Expect GDP growth at around 7.3%: Icra

Corporate earnings are giving a picture in terms of nominal prices, says Aditi Nayar, senior economist at ICRA on GDP. She believes real growth could still be higher than what corporate earnings is pointing at. Her estimates for GDP growth are around 7.3 percent.

Below is the verbatim transcript of Aditi Nayar's interview with Sonia Shenoy and Ekta Batra on CNBC-TV18.Sonia: Earlier in the day, JP Morgan scaled down their gross domestic product (GDP) estimates to 6.5 percent stating that the corporate earnings are much worse than what was expected so don’t be surprised to see an ugly number later this evening. What is your own expectations and how much of downside pressure would you expect this quarter?A: Broadly I would agree with the direction in terms of the expectation that Q4 GDP growth is going to be lower than Q3. My estimates for GDP growth are around 7.3 percent and gross value added at basic prices would have grown by around 7 percent now that we need to look at both the GDP at market prices as well as the GDP at basic prices that we are used to looking at traditionally.Specifically in terms of corporate earnings, that is definitely something that dominates the quarterly GDP growth estimation along with the data that we have from the Index of Industrial Production (IIP) and other sources of high frequency data. At this point, one of the interesting things is that when we look at corporate earnings, that is essentially giving us a picture in terms of nominal prices. So, how are corporate earnings this quarter as compared to same quarter in the previous year?However, when we look at real GDP growth we are going to deflate those corporate earnings numbers somewhere between the wholesale price index (WPI) and the consumer price index (CPI) depending on which sector we are looking at. Specifically, if we are going to look at deflators being heavily influenced by the way that the WPI has moved given that there has been a negative WPI inflation for several months now, my guess is that the real growth could perhaps still be higher than what our corporate earnings is telling us.So, I overall agree with the direction that we are going to get a lower GDP growth number than what we saw in Q3 but perhaps it won’t be as bad as 6.5 percent. However, given the fact that we are now looking at GDP on the new 2011-12 series that we are not familiar with I think I would temper my estimates a little bit given the fact that this is a new series that we are trying to forecast. Ekta: In terms of a segmental performance which one are you most optimistic on?A: In terms of an up tick compared to the previous quarter, we do expect an up tick to come in manufacturing and that is also based on the volume based information that we have from the IIP. In terms of agri definitely it is going to be a weak quarter, flat at best is my guess. So, perhaps not negative the way that we saw in Q3 because Q3 had the kharif harvest whereas there is no major harvest that gets included in the Q4 data. It is a more broad based mix of horticultural livestock activities, etc.Two other areas that would show a slow down are mining and electricity. Construction is a little bit of a unclear situation at this point. We have had cement production slowing down in the last couple of quarters but consumption may not have done as badly so perhaps construction we could still see a better number than the sub 2 percent that we saw in Q3. Services there is pretty much a mix trend particularly some of the trade related indicators have shown slight moderation, some have shown an up tick.However, what is going to pull down the overall number is public administration and defence which has grown by almost 19-20 percent in Q3 and is probably going to show low single digit growth in Q4.

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