FY14 GDP may be below 4.9%; see Q3 growth at 4.7-4.8%: RBS

Ekta: What is your expectation in terms of gross domestic product (GDP)? What do you estimating it at in terms of headline figure and what is your sectoral breakup as well?

A: For the headline number I am looking at around 4.7-4.8 with a large part of growth coming in or most of the growth coming in from the farm sector where we are looking at growth of slightly over 6 percent. Manufacturing sector inline with the Index of Industrial Production (IIP) numbers is likely to show a negative growth for this quarter, services likely to grow below 6 percent, which is what we have seen for quite a while now and that is stabilising. So, on the whole we are looking at 4.7 to 4.8 percent growth in Q3.

Reema: The Central Statistical Organisation (CSO) estimate for FY14 GDP stands at 4.9 percent, which means even if I take the better number – 4.8 percent for Q3, the asking rate for Q4 comes in at about 5.6 percent to meet the CSO estimate of 4.9 percent for the entire fiscal year. Do you think it is likely that we will see such a high number in Q4 or that 4.9 percent is also very optimistic and in that case what would your estimate be for the full year?

A: I think 4.9 percent is on the higher side. I would go between 4.6 to 4.7 because as you pointed out in Q4 if you are looking at 5.6 percent which means you are looking at manufacturing sector growing perhaps over 2 percent – in the range of 2.5-3 percent which looks difficult at this stage while there is some improvement and some pickup in January going by the Purchasing Managers’ Index (PMI) numbers or the leading indicators produced by the conference board for Indian now. It doesn’t seem that we will touch 2.5-3 percent from the manufacturing sector. Farm sector growth will remain robust like in Q3, services sector where the government has cut corners and that impact will be visible on services as well. So, on the whole in our assessment growth for the whole year might be revised downwards in the final estimate for GDP.

Ekta: What are you expecting for trades, hotels and transport because that was the one thing that the CSO for FY14 was quite pessimistic on – 3.5 percent? What are your estimates for this quarter and what is your expectation for the entire fiscal as well?

A: I do not have expectations specifically for the sector but I would go by what the CSO has estimated for the sector because overall service sector then most services categories have seen growth coming down fairly sharply over the last six-seven quarters and that process and that trend is likely to continue. More interesting information is coming from the spending side where in Q2 almost 70 percent of the growth was driven by exports or external demand and investment as per CSO estimates for the whole year will not contribute anything. Consumption will contribute positively but the key element, the driver of growth is exports. It is visible even in the Q3, in Q2 corporate sector performance numbers. It is a sector which has high degree - exports continuing to do well, so that is the key risk because Q2 export growth is also slowing down. So, on the whole for trade, hotels and restaurants in particular, I do not have an estimate but I would go by what CSO has estimated but on the whole for the whole year 4.9 looks a bit of a stretch. We might see number closer to 4.6.