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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
National Accounts
Growth slowing but not cracking. 1QFY12 GDP growth came in at 7.7% against our
expectations of 7.6%. More importantly, this number is almost the same as the 7.8%
of the previous quarter and hence indicates that even as growth has slowed, it has not
crumbled. Despite the high inflation and rising interest rates, consumption demand
does not appear to have slowed sufficiently while capital formation witnesses a surprise
upswing. Headwinds to growth from global conditions and lagged implications of
domestic policy tightening are likely to lead to slower growth in the quarters ahead.
Construction and mining disappoint; manufacturing and services hold fort
1QFY12 GDP growth came in at 7.7% against 7.8% in 4QFY11. Although this in itself is a decent
number considering the global turmoil, high inflation and rising interest rates in 1QFY12, the
details point to weakening in few sectors. Mining sector growth at 1.8% (contraction of 10.3%
qoq) and construction sector growth at 1.2% (contraction of 8.6% qoq) were clear
disappointments. Coal production had been on a weak trend, evident from the 8-digit core IIP
numbers. Electricity sector grew at 7.9% but would be at a disadvantage if coal production does
not improve. On the other hand, manufacturing sector growth continued to be steady at 7.2%.
Next few quarters might see a softening bias for this sector as the lagged implication of higher
interest costs starts to impact and as consumption demand remains on the lower side. Services
sector, as expected, remained strong boosted by the ‘trade, hotels, transport, storage and
communication’ sector which grew by 12.8% against 9.3% in 4QFY11.
Private consumption weakens further; but investments see a surprise upswing
On the expenditure side, private consumption growth slipped further to 6.3% from 8% in 4QFY11
and 9.5% in 1QFY11. Even though the consumption demand decelerated, the subsequent effect
of this on non-food manufacturing prices is not evident as most of the price dynamics is global in
nature. Despite the rising interest rate scenario, and all evidence of a dip in project
implementation, investments surprisingly grew by 9.6% (inclusive of inventory changes and
valuables). The next couple of quarters will be more crucial and any likely pick-up in project
execution could be at risk even as RBI pauses in its interest rate hiking cycle. The project execution
cycle, apart from the interest rate dynamics, could be crucially linked to the sentiment factor. The
government thus, on its part, needs to move ahead with reforms measures. The market was
hoping that some of the crucial bills such as the Land Acquisition and Rehabilitation and
Resettlement Bill, National Food Security Bill, GST and DTC Bills would be tabled in the monsoon
session of the Parliament.
Exports growth has been strong in the 1QFY12. However, this has not been of much help as net
trade balance has worsened in 1QFY12 compared to 4QFY11, thereby being a drag on the GDP.
We expect further moderation in 2QFY12E
In comparison with 1QFY12, 2QFY12E is likely to see further moderation to about 7.3% as
industrial growth is expected to slow further. 2QFY12E is likely to see inflation at about 9.3%
average, around the same level as 1QFY12 average of 9.6%. The turmoil in the global financial
markets post sovereign ratings downgrade of the US had raised the chances of a pause by RBI in
its interest rate hiking cycle. However, post the Jackson Hole speech of Ben Bernanke, the chances
of additional stimulus on the monetary side by the Fed have risen. While we do not immediately
factor in a QE3, the hopes of the same could be kept alive, thus preventing a large fall in the
commodity prices. Thus RBI’s priority would continue to be to fight inflation and hence, we retain
our call for a 25 bps increase in the repo rate by RBI on September 16.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
National Accounts
Growth slowing but not cracking. 1QFY12 GDP growth came in at 7.7% against our
expectations of 7.6%. More importantly, this number is almost the same as the 7.8%
of the previous quarter and hence indicates that even as growth has slowed, it has not
crumbled. Despite the high inflation and rising interest rates, consumption demand
does not appear to have slowed sufficiently while capital formation witnesses a surprise
upswing. Headwinds to growth from global conditions and lagged implications of
domestic policy tightening are likely to lead to slower growth in the quarters ahead.
Construction and mining disappoint; manufacturing and services hold fort
1QFY12 GDP growth came in at 7.7% against 7.8% in 4QFY11. Although this in itself is a decent
number considering the global turmoil, high inflation and rising interest rates in 1QFY12, the
details point to weakening in few sectors. Mining sector growth at 1.8% (contraction of 10.3%
qoq) and construction sector growth at 1.2% (contraction of 8.6% qoq) were clear
disappointments. Coal production had been on a weak trend, evident from the 8-digit core IIP
numbers. Electricity sector grew at 7.9% but would be at a disadvantage if coal production does
not improve. On the other hand, manufacturing sector growth continued to be steady at 7.2%.
Next few quarters might see a softening bias for this sector as the lagged implication of higher
interest costs starts to impact and as consumption demand remains on the lower side. Services
sector, as expected, remained strong boosted by the ‘trade, hotels, transport, storage and
communication’ sector which grew by 12.8% against 9.3% in 4QFY11.
Private consumption weakens further; but investments see a surprise upswing
On the expenditure side, private consumption growth slipped further to 6.3% from 8% in 4QFY11
and 9.5% in 1QFY11. Even though the consumption demand decelerated, the subsequent effect
of this on non-food manufacturing prices is not evident as most of the price dynamics is global in
nature. Despite the rising interest rate scenario, and all evidence of a dip in project
implementation, investments surprisingly grew by 9.6% (inclusive of inventory changes and
valuables). The next couple of quarters will be more crucial and any likely pick-up in project
execution could be at risk even as RBI pauses in its interest rate hiking cycle. The project execution
cycle, apart from the interest rate dynamics, could be crucially linked to the sentiment factor. The
government thus, on its part, needs to move ahead with reforms measures. The market was
hoping that some of the crucial bills such as the Land Acquisition and Rehabilitation and
Resettlement Bill, National Food Security Bill, GST and DTC Bills would be tabled in the monsoon
session of the Parliament.
Exports growth has been strong in the 1QFY12. However, this has not been of much help as net
trade balance has worsened in 1QFY12 compared to 4QFY11, thereby being a drag on the GDP.
We expect further moderation in 2QFY12E
In comparison with 1QFY12, 2QFY12E is likely to see further moderation to about 7.3% as
industrial growth is expected to slow further. 2QFY12E is likely to see inflation at about 9.3%
average, around the same level as 1QFY12 average of 9.6%. The turmoil in the global financial
markets post sovereign ratings downgrade of the US had raised the chances of a pause by RBI in
its interest rate hiking cycle. However, post the Jackson Hole speech of Ben Bernanke, the chances
of additional stimulus on the monetary side by the Fed have risen. While we do not immediately
factor in a QE3, the hopes of the same could be kept alive, thus preventing a large fall in the
commodity prices. Thus RBI’s priority would continue to be to fight inflation and hence, we retain
our call for a 25 bps increase in the repo rate by RBI on September 16.
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