See India's GDP for current quarter at 4.8%: HSBC

In an interview to CNBC-TV18, Leif Eskesen, HSBC Global Research shared his reading and outlook on June manufacturing PMI data of India and China.

Also Read: See FY14 GDP growth higher on reform steps: Rangarajan   Below is the edited transcript of his interview: Q: India's manufacturing Purchasing Managers' Index (PMI) for June came in at 0.3. You have much more details on what else the PMI survey threw up. Is it giving a sense of bottoming out? Perhaps now you will in a slightly better position to estimate the GDP growth of the first quarter of the current year? A: I do not think we are necessarily quite at a stage where we can see that things are stabilising. It is true that the headline number came in slightly above what we had in May, but what was behind that is a bit of a mixed bag. Output is still contracting so the output reading is itself below 50, albeit less than what it was in May and then when it comes to new orders they actually fell for the first time in more than four years which was led by decline in domestic orders. So that is what I would say on the negative side. On positive side new export orders are actually firm. There has also been a pick up in quantity of purchases, employment also rose effectively. So I think overall we are talking about very weak growth conditions in India. A lot of that weakness resides on the domestic side because these domestic orders are holding things back. Another factor also holding back activity in output growth is continued issues when it comes to lack of sufficient power supply and generally reporting to quite tight capacity in the economy. Q: What would be the first quarter industrial growth and GDP estimate if you have made any? A: Our GDP estimate for the first quarter remains the same. We are basically looking at 4.8 percent GDP growth and no change relative to the final quarter of last year. In sequential terms that translates into probably the same sequential growth rate for the quarter. As we see it now the recovery is still a few quarters away. It is still waiting for some more traction on stocks to perform both on the policy side, but also implementation of investment projects before we start to see a lift that is sustainable when it comes to overall economic activity. We also need to see little bit more traction on global economic growth that we do not really expect to see before we are in October-December quarter of this year. So these factors will only feed through to overall activity, more soon the second half of the fiscal year. Q. For how many more months do you expect the manufacturing PMI to continue hovering in that band of about a 50-51? At least for the last two-three months we have been precariously close to that 50 mark. A: It is hard to see it really breaking away from that in a serious manner anytime soon. On the domestic front the factors that are holding back domestic demand and will continue to be with us for a while, there is some uncertainty about the extent to which the reform momentum will continue in some sense as well. Even though we have seen inflation coming off, if you look at broader measures of inflation, Consumer Price Index (CPI) inflation is still quite elevated. So these two factors combine are to some denting sentiment. Also on the global front I would say overall the things do not look that encouraging at the moment and I do not think the global headwinds will ease off anytime soon either. I think we will probably have to look at that quite moderate pace of growth over the next couple of months. Q: What is your current GDP forecast and with this PMI number would you put a negative on it? A: The GDP forecast is 4.8 percent for the current quarter and then for the current fiscal year we still have 5.5 percent forecast. As far as the balance of risks around that growth forecast both for the first quarter and one for more so the risk is tilted to downside. It is contingent on two things. One, the reform momentum is maintained. There is risk that it could potentially slow down and also it is contingent on the global picture firming up and there still are downside risks on the global side. So these factors are probably why I would say on balance the risks are tilted to the downside.