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Straight from the Specialists

Where the growth in Q1 came from

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

GA man walks his cow under high-tension power lines leading from a Tata Power sub station in Mumbai's suburbs February 10, 2013. REUTERS/Vivek Prakash/FilesDP growth of 5.7 percent in the April-June quarter was unexpected in view of the southward drift of India’s economy over the past two years. No wonder it pepped up the Bharatiya Janata Party-led government at a time when the ruling coalition is listing its achievements after 100 days in office. The question is where this growth came from and whether it will be sustained in future.

India’s economy has been slowing after achieving 9 percent growth three years ago. That was because the Congress-led government failed to fuel the economy. The absence of policy reforms, paralytic governance – combined with persistent inflation – discouraged investment. Growth tapered to 4.7 percent last year.

The Q1 data seems to signal a recovery with growth jumping to 5.7 percent. Some sectors did perform exceedingly well with over 10 percent growth. The first is electricity though its size in the overall economy is small. But it has now come up against stubborn problems like coal shortage, which has harassed the power sector. Coal production is unlikely to increase and the power sector will have to fall back on imports. The 10 percent increase in power generation contributed 3.4 percent to the increase in GDP in the first quarter.

Business services such as finance, insurance, and professional services like IT also exhibited high growth. This sector is a major contributor to GDP and constitutes nearly a fifth of the economy, and developed at a double-digit rate. Consequently, about a third of the increase in GDP has come from this sector alone.

India Markets Weekahead: Time to prune positions in an extended honeymoon

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Nifty closed at a new closing high of 7,954 amid volatility in an eventful week that started with the Supreme Court ruling that the allocation of more than 200 coal blocks over the past two decades was illegal.

With nearly 3 trillion rupees at stake, this had a direct effect on the metals and power sector. It also affected banking, which has exposure to the two sectors.

India Markets Weekahead: ‎Tough for the Nifty to break out of its range

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Nifty continued its upward trajectory to close at a two-week high of 7,792 in a holiday-truncated week. However, this optimism was not reflected in the broader market, especially the mid caps and small caps.

Among the sectors, public sector banks, realty, infrastructure and capital goods, which led the rally earlier, have underperformed in the last few weeks whereas defensives such as FMCG, pharma and IT stood out, an irony when markets are close to a record high.

How high will the Sensex go?

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

A bronze bull sculpture is seen as an employee walks out of the Bombay Stock Exchange building in MumbaiSince April, the stock market has been in a frenzy after a long period of utter gloom. In quick succession, the Sensex jumped month after month to cross 26,000 on July 7. This was not mere euphoria created by the election of the Narendra Modi government, with a single-party majority in the Lok Sabha after a long time.

India Markets Weekahead: Tough for Nifty to climb above 7,800

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Indian markets were unaffected by the week’s international developments, with some help from encouraging domestic macro data and a pep talk by Finance Minister Arun Jaitley in post-budget discussions.

The Nifty recovered from the previous week’s losses, closing 2.67 percent up at 7664. Positive IIP data was followed by benign inflation at 5.43 percent, a four-month low. Monsoon rains, which had been playing truant, recovered substantially with the deficit shrinking to 15 percent below average last week and covering the entire country.

Budget strikes the right chord on reviving investment

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Finance Minister Arun Jaitley (C) poses as he leaves his office to present the federal budget for the 2014/15 fiscal year, in New Delhi July 10, 2014. REUTERS/StringerPatient, consistent baseline play rather than aggressive serve and volley — that about sums up the Narendra Modi-led government’s maiden budget.

Budget 2014/15 reveals priorities, sets the stage

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The new Narendra Modi government rides on a long wishlist of policies and reforms, with limited resources. Budget 2014/15, as expected, reveals the government’s priorities in the near and medium term.

Arun Jaitley poses as he leaves his office to present the union budget for the 2014/15 fiscal year in New DelhiThe inflation moderation imperative overshadows near-term headline growth desires, manifested in aggressive (albeit challenging) fiscal deficit targets. The projected fiscal deficit of 4.1 percent (3.6 percent of GDP in FY16) versus the 4.6 percent recorded in FY14, is in line with expectations. The reduction in the budget deficit is driven by hoped-for revenue growth rather than depressed spending growth.

India Markets Weekahead: ‎Book out of high-beta stocks

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Finance Minister Arun Jaitley (C) poses as he leaves his office to present the federal budget for the 2014/15 fiscal year, in New Delhi July 10, 2014. REUTERS/StringerThe Narendra Modi government presented its maiden budget on Thursday. Although the budget was welcomed by industry leaders, the market meltdown seems to be telling a different story, with the Nifty posting its biggest weekly loss in 15 months.

Should it have been a path-breaking budget or is it prudent to build the economy brick-by-brick by walking the middle path? The much hyped “bitter pill” turned out to be a “bland” one.

Modi’s first budget can be a great start

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

There are few opportune moments for a nation to enact bold economic reforms. For India, this week is one of them as Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP) government unveil their first budget since sweeping to power in a landslide victory last May.

India needs the sort of shock therapy it administered in response to the 1991 crisis when foreign exchange reserves had dropped to just $1 billion. While current circumstances may be less urgent, they are no less critical. Economic growth has dropped to the 4-5 percent range, half the peak level of a decade ago. Inflation has risen between 9 and 11 percent over the past five years, crippling consumer purchasing power.

‎India Markets Weekahead: Correction could follow budget week

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Last week’s robust pre-budget rally belied expectations, with the Nifty closing up more than 3 percent at a record high of 7,751‎. Automobile sales, manufacturing PMI as well as services PMI showed an uptick. The Iraq turmoil seems to have taken a back seat with oil prices receding from a nine-month peak. A rally in world markets, with life highs for the DJIA and S&P 500, also aided sentiment.

India’s fiscal deficit in the first two months has already touched 45.6 percent of the full-year target. Though this would have been a negative indicator, the markets welcomed Finance Minister Arun Jaitley’s remarks about focusing on fiscal consolidation against “mindless populism“.

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