Growth Flatters

What the GDP and Core sector numbers mean for the economy…

During the week, two sets of growth data were really flattering. First was the GDP data for the fourth quarter which came in better than expected. Secondly, the Core Sector data which is a collection of key sectors of the economy, also posted an impressive number. So what does this imply for the larger India growth story?

GDP at a 4-year high… 

The GDP growth for the fourth quarter came in at 7.9% on an annualized basis. This is sharply higher than the first three quarters. This took the overall GDP growth for the full year to 7.6%. This is the best GDP growth number in the last four years and is all the more commendable coming in the background of a global slowdown. This GDP growth number means that the impact could be shortly seen in terms of growth in corporate sales and corporate profits too. More importantly, this rate of 7.6% puts Indian GDP growth at a full 100 basis points advantage over China. A substantial advantage in growth makes a big difference to the pace of FPI and FDI flows, as is already evident.

Breaking down core growth…

There are 3 critical things to understand about the core sector growth for April reported this week. The core sector growth at 8.5% is nearly 200 bps higher than the previous month and one of the best core sector performances in recent memory. Secondly, the core sector has shown a clear bottoming out around November 2015 and from then on it has been a secular uptrend, both in terms of growth and intensity. Thirdly, the composition of the core sector growth is also very important in this case. In previous months, it used to be cement, power and fertilizers that would lead the core sector growth. In the month of April, the refineries and steel sector has also shown an impressive growth, which was driven by the strength in oil and commodity prices globally.

Adding up GDP and core growth… 

A combination of good GDP numbers and core growth has positive meaning. Firstly, core sector constitutes 38% of IIP and hence it could start reflecting on IIP growth with a time lag. IIP has been the disappointment among the macros. Secondly, the GDP growth needs to be looked at in the context of the fiscal deficit. As committed in the Union Budget, the government has achieved growth without forsaking fiscal prudence. Lastly, the combination of solid GDP growth and strong core sector growth is a pointer towards sustainable growth in incomes and jobs.

The moral of the story has been that growth is finally visible in India even in the midst of a weak global economy. The economy may be finally heralding the much-touted “Achhe Din”. That is surely reason to celebrate! ©

You can ask us your stock related questions with#AskReligareOnMarkets via our Twitter channel @religareonline

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: