30 November 2009

Stimulus pushes Q2 GDP up 7.9% Y-O-Yr

Stimulus pushes Q2 GDP up 7.9% Y-O-Yr

NEW DELHI: India's economy grew an annual 7.9 percent in the September quarter, much faster than expected on government stimulus spending and a
surge in manufacturing, adding pressure on the central bank to lift interest rates as inflation rises. (
Watch )

The annual growth for India's fiscal second quarter was far above a median forecast of 6.3 percent in a Reuters poll as agricultural output performed better than expected, sending the yield on the benchmark 10-year bond up by 2 basis points as investors bet on higher interest rates. The growth was the strongest for Asia's third-largest economy in 18 months. ( Watch )

"This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by end of the calendar year. The exit from the fiscal stimulus by the government may also be earlier post the GDP data," said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.

In the June quarter, India's economy grew 6.1 percent from a year earlier, and Prior-Wandesforde said that by his calculation the September's period's growth was the sharpest on a quarter-by-quarter basis since quarterly data began in 1996.

Manufacturing output expanded 9.2 percent in the September quarter as consumers stepped up purchases of cars and other goods. Farm output was up 0.9 percent, beating expectations for a decline, although economists warned that the impact of the poor monsoon was likely to be seen in the current quarter.


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"The December quarter will show agriculture declining, because that's when the harvest shortfall will get captured," said Rajeev Malik, economist at Macquarie in Singapore, who stuck with his view that the central bank would deploy liquidity management steps rather than rate hikes in December and January.

"I don't think they (RBI) are going to be swung by what agriculture has done on a technical basis," he said. Last week, India's finance minister expressed worry about rising food prices -- the result of a bad summer monsoon and floods that have crimped farm output.

On Monday, however, a top government advisor said there were no serious inflation concerns for now and said he expected no change in government stimulus policy for the current fiscal year. "It is difficult to project what will happen in the rest of the year. But this performance does suggest that there may well have to be an upward revision in the GDP growth of 6.5 percent which has been projected so far," Montek Singh Ahluwalia, deputy chairman of India's Planning Commission.

Reactions to India's Q2 GDP growth of 7.9%

Sensex ends near 16900; Tata Steel, Bharti gain

Higher consumption pushes Q2 GDP growth at 7.9% YoY

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India's Q2 GDP at 7.9%


Belying predictions, the Indian economy grew by a significant 7.9 per cent in the second quarter of this fiscal, up from 6.1 per cent in the previous quarter, essentially due to a good showing by the industry and the services sector.

The growth compares favourably to 7.7 per cent recorded in the July-September quarter in the previous year.

Consequently, the economy rose by 7 per cent in the first half ending September 30 of the current fiscal on the back of stimulus packages and revival of domestic demand, giving hopes that final figures for the year could be much higher.

The government, including Finance Minister Pranab Mukherjee, the Reserve Bank and the Planning Commission had predicted a growth of about 6-7 per cent, while global agencies and analysts forecast it to be even lower.

The Prime Minister's economic advisory panel had pegged the economy to grow by around 6.1% in Q2 due to the impact of a weak monsoon on agriculture.

Financing, agriculture and real estate growth stood at 7.7% in Q2. The surge in GDP numbers was helped by the manufacturing sector, which grew 9.2% in the second quarter vi-a-vis 5.1% a year earlier.

Analysts were expecting a growth rate of 6.1-6.6 per cent in the second quarter. The economic growth of close to eight per cent in the second quarter is also remarkable in the context of just 0.9 per cent expansion in farm production due to a weak monsoon and continued contraction in exports due to slackening demand overseas.

However, the manufacturing sector grew by 9.2 per cent in the July-September period compared to 5.1 per cent in the corresponding period of last fiscal and mining and quarrying by 9.5 per cent versus 3.7 per cent recorded in FY09.

Community, social and personal services expanded by double digit at 12.7 per cent against nine per cent. Despite being affected by international slowdown, trade, hotels, transport and communication sector grew by 8.5 per cent, which is lower than 12.1 per cent a year ago.

Financing, insurance, real estate, and business services rose by 7.7 per cent against 6.4 per cent. Electricity, gas and water supply was up 7.4 per cent compared to 3.8 per cent. Construction rose by 6.5 per cent, down over 9.6 per cent a year ago.

It was after September, that growth declined to 5.8 per cent in the subsequent two quarters last year. So, if the trend continues, the growth rate is expected to be much higher in the second half of this fiscal.

