GDP@4.8% In September 2013 Quarter – What’s Next?

India’s GDP growth numbers for the September 2013 quarter were announced last week. The 4.8% growth was much better than the street’s estimates of 3.9% on the lower side and around 4.5% on the higher side.

As regards the contribution from each segment, Electricity and Gas saw a remarkable improvement in the September quarter GDP, with a growth of 7.70% as against just 3.7% in June 2013 and 3.2% in September 2012. What has really boosted the GDP data in the quarter is the agricultural growth, which came in at 4.6% against that of 2.7% in the June 2013 quarter and 1.7% in September 2012.

As regards the other segments, mining, as expected, dipped by 0.4% and community & social services declined significantly to just 4.2% from the levels of around 9% in the past few quarters.

From these numbers, what can we expect going ahead? We feel that though the September quarter GDP growth figures have been better than the expectations, this should not be considered as an indication of immediate improvement in the second half of FY14. The growth is unlikely to come in higher than 5% in the second half.

Of course, there are still certain positives we can look forward to. On the agricultural front, the rabi crop is expected to be good and hence, the growth is likely to continue its momentum. Street estimates suggest that we can expect agricultural growth to be above 4.5% going ahead. In fact, mining activity is also likely to pick up as the monsoon is over and the ban on iron ore mines has been lifted.

On the negative side, manufacturing is unlikely to pick up pace, and hence, we expect a subdued performance on this front in H2FY14. Services may not register any significant growth either, and we also expect construction activity to remain stagnant.

So, though there is marginal improvement on the GDP front in the September quarter, we are not particularly expecting to see fireworks in the two quarters ahead, viz. December 2013 and March 2014.

The major impact of all of this would be seen on the RBI’s policy statements. Most on the street seem to be expecting another round of rate hike. However, with inflation figures expected to contract on account of a good rabi crop, the regulator may choose to maintain status quo on the rates. If that happens, the markets are likely to sustain their upward momentum.