.
Capital flows expectations revised downwards; CAD/GDP at 2.8% for FY2012E
For FY2011E, the Council expects CAD to the tune of around US$51 bn (CAD/GDP at 3%) and
US$55.8 bn in FY2012E (CAD/GDP at 2.8%). The report indicates that net invisibles have been on
a sluggish path on account of ITES exports showing slower growth due to the global crisis. The
PMEAC has, however, now reduced its outlook on the capital flows. It indicates that the flows
have slowed down in the recent periods and extending these projections into the next fiscal,
PMEAC factors in an increment in the net foreign investments for FY2012E at US$45 bn compared
to its July 2010 estimates of US$65 bn. Net FDI is expected now at US$20 bn from the earlier
US$30 bn while the portfolio capital inflows are likely at US$25 bn, against US$35 bn earlier. The
overall size of capital inflows is now estimated lower for FY2012E at US$76 bn compared to
US$90.5 bn earlier. Our own estimates for overall capital flows in FY2012E are close at US$73 bn
with foreign investments totaling at US$41 bn, of which FII inflows are expected at US$30 bn.
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