India’s GDP growth has slumped to 4.7% in Q3 of FY 2013-14. The growth momentum has stagnated over last 3 quarters. GDP had registered growth of 4.4% and 4.8% respectively in the Q1 and Q2 of the current fiscal. Double digit growth of 12.5% registered by financing, insurance, real estate and business services sector helped the otherwise slumping GDP to register 4.7% growth. Community, social and personal services sector which grew at 7.0% and 3.6% growth recorded by agriculture, forestry and fishing sector contributed significantly in the GDP growth. However torpid performance of manufacturing sector and slump in construction activities dragged the growth number.

The GDP growth has stayed below 5% consecutively for last 5 quarters. There have been revisions in the GDP data of last 3 years. Recently, CSO revised the all-India growth numbers down for FY2010-11 to 8.9% and 4.5% for FY2012-13. There has been upward revision to 6.7% for FY2011-12.

(Source: CSO, PersonalFN Research)
Sectors that provided the support to sliding GDP are:

• Agriculture, forestry & fishing: performance of farm sector has been robust this fiscal thanks to good monsoon. Agriculture, forestry and fishing sector has recorded 3.6% growth in the December quarter. Although, the growth has been lower as compared to 4.6% registered in the Q2 of FY14; it is significantly higher than 0.8% growth recorded in Q3 of 2012-13.
  
  
• Financing, insurance, real estate and business services: As against 10.2% growth recorded in Q3 of FY13, financing, insurance, real estate and business services sector grew at 12.5% in Q3 of FY14.
  
  
• Community, social and personal services: The community, social and personal services sector recorded a growth number of 7.0% which is higher than 4.0% recorded in the Q3 of last fiscal.
  
  

Impact on Capital Markets
As per the latest estimates of Central Statistics Office (CSO), it is expected that GDP would grow at 4.9% in the FY2013-14. However, looking at the growth numbers so far over past 3 quarters, it has become increasingly difficult to attain the full year growth estimates. For GDP to attain revised full year target of 4.9%, Q4 has to witness growth of 5.7% which looks difficult. PersonalFN is of the view that, although lower GDP growth would disappoint markets, impact of subdued GDP growth in Q3, FY14 would be limited on the market. Equity and debt markets have already factored in lower growth for the current fiscal.

At present, containing inflation and reining in fiscal as well as current account deficits have been the priorities. Therefore, markets may not take lower GDP growth as a negative. PersonalFN is of the view that, if growth fails to review even under new Government then markets would start worrying again. Weaker manufacturing activities and lack of growth momentum in the capex activities have been driving down the GDP growth. Steps taken by the new Government for economic revival would be crucial and thus closely watched by the market. Higher inflation, higher interest rates and lower demand have dragged the performance of industry. Furthermore, industry expects speedy implementation of tax reforms. GDP growth numbers are unlikely to have a negative impact. Positive surprise in the Q4 of FY14 may push stock markets upward.

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