The size of the domestic economy stood at Rs 17.90 lakh crore in the first half of FY10.

The Reserve Bank deputy governor Subir Gokarn said, "clearly this is better news than we could have expected and we will have to review the forecast for the year as a whole."

The Prime Ministers' Economic Council chairman C Rangarajan also said that the target of 6.5 per cent GDP growth for the current fiscal may have to be revised upwards following the robust second quarter numbers."

With this, the domestic economy continues to be the second fastest growing large economy in the world after China, which recorded 8.9 per cent in the July-September of 2009.

As hopes of revival accentuates after the data, economists expect that the government may now think of withdrawing the fiscal stimulus. "The government could withdraw stimulus (excise duty cuts) for fast-growing sectors as the Centre's revenue position does not look too good," Crisil principal economist DK Joshi said.

Manufacturing, which drew benefits of the stimulus package, expanded by a smart 9.2 per cent against 3.4 per cent in the preceding quarter and 5.1 per cent in the second quarter of the last fiscal.

However, Ahluwalia said,"my views have always been that we should look at the position (stimulus) at close to February."

From last December through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down after the US financial icon Lehman Brothers collapsed last year, dragging the whole world into the worst recession after the Great Depression of the 1930s. Positive growth by the farm sector also surprised economists. "We are surprised with agriculture growth. If not a downslide, we expected a decline at least," HDFC chief economist Abheek Barua said.

However, some economists still maintain their under-seven per cent forecast for FY10. "We yet maintain our 6.5 per cent GDP forecast," Yes Bank chief economist Shubhada Rao said.

With growth on the upswing, the moot question now is will the government and RBI now shift their focus on controlling inflation. Food inflation has already crossed 15 per cent during the second week of November.

While Ahluwalia said traditional monetary tools of the RBI may not be effective in curbing food inflation, Rangarajan believes that RBI may now focus more on reining inflation.

Both Joshi said, "there is a strong possibility of interest rate hike by the RBI in January." Barua also said a case for a rate hike remains. "With respect to monetary policy action, clearly this strong GDP number gives a green signal for some tightening and we maintain our earlier call of a CRR hike by 50 bps by December-January."

Construction, which has a cascading effect on economy, grew less this quarter at 6.5 per cent against 7.1 per cent Q1 and 9.6 per cent in Q2 last fiscal. But financial, business services and realty rose by 7.7 per cent against 8.1 per cent in Q1 and 6.4 per cent in Q2 FY09.

Trade hotels, transport and communication, grew higher at 8.5 per cent than 8.1 per cent in Q1, but lower than 12.1 per cent in Q2 FY09. However, electricity, gas and water supply at 7.4 per cent and mining and quarrying at 9.5per cent grew more than first Q1 of FY10 and Q2 of FY09.

Src: Monecontrol, Economictimes, Business-Standard Websources..

Prepare for more range trading

Prepare for more range-tra ding



The market turned weak on the cusp of settlement and made a partial recovery in the first session of the December settlement. The Nifty ended with a net week-on-week loss of 2.2 per cent, closing at 4,941.75 points while the Sensex was down 2.3 per cent at 16,632 points. The Defty lost 2.5 percent with the rupee losing ground.


Breadth was decent in that a wide variety of stocks were traded but the advances far outnumbered declines. Volumes were good overall. The institutional attitude was mixed with the FIIs being heavy sellers while domestic institutions bought in smaller quantities. The BSE 500 was down 2 per cent while the Midcaps were down 2.7 per cent.

Outlook: The market looks most likely to range-trade between 4,800-5,100 with some chances of a breakout in either direction. The intermediate correction may not be over yet. There is good support in a band between 4,700-4,800 and equally strong resistance between 5,050-5,150.

Rationale: Last week, the Nifty made a top of 5,138, which is a lower peak compared to the last peak of 5,181 (the 2009 high) in late October. The pattern of lower tops would be interpreted as part of an ongoing intermediate correction.

However, this downtrend would be confirmed as still in force, only if the next bottom is lower than 4,538 (the November 3 low). If the support at 4,700-4,800 holds leading to a pattern of higher lows, or the resistance at 5,050-5,150 breaks (meaning higher tops), the intermediate downtrend will have reversed.

