1QFY2013 GDP | Economy

September 3, 2012

1QFY2013 GDP Growth

GDP growth at 5.5% for 1QFY2013
Key highlights
Real GDP growth for 1QFY2013 increased to 5.5%, marginally higher than 5.3% growth in the previous quarter. Growth was driven by construction and financing, insurance, real estate & business services. Gross fixed capital formation (GFCF) reported a growth of 0.6%, reiterating concern over the investment climate in the economy.

Bhupali Gursale
022-3935 7800 Ext: 6820 bhupali.gursale@angelbroking.com

GDP growth marginally higher than market expectations:

As per Central Statistical Office (CSO) estimates, the gross domestic product (GDP) for 1QFY2013 reported a growth rate of 5.5%. GDP growth at 5.5% is marginally higher than 5.3% growth witnessed in the previous quarter as well as 5.2% estimated by Bloombergs survey of economists. However, the sub-6% growth is substantially lower as compared to 8% growth recorded in 1QFY2012.

Construction and financial services drive overall growth:

GDP growth for 1QFY2013 has largely been driven by construction and financing, insurance, real estate & business services sectors. Construction reported a growth of 10.9% as against a growth of 4.8% in 4QFY2012 owing to high growth in production of cement and consumption of finished steel. Financing, insurance, real estate & business services maintained growth momentum by reporting 10.8% growth as compared to 10% growth in the previous quarter. Community, social and personal services followed with a growth of 7.9%, increasing for the fourth straight quarter. Service sector growth decelerated to 6.9%, reflecting the slowdown in industrial sector with a lag. Trade, hotels, transport and communication category, contributing the highest share in GDP, reported a moderate growth of 4% as compared to 13.8% in the corresponding period of the previous year. The industrial sector reported a growth of 3.6%, supported by growth in construction and electricity. Mining, manufacturing and electricity, gas and water supply reported growth of 0.1%, 0.2% and 6.3% respectively in spite of de-growth in the Index of Industrial Production (IIP) for mining and manufacturing by 1.1% and 0.7% respectively during the period. Agriculture, forestry and fishing reported a growth of 2.9% in 1QFY2013 as against a growth rate of 1.7% during the previous quarter owing to positive growth in production of wheat (8.1%), cotton (6.7%), sugarcane (4.5%) and cereals (3.5%) although production of rice (-16.6%) and oilseeds (-12.6%) marked a significant decline.

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1QFY2013 GDP

Moderation in GDP at market prices:

Growth in GDP at market prices during 1QFY2013 slowed to 3.9% as against 5.6% in the previous quarter and 9% in 1QFY2012. Private Final Consumption Expenditure (PFCE) stood at 3.98% as compared to 4.13% in the previous quarter. Government Final Consumption Expenditure (GFCE) reported an increase of 9% as compared to a moderate level of around 4.1% in the last quarter. Gross Fixed Capital Formation (GFCF) reported a tepid growth of 0.6% as compared to 3.6% in the previous quarter and 14.7% in 1QFY2012 reiterating concern over the weak investment environment in the economy.

Policy implications:
We believe that the Reserve Bank of India (RBI) is unlikely to cut its key policy rates in the Mid Quarter Review of Monetary Policy due in September since upside risks to inflation continue to persist in the near-term. We expect inflation to inch up owing to structural supply-side constraints in agriculture, high minimum support price (MSP) increase for kharif crops, deficiency of rainfall in most parts of the country and the impending deregulation of diesel prices. Increase in crude oil and retail petrol prices along with a revision in electricity tariff are likely to create pass-through of these prices in generalized inflation, adding to the expected uptrend. Although growth during 1QFY2013 has come in higher-than-expected, the economy has witnessed a significant decline in its growth trajectory as compared to the preceding quarters. We expect growth for FY2013 to range between 5.5%-6%, below the economys potential growth rate. Therefore, measures by the government on the policy front in order to bridge the budget deficit by cutting down on food and oil subsidies, resolving the mining logjam in minerals like coal and iron ore, expediting FDI reforms, giving a thrust to mining auctions and clearances, land allocation and further increasing infrastructure ordering activity are urgently needed to boost business and investor sentiment in the economy.

Exhibit 1: Component-wise GDP growth for 1QFY2013

Industry (` crore) Agriculture and Allied Activities Industry Mining and Quarrying Manufacturing Electricity, Gas and Water Supply Construction Services Trade, Hotels, Transport & Communication Financing, Insurance, Real Estate & Business Services Community, Social & Personal Services GDP at factor cost
Source: CSO, Angel Research

1QFY2012 1QFY2013 % change 167,548 343,293 26,251 196,170 24,333 96,539 727,897 357,883 225,165 144,849 1,238,738 172,402 355,780 26,282 196,544 25,867 107,087 778,094 372,192 249,575 156,327 1,306,276 2.9 3.6 0.1 0.2 6.3 10.9 6.9 4.0 10.8 7.9 5.5

September 3, 2012

1QFY2013 GDP

Exhibit 2: Component-wise GDP growth (in %, yoy)

1QFY2012 Agriculture and Allied Activities Industry Mining and Quarrying Manufacturing Electricity, Gas and Water Supply Construction Services Trade, Hotels, Transport & Communication Financing, Insurance, Real Estate & Business Services Community, Social & Personal Services GDP at factor cost
Source: CSO, Angel Research

2QFY2012 3.1 3.7 (5.4) 2.9 9.8 6.3 8.8 9.5 9.9 6.1 6.7

3QFY2012 2.8 2.5 (2.8) 0.6 9.0 6.6 8.9 10.0 9.1 6.4 6.1

4QFY2012 1.7 1.9 4.3 (0.3) 4.9 4.8 7.9 7.0 10.0 7.1 5.3

1QFY2013 2.9 3.6 0.1 0.2 6.3 10.9 6.9 4.0 10.8 7.9 5.5

3.7 5.6 (0.2) 7.3 7.9 3.5 10.2 13.8 9.4 3.2 8.0

Exhibit 3: GDP growth yoy

(%) 12 10 8 6 4 2
1QFY2009 2QFY2009 3QFY2009 4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012 4QFY2012 1QFY2013 1QFY2013

11.2 9.8 8.5 5.8 3.5 5.7 9.0 7.5 8.5 8.2 9.2 8.0 6.7 6.1 5.3 5.5

7.6

Source: CSO, Angel Research

Exhibit 4: Industry-wise GDP growth

(%) 16 14 12 10 8 6 4 2
1QFY2009 2QFY2009 3QFY2009 4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012 2QFY2012

Agriculture and Allied Activities

Industry

Services

(2) (4)

Source: CSO, Angel Research

September 3, 2012

3QFY2012

1QFY2013 GDP

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September 3, 2012

1QFY2013 GDP

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