India's second quarter GDP, ie: output growth in the July-Aug-Sept quarter is due at today evening. A CNBC-TV18 poll of economists has pegged the number at 4.7 percent.
If that happens then it will appear that Q1 would have been the worse because it came in at 4.4 percent in the first quarter. This 4.7 percent comes off a low base, of just 5.2 percent, in the year ago quarter.
Also Read: India's GDP on Friday - here's what to expect
The breakup: agriculture, which comprises 17-18 percent of the GDP, is expected to have grown at 3.1 percent. This is largely the rabi of the previous year; kharif output is not there up until September. So this is really the previous years rabi, which was a good harvest.
Industry is seen up 2 percent, that may be a bad number but it would be a big improvement over the minus 0.9 percent that was seen in Q1. This is more or less a confirmed number because of the Index of Industrial Production (IIP) numbers for July, August and September. So this 2 percent is unlikely to go wrong, it is the agricultural number which is a little wobbly.
But most wobbly is the services number because there are no advance estimates and it is largely guess work. So economists are expecting an average growth of 5.8 percent which would be among the worst performance by the services sector in many quarters, probably in decades. The quarter ago it was 6.2 percent and year ago it was 7.1 percent.
Having said that, it is essential to note that there is a very big risk of the number surprising in the positive and coming closer to 5 percent. There are two-three advance estimates which have surprised on the positive. The September core sector number came in at 8 percent. Within that, electricity came in at 13 percent.
The Q2 earnings of corporate India routinely surprised on the positive or largely surprised on the positive. Likewise export performance was very good for July, August and September. So all this could add up to a positive surprise though people are still vary of calling it that.
If the number comes closer to 5 percent it is possible that there will be a rally in the equity markets on Monday. Definitely the rupee will also be cheered in anticipation that more foreign institutional investments will come and the capex cycle has genuinely turned. So a number closer to 5 percent will genuinely be seen as positive. Over 5 percent will be an extraordinarily positive number but a number closer to 5 percent and higher will also open the chances of a rate hike more because inflation numbers have still been very negative, they are likely to be negative even for November, but that data will come out only on December 15. So a strong growth number will mean that the Reserve Bank of India will go ahead and hike rates if the inflation numbers warrant, chances are they will.
Finally, if the GDP number comes closer to 4 percent then of course you can expect some severe reverses in the stock and the currency markets. The bond markets may be spared the blushes because they will start estimating that the rate hike will not come. From the RBI it will be a minor positive but a number closer to 4 percent and lower than 4.4 percent could be pretty disastrous.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
