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India Equity Research Reports, IPO and Stock News
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Economy
National Accounts
FY2011E advance estimates reiterate our view on strong growth dynamics. We
believe that CSO’s advance estimates for FY2011E GDP underline our call on strong
growth dynamics of the Indian economy. The reported numbers are in line with our
estimates and show the buoyancy across all the sectors. With 1HFY11 growth at 8.9%,
2HFY11E will see lower cyclical growth and, in our view, only moderation in the growth
dynamics rather than pointing to any significant slowdown.
FY2011E real GDP growth at 8.6%, albeit with some manufacturing slowdown
The advance estimates indicate GDP growth at 8.6% after 8% in FY2010. The FY2010 estimates
were revised up a week earlier from 7.4%. Exhibit 1 shows how the economy has moved over the
year across various economic sectors. We believe that on the back of the recent IIP trends and our
expectations of continued cyclical dips in the industrial production, manufacturing sector’s growth
in 2H will be lower than in 1H of FY2011E. But we also note that the services sector will remain
buoyant, leading to our overall estimate of 8.6% for the year.
Agriculture sector turns robust; services continue to remain strong
The CSO expects agriculture growth to be around 5.4% after an anemic growth in FY2010. We
believe that some concerns remain regarding how the unseasonal rains might have affected the
kharif output. But the impact might have softened on base effects arising from weak production
last year. Early indications on the sowing patterns on rabi also point to a relatively healthy rabi
output. Services sector growth for the full year is expected broadly in line with ours. However, the
key highlight is an expectation by the CSO of a robust financial sector growth in 2H compared to
1H of this FY while the impetus from the ’Community, social and personal services‘ to the overall
growth is expected to be muted in 2H. Construction sector growth remains strong though we
have seen some slowdown in cement production in 3QFY11.
GDP at market prices grows at 9.7%; gross capital formation slows marginally
Demand side indicates that GDP grew by 9.7% in FY2011 with the main thrusts coming from the
consumption and trade side. In real terms private consumption grew by 8.2% compared to 7.3%
in FY2010. The reliance on government expenditure to prop up the economy was markedly lower
with government consumption growing by 2.6% against 16.4% last year. This fall was offset by
exports which are estimated to grow by 12% in real terms against a contraction of 5.5% last year.
In fact, growth in exports is set to outstrip imports growth which is expected to grow at 6.3%.
Investments (as expected) are due to register a lower growth rate as inventories and valuables
growth slows down as the economy emerges out of the slowdown phase. Gross fixed capital
formation though is likely to grow by 8.4% against 7.3% in FY2010.
The higher absolute nominal GDP number is likely to subdue GFD/GDP
Without having any reduction in the absolute fiscal deficit (budget estimates), the government
stands to bring down the GFD/GDP to 4.8% from 5.5% based on the revised nominal GDP
numbers at market prices. With the deflator from the demand side showing 10.5% growth, the
inflation certainly seems to be ‘aiding’ the government on the fiscal deficit front. We believe that
though this year the government can show a lower than budgeted GFD/GDP, it remains to be seen
how the government maneuvers through the fiscal challenges next year with expenditure through
flagship programs on the higher side and 3G+BWA type revenues absent on the other hand. Our
initial calculations show that even if GFD/GDP in the next fiscal is placed at around 4.3% of GDP,
there might not be any significant material comfort on the borrowings numbers, which could still
stay high at around Rs100 bn to Rs120 bn every week in FY2012E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
National Accounts
FY2011E advance estimates reiterate our view on strong growth dynamics. We
believe that CSO’s advance estimates for FY2011E GDP underline our call on strong
growth dynamics of the Indian economy. The reported numbers are in line with our
estimates and show the buoyancy across all the sectors. With 1HFY11 growth at 8.9%,
2HFY11E will see lower cyclical growth and, in our view, only moderation in the growth
dynamics rather than pointing to any significant slowdown.
FY2011E real GDP growth at 8.6%, albeit with some manufacturing slowdown
The advance estimates indicate GDP growth at 8.6% after 8% in FY2010. The FY2010 estimates
were revised up a week earlier from 7.4%. Exhibit 1 shows how the economy has moved over the
year across various economic sectors. We believe that on the back of the recent IIP trends and our
expectations of continued cyclical dips in the industrial production, manufacturing sector’s growth
in 2H will be lower than in 1H of FY2011E. But we also note that the services sector will remain
buoyant, leading to our overall estimate of 8.6% for the year.
Agriculture sector turns robust; services continue to remain strong
The CSO expects agriculture growth to be around 5.4% after an anemic growth in FY2010. We
believe that some concerns remain regarding how the unseasonal rains might have affected the
kharif output. But the impact might have softened on base effects arising from weak production
last year. Early indications on the sowing patterns on rabi also point to a relatively healthy rabi
output. Services sector growth for the full year is expected broadly in line with ours. However, the
key highlight is an expectation by the CSO of a robust financial sector growth in 2H compared to
1H of this FY while the impetus from the ’Community, social and personal services‘ to the overall
growth is expected to be muted in 2H. Construction sector growth remains strong though we
have seen some slowdown in cement production in 3QFY11.
GDP at market prices grows at 9.7%; gross capital formation slows marginally
Demand side indicates that GDP grew by 9.7% in FY2011 with the main thrusts coming from the
consumption and trade side. In real terms private consumption grew by 8.2% compared to 7.3%
in FY2010. The reliance on government expenditure to prop up the economy was markedly lower
with government consumption growing by 2.6% against 16.4% last year. This fall was offset by
exports which are estimated to grow by 12% in real terms against a contraction of 5.5% last year.
In fact, growth in exports is set to outstrip imports growth which is expected to grow at 6.3%.
Investments (as expected) are due to register a lower growth rate as inventories and valuables
growth slows down as the economy emerges out of the slowdown phase. Gross fixed capital
formation though is likely to grow by 8.4% against 7.3% in FY2010.
The higher absolute nominal GDP number is likely to subdue GFD/GDP
Without having any reduction in the absolute fiscal deficit (budget estimates), the government
stands to bring down the GFD/GDP to 4.8% from 5.5% based on the revised nominal GDP
numbers at market prices. With the deflator from the demand side showing 10.5% growth, the
inflation certainly seems to be ‘aiding’ the government on the fiscal deficit front. We believe that
though this year the government can show a lower than budgeted GFD/GDP, it remains to be seen
how the government maneuvers through the fiscal challenges next year with expenditure through
flagship programs on the higher side and 3G+BWA type revenues absent on the other hand. Our
initial calculations show that even if GFD/GDP in the next fiscal is placed at around 4.3% of GDP,
there might not be any significant material comfort on the borrowings numbers, which could still
stay high at around Rs100 bn to Rs120 bn every week in FY2012E.
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