India's GDP grew at 8.5% in FY-2011, while the Q4 growth was recorded at 7.8%. Manishi Raychaudhuri, MD & HOR, BNP Paribas Securities , talks to ET Now on how the markets are likely to take these data points. Excerpts:
ET Now: The Q4 growth is a little bit below estimates while the FY11 growth is pretty much in line. What is your initial sense on how the markets would take these numbers?
Manishi Raychaudhuri: The fact that the GDP numbers would not be really too high, that was pretty much anticipated by the market which was sort of visible not so much in those so-called index numbers that we come up with, but more so on the ground numbers. If we look at the commercial vehicle sector, for example, or in cement there has been a demand slowdown for almost a year and a half. Even in some other on the ground data points like number of real estate transactions, the impact of demand compression has been visible in these sectors for some time now. So I think partly it was accepted or kind of expected by the market and now the market would obviously look ahead to what we are likely to see in fiscal 12. And even in fiscal 12 most of the economists are now talking about some number close to 7.5% to 8% or at most close to about 8 to 8.2.
The earlier expectations of growth being somewhere close to 8.5% to 9% are not quite valid anymore. So if one puts all this together, then I would think that the impact on the market, obviously there would be some degree of disappointment and short-term negative impact. But it would perhaps be limited. What is more important from the markets' perspective is the direction that earnings estimates are likely to take. We have seen some downgrades to the earnings estimates as a whole, almost across all sectors, even though some sectors are relatively more prone to that happening. So the combination of direction of earnings estimates and the flow situation which is of course governed by what has happened, what happens elsewhere, these two are really likely to be the governing force behind the direction of the market.
ET Now: Post these numbers any which ways you had a lot of international organisations which have downgraded India's growth rate. You have the IMF also which is pegged in a lower GDP number for India. Going forward if we continue while we have seen a sporadic move in IIP numbers which was on the upside for the month of April, but if we do continue to see some bit of a downward move post the numbers that came out, will we be able to achieve these kinds of levels?
Manishi Raychaudhuri: The numbers that we saw today, these are for the March quarter. So that is more than two months in history and the IIP numbers that we saw in April, they are slightly more advanced. They are just about one month back. So what we really need to see is how things pan out going forward in fiscal 12 and obviously if we continue to see weaker numbers for one or two quarters more, may be in the June and the September quarter, their expectations will have to brought down. Most of the economists currently are expecting growth to be in the range of 7.5% to 8% in course of this year.
In case of India as we all know the monsoons are also a big variable because it influences not just agriculture production but also consumption by the rural sector and as of now that side seems to be doing fine, going by the most recent data on advances by the monsoons in South India. But those are the key variables that we will have to look out for. The conclusion is obvious: if we do not see a pick up in construction, in infrastructure, the sectors that have been lagging significantly since middle of last year, then the growth estimates would have to be brought down even further
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