Economic revival: Benign hopes - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Economic revival: Benign hopes

Jan 8, 2002

Markets received a spate of good news last week. On one hand, the rise in semiconductor demand gave fresh hope of a possible recovery in the technology sector. On the domestic front, higher cement despatches and auto sales eased concerns of slowdown in the economy to a certain extent. The markets seem to be positive of a better 2HFY02.Now that the markets are hoping of an improved demand scenario in the second half of the current fiscal, we take a closer look at the quarterly GDP growth trend for the last three years and how things could shape up in 2HFY02. The graphical representation of GDP growth trend says it all.

Slower progress on the reforms front combined with a slew of natural calamities like Gujarat earthquake, flood in Orissa, West Bengal and Andhra Pradesh has subdued economic growth. Compared with 10.9% in 4QFY99, agricultural growth at -1.4% in 4QFY01 clearly reflects the effect of two 'normal' monsoons. Though the government declared monsoons as normal in the last two years, select regions in the Indian subcontinent received less than average monsoon (states like Gujarat, Rajasthan, Madhya Pradesh, Orissa and Andhra Pradesh are amongst the few of them). Since almost 70% of the Indian population of 1 bn relies on agriculture for their day to day living, rural demand has certainly been affected. Hindustan Lever's topline grew at a CAGR of 5.8% between FY99 and FY01 as against a CAGR of 30.2% between FY92 and FY98 (but one has to keep in mind that growth was also led by acquisitions).

There has been no good news on the industrial sector as well. Investments have remained lacklustre for almost five years now and successive finance ministers' effort on this front have failed to materialise. Despite interest rate cuts by the apex bank of late, entrepreneurs are hesitant to commit funds due to variety of reasons. Lack of demand in the domestic market and threat from imports would rank first and second in this list. The index of industrial production continued its downward trend in the first half of the current fiscal also.

The second half trend...
(% growth)AgricultureIIPServicesGDP

The slowdown is even more pronounced in the services sector, which accounted for as high as 54.2% of GDP in FY01. Starting from 3QFY00, services sector growth has waned in line with the slowdown in the global economy. As against a 9.3% growth in services in 4QFY00, growth in 4QFY01 at 6.3% puts forth the effect of the slowdown.

Given this backdrop and the historical growth trend, what does the second half of the current fiscal hold for the economy. On a positive note, the second quarter GDP growth at 5.2% in the current fiscal was higher than 4.4% registered in 1QFY02. This was led by higher agricultural output and improved performance of the services sector. Kharif output fared well in the current fiscal and the markets seem positive on the rabi crop as well. In that case, this would enable the Indian economy to grow at 5.5% in the current fiscal.

But as Mr. Mahesh Vyas puts it "A good monsoon followed by a good crop and a good farm income is certainly good news for the corporate sector. But one has to take this one set at a time. So we have had only one good crop season i.e. a kharif season and we have to wait for the rabi season to be good and the next one to be good to be sure that the farmers will spend more on industrial goods and services..."

The government is doing every bit to boost growth. In an effort to give a fillip to investments, it is planning to commit assured returns for private players in the infrastructure sector. This could be leveraged by the private companies to avail of bank and institutional finance. It has also opened foreign direct investment in the defense sector and increased FDI limit to 74% in the housing sector. Though these are some steps in the right direction, we still have a long way to go to reach anywhere near the GDP growth rate of 8%-9% per annum.

Equitymaster requests your view! Post a comment on "Economic revival: Benign hopes". Click here!


More Views on News

Top 5 Recent IPO Developments You Should Know (Views On News)

May 12, 2021

So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

How Did Mindtree Perform in Q4FY21? (Company Info)

Apr 20, 2021

Here's the rundown on the company's latest quarterly results.

Axis Quant Fund: Targets Quantitative Approach to Generate Alpha (Outside View)

Jun 16, 2021

PersonalFN analyses the features of Axis Quant Fund and explains the potential this fund has to offer to its investors.

Shadow Inventories and Commodity Trading (Fast Profits Daily)

Jun 16, 2021

Should you be worried about shadow inventories while trading commodities? Find out...

99.5% of Stocks Fail on this Metric but Forever Stocks Don't (Profit Hunter)

Jun 16, 2021

How I rejected a company a decade ago that I believed could've been the next Page Industries.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 16, 2021 (Close)