Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Economic data: Mixed but optimistic picture - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 17, 2004

    Economic data: Mixed but optimistic picture

    Economic data is key to any investment decision and is relevant for any and all economies across the globe. And if the data is of one of the fastest growing economies in the world (India) it's relevance cannot be overemphasized. During last week we saw certain key economic data being released and these data point towards a healthy economy that is on a higher growth trajectory. We have listed a few of the key points from the data and tried to analyse the implications of the same.

    Monthly economic report: Key points

    1. Industrial Index of Production continues to show a strong growth of 7.9% in the month of August '04 against 5.9% in the same period last year.

    2. Key drivers were manufacturing which registered a growth of 8.2% in August (6.7% in Aug '03) and electricity 7.1% in August (1.2% in Aug '04).

    3. The basic growth driver in manufacturing industry was capital goods segment, which recorded a robust growth of 15.4% as against 9.1% in the same period last year.

    4. The year-on year growth of gross bank credit as on October 15, 2004 was 28.8% (exclusive of conversion, 24.5%) as against 12% on the corresponding date of last year.

    5. The annual Inflation rate was 7.1% on the week ended 16th October 2004 against 5.13% a year ago.

    6. The revenue deficit of central government was 78% of the budget estimates for the full fiscal year 2004-05.

    7. The budget deficit was about 38% of the Budget estimate for the full year.

    The above report shows a good picture of the economy except on the inflation and fiscal deficit front. Industrial production continues to show robust growth and seems to be maintaining the momentum seen earlier this year. The important point to note here is that the basic demand driver is the capital goods segment which witnessed a growth of 15.4%, backed by strong growth in consumer goods segment. This indicates an expansionary phase underway in the Indian economy. Many corporates are in middle of their investment plans and the growth in the capital goods segment is reflection of the same. Also, the growth in electricity segment was robust at 7.1%, which is good news for Indian economy, which has been facing a perennial power drought.

    Another major factor that shows that there is expansion drive going on in the economy is the credit off-take figure. The gross credit off-take from the scheduled commercial banks has grown by 28% in the first seven months of this fiscal against 12% in the same period last year. The demand for capital is rising in the economy, which suggests that the investment cycle is strong and is likely to sustain for the medium term as most of the investment plans are spread over a 2-3 year period.

    The most worrying factor in the in the report is the revenue deficit of the government. The revenue deficit has reached to about 78% of its budget target in first six months of this fiscal. With demand rising from the corporate segment and the increasing budget deficit of the government we are likely to see liquidity problems (unless FII inflows continue pick up at a faster rate) and this is likely to lead to interest rates rising on a faster than expected rate. Already, most banks are in the process of increasing interest rates (ICICI bank has increased both deposit and lending rates by between 25 basis points to 75 basis points).

    On the inflation front the picture still is not very encouraging. Inflation has now touched 7.1% for the week ending 30th October 2004, which in lower than its peak of 8.4% earlier this year. However, with a dull monsoon period seen this year and rising global commodity prices we might see inflationary climate persisting for some more time. Though this inflation at this point in time is more a supply side function, if the economy grows at this rate and money supply increases incessantly we might see inflation sustaining at these levels even though the international commodity prices show some restraint.

    What's in it for investors?
    While the expansion of capacities across sectors is a good sign for the economy, rising interest rates might dampen the business sentiment going forward. Investors also need to keep in mind the fact that industries, which have expanded capacities, will take some time to utilize their full capacity and reach to the current level of profitability. At the same time, on the positive side we see that the Indian economy seems to be at an inflection point where the growth trajectory may be in for an upward correction. Significant investments flowing to the services sector and high paying jobs being created and rising aspirations of Indians may also play a defining role in the economic growth of the country. Let's keep our fingers crossed for a stable government and normal monsoons next year!



    Equitymaster requests your view! Post a comment on "Economic data: Mixed but optimistic picture". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)