The December quarter GDP data which was released post-market hours on Friday gave a sigh of relief to economists as the economy returns to growth but it missed most analyst estimates.
India's gross domestic product (GDP) in the third quarter of FY21 rose marginally at 0.4 percent, reaffirming that the economy is back on track thanks to the stimulus packages by the government last year.
In FY21, the GDP is now expected to shrink by a slightly larger margin of 8 percent, according to the government's updated official forecast, as per official data released by National Statistical Office.
The market has been on a roller coaster ride since the Budget. Benchmark indices climbed to historic peaks but profit-booking at higher levels and weak global cues dented risk-on sentiment.
The S&P BSE Sensex fell 3.5 percent while the Nifty50 was down 3.02 percent for the week ended February 26. In comparison, the S&P BSE Midcap index fell 0.28 percent, while the S&P BSE Smallcap index closed with gains of 1.4 percent for the same period.
The S&P BSE Sensex closed below its crucial support placed at 50,000 while the Nifty50 also ended below 14600 levels.
It is official that India has now stepped out of technical recession, but the dominance of bears could continue on D-Street for some more time, suggest experts. The market will react to the GDP data which according to experts is below expectations, and it also points towards the fact that the pain may not be over.
On the global front, any further rise in US bond yields could also increase selling pressure, they said.
According to the updated official estimates of the government, India's GDP is now expected to shrink by 8 percent in FY21, up from the 7.7 percent estimate released in January.
Despite GDP growth returning in Q3, the slightly worse expectation for the entire year is borne out by a slower-than-expected growth in the manufacturing and services sectors.
“The informal sector of India accounting for a large portion of the GVA still does not seem to have come out of pain but the recent Govt measures may play a role in alleviating some of their problems,” Dhiraj Relli, MD & CEO, HDFC Securities told Moneycontrol.
“The downward revision of FY21 GDP in the second advance estimates to -8% is also a bit disappointing. The equity markets may be a tad disappointed with these data points but the mood at this point is anyway sombre,” he said.
The estimate of 1% growth in GVA and 0.4% growth in GDP marks the ending of the recessionary phase.
All the sectors except (i) Mining and Quarrying, (ii) Trade, Hotels, Transport and communication services and (iii) Public administration, defence, and other services have recorded positive growth in the third quarter.
“December quarterly GDP numbers have broadly missed expectations although there have been some surprises in certain industries. A 0.4% GDP growth number for Q3 has slightly missed the mark. GVA was dragged mainly by services such as hospitality, transport, etc. which weren’t encouraging while construction and real estate saw strong growth as expected,” Nirali Shah, Head of Equity Research, Samco Securities told Moneycontrol.
This does indicate that there is still a pain in certain sectors and investors should bet more on stocks towards the manufacturing side than services,” she said.
What should investors do?
The GDP data is encouraging and investors should look at it in a positive way. Yes, in the near term, the pain could remain, and investors should use dips to get into economy-related and consumption stocks.
“The December quarter GDP data of 0.4% is encouraging. The growth in Manufacturing, Real estate, and financial sector seems promising and growth of 2.6 percent in the fixed capital formation seems positive along with impending revival and growth of the core sector,” Likhita Chepa, Senior Research Analyst at CapitalVia Global Research told Moneycontrol.
She thinks stocks like Godrej Properties, Ashok Leyland, and Muthoot Finance may have an advantage in the present scenario.
Keval Bhanushali - CEO at Marwadi Shares and Finance Ltd told Moneycontrol that it is definitely promising to see the GDP growth back in green, but the real challenge is to keep inflation in check.
“Investors should stay cautiously bullish at this time with a very precise sectoral investing strategy. Investors can look at private sector banks for medium-term investments. We also like Bharti Airtel,” he said.
Bhanushali further added that Bharti Airtel looks like a very promising bet for the long term considering the Duopoly in a huge data market like India.
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