Q3FY13 GDP At 4.5%; Rate Cut Might Aid Crashing Markets

After a disappointing trading session post the Finance Minister’s Budget announcement, the Ministry of Statistics and Programme Implementation (MOSPI) has come up with a disappointing set of Q3FY13 GDP numbers which came in at a meager 4.5 per cent. The data came in much lower than the market expectations which estimated the growth to be around 5% to 5.5% for the December 2012 quarter. The number is among the worst in the decade and is also witnessing a declining trend. For ones reference, GDP for Q1FY13 came in at 5.5% while for the Q2FY13 they had came in at 5.3%.

One should broadly recollect that the CSO had estimated the GDP at 5% while the RBI was cautiously optimistic and expected the growth to be at 5.5% for FY2013. Whatever be the case, after looking at the Q3FY13 numbers, it is very clear that we are struggling for growth and our economy is going through a pretty rough phase. Looking at the three quarters’ data, we believe that the CSO's estimate is achievable and one should not be surprised even if the growth falls below the 5% mark.

What's next? A heavy fall in the markets (post the Budget announcement) is yet to be digested and another bad news has already cropped up regarding the lower GDP numbers. Will tomorrow be another day of carnage of the Dalal Street and would the bourses go with the bears? Or will it bounce back? Well no one can estimate that and the markets will reveal the same in due course of time.

However, there are two perspectives which should be taken into consideration. For the bears’ sentiments, a lack of positive signs from the budget coupled with lower GDP numbers would drag the markets for tomorrow. But there could be a possibility that the lower GDP numbers could trigger the RBI to slash the repo rate by 50 basis points in the March 2013 quarter, which would boost market sentiments.

Further, one must note that the market participants were very optimistic about the budget, wherein the FM failed to deliver. However, one should note that there was no negative mention in the Budget speech.