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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
National Accounts
Growth headwinds strong, investment revival key. We lower our FY2012E and
FY2013E estimates for GDP growth to 7.1% and 6.9% from our previous estimates of
7.3% and 7.9%, respectively. The near and medium-term growth outlook remains hazy
with domestic and global uncertainties limiting headroom for a ‘big push’ increase in
investment expenditure. The long-term potential of the economy, however, stays
healthy, backed by favorable demographics and a healthy domestic savings rate. We
remain hopeful that the policy makers will finally have to bring in some hard reforms to
push up the economy, which will translate into long-term gains—something akin to
early 1990s reforms in India.
Industry in FY2012E and services in FY2013E to drag growth lower
We revise down our FY2012E estimate marginally to 7.1% given the weakness that we see
persisting in the industrial sector. The headwinds from higher borrowing cost and negative
investment sentiments will continue well into FY2013E. There could be some bounce in the
industrial output in FY2013E based on our expectation of lower inflation, however, the drag could
emerge from the services sector with the global economic dynamics not reviving significantly. The
PMI services have actually dipped into the contraction zone over the past couple of months. The
general slowdown in the economy is likely to negatively impact trade, hotels, and transport
services while the lack of further room for fiscal expansion could affect the community, social and
personal services.
Investment demand subdued with macro uncertainty
Sentiment on the economy has now turned sharply negative, with risks emerging both on the
macro front as also the policy front. A seeming paralysis in policy reforms even after a wide
anticipation of the same, along with recurrence of news on corruption and scandal has severely
dented investment sentiments. The lack of fiscal consolidation and the emergence of high current
account deficits have led to fears of a ‘twin deficit’ problem for India. Inflation and interest rates
are thus expected to stay on the higher side as the government continues to crowd out private
sector liquidity needs. Along with these domestic issues, the global economy (particularly Euro
area) is likely to keep investors on a risk-off mode for an extended period. Sentiment on the Indian
economy can only revive if the government brings about reforms in key areas such as agriculture,
education, skill development, etc. while exhibiting a serious effort towards containing wasteful
expenditures such as subsidy bill and targeted expenditures on social sector programs. However,
this appears difficult in the current situation. Unlike the last cycle, policy interest rates may not also
be expected to provide any immediate boost to growth as inflation concerns sustain. In this
context, we do not expect RBI to start reducing the Repo rate before 2QFY13E.
Ideal opportunity (and necessity) for big-ticket reforms
As in the early 1990s, the current situation of domestic and international headwinds to growth
could provide the government with a good opportunity and excuse to push ahead with the more
difficult reforms. The need for fiscal consolidation has once again emerged as a critical need that
should help reduce inflationary expectations and interest rates in the economy. The structural
constraints of the fiscal—both on the revenue and the expenditure sides need to be addressed.
Introduction of the GST and the DTC becomes crucial while containment of subsidies, proper
targeting of social sector expenditures and also reforms to the oil sector are necessary. Along with
these, to improve investor sentiment, the government may have to make an effort towards
passing key bills that are pending in the parliament. Some of these are the Land Acquisition bill,
Mining bill, Pension bill, Lokpal Bill etc.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
National Accounts
Growth headwinds strong, investment revival key. We lower our FY2012E and
FY2013E estimates for GDP growth to 7.1% and 6.9% from our previous estimates of
7.3% and 7.9%, respectively. The near and medium-term growth outlook remains hazy
with domestic and global uncertainties limiting headroom for a ‘big push’ increase in
investment expenditure. The long-term potential of the economy, however, stays
healthy, backed by favorable demographics and a healthy domestic savings rate. We
remain hopeful that the policy makers will finally have to bring in some hard reforms to
push up the economy, which will translate into long-term gains—something akin to
early 1990s reforms in India.
Industry in FY2012E and services in FY2013E to drag growth lower
We revise down our FY2012E estimate marginally to 7.1% given the weakness that we see
persisting in the industrial sector. The headwinds from higher borrowing cost and negative
investment sentiments will continue well into FY2013E. There could be some bounce in the
industrial output in FY2013E based on our expectation of lower inflation, however, the drag could
emerge from the services sector with the global economic dynamics not reviving significantly. The
PMI services have actually dipped into the contraction zone over the past couple of months. The
general slowdown in the economy is likely to negatively impact trade, hotels, and transport
services while the lack of further room for fiscal expansion could affect the community, social and
personal services.
Investment demand subdued with macro uncertainty
Sentiment on the economy has now turned sharply negative, with risks emerging both on the
macro front as also the policy front. A seeming paralysis in policy reforms even after a wide
anticipation of the same, along with recurrence of news on corruption and scandal has severely
dented investment sentiments. The lack of fiscal consolidation and the emergence of high current
account deficits have led to fears of a ‘twin deficit’ problem for India. Inflation and interest rates
are thus expected to stay on the higher side as the government continues to crowd out private
sector liquidity needs. Along with these domestic issues, the global economy (particularly Euro
area) is likely to keep investors on a risk-off mode for an extended period. Sentiment on the Indian
economy can only revive if the government brings about reforms in key areas such as agriculture,
education, skill development, etc. while exhibiting a serious effort towards containing wasteful
expenditures such as subsidy bill and targeted expenditures on social sector programs. However,
this appears difficult in the current situation. Unlike the last cycle, policy interest rates may not also
be expected to provide any immediate boost to growth as inflation concerns sustain. In this
context, we do not expect RBI to start reducing the Repo rate before 2QFY13E.
Ideal opportunity (and necessity) for big-ticket reforms
As in the early 1990s, the current situation of domestic and international headwinds to growth
could provide the government with a good opportunity and excuse to push ahead with the more
difficult reforms. The need for fiscal consolidation has once again emerged as a critical need that
should help reduce inflationary expectations and interest rates in the economy. The structural
constraints of the fiscal—both on the revenue and the expenditure sides need to be addressed.
Introduction of the GST and the DTC becomes crucial while containment of subsidies, proper
targeting of social sector expenditures and also reforms to the oil sector are necessary. Along with
these, to improve investor sentiment, the government may have to make an effort towards
passing key bills that are pending in the parliament. Some of these are the Land Acquisition bill,
Mining bill, Pension bill, Lokpal Bill etc.
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