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Market Commentary
First Cut GDP Analysis 1QFY13 - CARE Research
Posted On : 2012-08-31 21:08:37( TIMEZONE : IST )
The Central Statistical Office (CSO) has released estimates of GDP numbers for the first quarter of this fiscal. The GDP in Q1 FY13 grew by 5.5% compared with 8.0% for the same period last fiscal.
GDP growth for Q1 FY13 comes at a higher than CARE's own estimate of 5.2%. The growth of 5.5% is mainly driven by healthy growth in construction, 'finance, insurance, real estate & business services' and 'community, social and personal services'.
Overall GDP growth in Q1 has slowed down from 8.0% in FY12 to 5.5% in FY13, with growth in manufacturing being near zero in Q1 FY13 (as against 7.3% in FY12).
Prospects for the entire FY13
While growth in Q1 has come above expectations, it cannot be taken to mean a change in the overall fortunes of the economy, though the direction will in all probability be maintained during the rest of the year. We expect growth in the services sectors to provide a boost in the coming quarters as well and expect the manufacturing sector to improve, albeit gradually.
Growth would be relatively stable in Q2 with no discernible improvement in manufacturing, and residual growth in agriculture. Construction growth would slow down on account of the monsoon while services would regain lost space in the following three quarters. A pick up in manufacturing could be expected in Q3 and Q4 on account of the festival season and low base effect. The farm sector however would be impacted by the drought in Q3 and recover in Q4.
Assuming a growth of 0.2% in the agricultural sector, 2.8% in industry and 8.6% growth in the services sector would result in an overall GDP growth of around 5.9% in FY13. This would presumably, be achievable, in case manufacturing activity picks up during the year. Given an expectation of a 50 bps reduction in key policy rates during the year and inflation settling at around 7.5% by end-March 2013, production activity could revive on the back of higher capital investments and lower production costs.
