The Gross Domestic Product (GDP) for the fourth quarter (Q4) of FY 2012-13 (FY 13) came in at 4.8% which is a tad higher than 4.7%(revised upwards from 4.5%)reported in the second quarter of FY 13. However, it shows a declining trend on Year-on-Year basis. Tepid performance of agriculture, mining and manufacturing played a drag while services sector helped avoid the hard landing.

(Source: CSO, PersonalFN Research)

Growth in factory output as measured by movement of Index of Industrial Production (IIP) has depicted a weaker manufacturing growth and deceleration of growth in mining. This is further supported by a fall in the growth recorded by cement and steel sector in the 4th quarter Vis-à-vis the growth rate recorded during the period April-December 2012. Manufacturing registered a growth number of 2.6% in the Q4. Although this is substantially higher than 0.1% growth recorded in Q4 of FY 2011-12; it has remained almost at the same for last 2 quarters.

Although the latest estimates of crop production, as released by the Ministry of Agriculture, have been revised upwards, agriculture sector grew at 1.4% in Q4 as against the growth of 2.0% recorded during the same time period in FY 2011-12. The growth decelerated on Q-o-Q basisas well. Growth rate was the highest in Financing, Insurance, Real Estate and Business Services sector. Collectively the sub-sectors grew at 9.1% in Q4. But the growth rate slowed on Y-o-Y basis. Trade, Hotels, Transport and Communication sector recorded 6.2% growth in Q4 which is higher than 5.1% recorded during the same time period in FY 2011-12. However, the growth rate has been lower on Q-o-Q basis.

Share of personal consumption declined sharply on Quarter on Quarter (Q-o-Q) basis although it showed a slight uptick on Y-o-Y basis. To curb fiscal deficit, Government spent less in Q4 as compared to Q3 due to which share of ConsumptionExpenditure of government fell in Q4. On the other hand, despite showing some improvement during Q4, growth in exports remained lacklustre on Y-o-Y basis. Falling commodity prices in the international market helped reduce dependence on imports which reflects in Q4 GDP. On Q-o-Q basis share of imports has fallen although it hovers around the same levels reported in Q4 last year i.e. in FY 2011-12.

PersonalFN is of the view that despite the 175bps (1.75%) cut in the repo rate announced by RBI so far since April 2012; growth has failed to revive. Both growth indicators, IIP and GDP, depict the stagnated movement. Gross Fixed Capital Formation (GFCF) has dipped from 30.6% in FY 2011-12 to 29.6% in FY 2012-13 suggests that capex cycle is yet to review. Deposit growth of banks has been failing to keep pace with credit growth. For fortnight ended as on May 17, 2013; banks registered 14.6% growth in credit while deposits grew at 13.4% during the same time period. Sluggish capex activity especially in the private sector and concerns on asset quality of banks paints a gloomy picture.

Moreover, weakening of rupee and high Current Account Deficit (CAD) have been the major challenges. RBI has, several times, expressed its concerns about these issues and highlighted the limitations of monetary policy in spurring growth. Even after considering the fact that GDP reflects the effects of rate cuts with a time lag; persistently low GDP growth may look disappointing. RBI may not oblige markets with another rate cut unless major challenges start wanning.

What should investors do?
Ever since the inflation has started falling and RBI adopted softer stance; equity markets been rallying and yields have fallen sharply. Going forward, if RBI maintains status-quo it would be taken as a negative and equity indices might fall and yields may start rising. PersonalFN is of the view that investors should not try to time the market and avoid betting on any macro-economic event including the monetary policy action. Investors would be better off if they follow asset allocation aimed at helping them achieve their long term financial goals.

Add Comments