Counter-view: Intermediate trends last anywhere between 4-12 weeks and this one has been in force for around 5. So it has the potential in terms of time to continue. The momentum signals are near neutral. Balanced against that, the long-term trend seems positive – the 200 day moving average is still rising. A positive long-term trend generally means shorter corrections. Fibonacci analysis also suggests that 4,538 is unlikely to be broken.

Bulls & Bears : Most major stocks showed patterns similar to the Nifty-Sensex. They are poised near strong supports and face powerful resistance above current levels. Optimists will be looking for trend reversals and bullish moves up from the supports while pessimists will look for shorts.

Sector wise, almost every high-weighted sector saw many losers. IT was hit by fresh revelations about the magnitude of the Satyam scam and the CNXIT lost 3.7 per cent. Banking was hit by fears of exposure to the potential meltdown in Dubai and the Bank Nifty lost 2.9 per cent. Metals and realty stocks slid as well. Engineering and construction scrips were also hard hit. There were isolated winners in pharma and FMCG and continued cautious investments in energy and auto stocks. The power sector could see an earlier turnaround than most others.

MICRO TECHNICALS

ICICI Bank
Current Price: Rs 850.9
Target Price: Rs 830


The stock has reacted sharply on high volumes and it could fall further. The nearest reliable support is around Rs 830 and if that is penetrated, Rs 810-815 may be tested. Keep a stop at Rs 860 and go short. Either cover at Rs 830, or partially cover, intending to clear the position at Rs 815.

Indraprastha Gas
Current Price: Rs 167.6
Target Price: Rs 176


The stock seems to have completed a correction to a strong support. On the next upmove, it should test resistance at around the 2009 high of Rs 176. If it closes above Rs 176, it would have a clear run till around Rs 185. Keep a stop at Rs 165 and go long. Book partial profits at Rs 176, and shift the stop up to Rs 172.

GVK Power
Current Price: Rs 50.55
Target Price: Rs 53


The stock has fallen to a strong support at the current price. If it has completed its correction, it is likely to bounce back till around the Rs 53-54 levels. Keep a stop at Rs 49.5 and go long. Book profits above Rs 53.

Reliance Industries
Currrent Price: Rs 1,046
Target Price: Rs 1,100


A stock split usually leads to greater liquidity. But in RIL, this effect is hardly noticeable because it was always very liquid. Immediately after going ex-bonus, the scrip has been sold down. It could rebound till Rs 1,100. Keep a stop at Rs 1,035 and go long. Book profits above Rs 1,090.

Mahindra Satyam
Current Price: Rs 90.45
Target Price: Rs 80


The stock has crashed on very high volumes on new revelations about the scam. If it closes below Rs 90, it is likely to fall till 80. Keep a stop at Rs 93 and go short. Increase the position below Rs 88 and cover the position below Rs 80.

(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)


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Two attractive mid cap picks Sanjay Chhabria

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IIFL retains 'Buy' rating on GSK Consumer
30 Nov 2009, 0605 hrs IST

IIFL retains `Buy’ rating on GSK Consumer with a target price of Rs. 1627. GSK Consumer is transforming itself from a single product company to a more aggressive and innovative processed foods player.

JP Morgan puts 'Neutral' rating on Siemens India
30 Nov 2009, 0604 hrs IST

Siemens India’s standalone September quarter profit of Rs 152 crore was down 33% y-o-y , well below Street expectations. Weak topline growth and a 270 bps margin decline led to disappointing bottomline performance .

UBS initiates coverage of Adani Power with a `Buy’ rating
30 Nov 2009, 0603 hrs IST

UBS initiates coverage of Adani Power with a `Buy’ rating.

Morgan Stanley retains `Underweight’ rating on Mphasis
30 Nov 2009, 0603 hrs IST

Morgan Stanley retains `Underweight’ rating on Mphasis as they believe revenue and earnings growth for Mphasis could lag market expectations in FY10E.

Deutsche Bank initiates coverage on Rolta India with a `Buy’ rating
30 Nov 2009, 0602 hrs IST

Deutsche Bank initiates coverage on Rolta India with a `Buy’ rating and a target price of Rs 220. Rolta operates in the niche segment of geospatial information services and engineering design.

Edelweiss recommends ‘Buy’ rating on Hexaware Technologies
30 Nov 2009, 0601 hrs IST

Edelweiss recommends ‘Buy’ rating on Hexaware Technologies. In the September ‘09 quarter, Hexaware reported deal wins worth $80 million executable over three-five years.


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