FY12 Advance GDP Growth Dips To 6.9 Per Cent

A slowdown in construction activity has led to construction growth moderating at 4.8 per cent as compared 8 per cent a year earlier. The farm output has also been impacted and it stands at 2.5 per cent as against 7 per cent in the previous year while the mining output has seen one of its worst performances and has dived into the negative zone at -2.2 per cent from 5 per cent a year earlier. The services sector saw marginal improvement to stand at 9.4 per cent as against 9.3 per cent a year earlier.

The markets have reacted negatively to this development. After reaching an intra-day high of 17,832.04, the Sensex has fallen back to 17,745.69 post the announcement of the advance GDP numbers. Though the markets have given away part of their gains, in our view we do not foresee any further negative reaction as much of the slowdown in the GDP numbers was expected and priced in.

The latest set of advance GDP numbers stand below the RBI’s estimated GDP for FY12 at 7 per cent and the government estimates of 7.25 per cent. Going forward, we expect some improvement in the GDP numbers owing to a pick-up in industrial activity and manufacturing during the second half of FY12. Having said this, we still expect the GDP to be less than 7.25 per cent.