Dec quarter GDP disappoints: What worries brokerages now?

Moneycontrol Bureau

The economy continues to stagger with the October-December quarter gross domestic product (GDP) at 4.7 percent, setting the stage for the worst year in a decade. Mining, manufacturing and agriculture sectors, too, contracted. Economists have pegged FY14 growth at sub-5 percent.

This, however, does not come as surprise to many economists. According to CLSA, India’s GDP-production growth has been below the 5 percent mark for seven consecutive quarters. There will be little policy support to boost growth, as monetary policy will remain tight and the fiscal correction will have to be more effective.

Nomura feels that flat growth in non-agriculture suggests domestic demand is likely to consolidate in fourth quarter. “Contraction in mining, manufacturing and construction offset increase in financial services,” it adds.

Citi warns that risk of occurrence of El Nino could risk agriculture output in FY15 and hence it could poise a threat to the hope of hitting 5.6 percent growth in next fiscal. “Stable government post elections could remain key to capex,” it says.

Agrees Crisil that agriculture may surprise in Q4 but even with a good Rabi harvest achieving 4.9 percent growth in FY14 looks tough. “Services surprised on the upside boosted by higher government spending and exports,” it adds.

Barclays is also worried that even with tepid growth RBI is unlikely to lose its focus on inflation. It elaborates, “In recent days Raghuram Rajan has indicated interest rates are appropriate now. But CPI and inflation expectations will need to be lowered to generate sustainable growth.”

Posted by Nasrin Sultana