India GDP growth at 4.4% YoY, at 17 quarter low; manufacturing PMI at 48.5 - Cholamandalam Securities

India's 1QFY14 GDP eased to a 17 quarter low of 4.4% YoY with a sharp slowdown in industrial growth. From the expenditure side, Private Consumption Expenditure dropped to 1.6% YoY and Gross Fixed Capital Formation (GFCF) showed a decline of 1.2% YoY, while the buffer came from higher Government expenditure with a growth of 10.5% YoY.

The recent sharp depreciation of INR that also led the RBI to tighten the short-end interest rate by 300 bps is likely to impact growth negatively in the quarters ahead. With fiscal deficit already at 63% of FY14BE, government spending may not be able to prop the economy.

A good monsoon will spur agriculture growth and thus rural consumption. But recent depreciation of the rupee will lead to higher inflation and interest rates and take away most of the gains. Given the global tightening cycle, growth is likely to take a backseat, in our view. Moreover, investment cycle is nowhere close to revival.

India's HSBC Markit Manufacturing PMI for August came in at 48.5 for August (50.1 in July), shrinks for first time in 4 1/2 years. Consensus estimates for FY14 India GDP growth are being downgraded closer to 4% and there is a threat of downgrade by International rating agencies.

Source : Equity Bulls

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