There could be correction in Jan: M Stanley

There could be correction in Jan: M Stanley

italic;"> Sridhar Sivaram , ED, Morgan Stanley.


It is very interesting to see that Morgan Stanley is actually negative on PSU banks and positive on private sector banks. What would the logic out there be?

Well, our view is that we could see a tightening cycle coming very soon, may be in January itself. Typically what we have seen in the past is that when we have a tightening cycle, the PSU banks tend to underperform this sector and market in general because broadly they are seen as a bond proxy. Some of that may have changed, so we would go by that view and we think in a volatile interest rates environment, the private sector banks are better positioned as opposed to the PSU banks.

So you would not get tempted to buy into the PSU banks simply because they are just so much cheaper?

Well, as I just said we are broadly underweight the PSU banks, so I would not say that within the PSU basket, there would not be banks, which may look attractive at various points of time but you have to keep in mind that PSU banks as a basket have always traded cheaper to the private sector banks. So to that extent, the discount would always be there.

The question obviously comes that there is a possibility of the earnings moving up because of deposit re-pricing and stuff like that but what we understand is that this is already known in the market and there is nothing special about this but what could come as a surprise is the accent of the CRR hike, the extent of the tightening cycle going forward. We do not where the inflation currently is because this data is not being shared right now, but, our own internal estimate is that inflation could be closer to 7.5-8% by March, which basically would mean that we would have to tighten with GDP at 7.9%, IIP double-digit growth. These are all ingredient for a tightening cycle to come much faster than what the market expects.

In light of the fact that yes, there could be a bit of tightening if you will. What about some other interest rate sensitive? Say for example, real estate, there are lot of IPOs also in the pipeline currently, one has opened today. How would you view this space?

Well, I would not comment on specific stocks but as a sector, we would be underweight the sector. Again with the same view that we would like to stay underweight interest rate sensitive as much as possible, so real estate is obviously one of them because of the tightening cycle and obviously as you mentioned, there is enough paper coming in the market, so there will be enough movement within stocks because people who already own may want to look at some of the other stocks. So we would be underweight the real estate sector also.

Consumer discretionary, which is autos would also be the other sector, which we would want to stay underweight, especially the passenger vehicle market. The two-wheeler market is less sensitive to interest rates, so broadly as you would understand what interest rate sensitive sectors and stocks are. We would broadly be underweight those sectors, and we will see how things pan out from thereon.

There could be a correction in January if interest rates actually go up but if growth continues, markets could continue to move up, say

Click to see Morgan Stanley's view on the current market.

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Src: Economictimes.Indiatimes

Heard on the street

Heard on the street

Punters zoom in on Time Technoplast Shares of Time Technoplast, a firm specialising in polymer products, witnessed a flurry of activity on Tuesday. On the National Stock Exchange (NSE), the stock rose 13.3% to close at Rs 43.05, with around 58 lakh shares changing hands. This included a bulk deal of 50 lakh shares, with Deutsche Equity Fund being the seller, according to the disclosure on the NSE website. No details of the buyer(s) were revealed. Market talk is that a clutch of mutual funds picked up the block on offer, with Reliable Mutual Fund accounting for a sizeable chunk. The company reported an earnings per share (EPS) of Rs 3.30 for FY09, and the EPS for the first half of the current financial year has not been spectacular at Rs 2.16. Talk is that the fund has been aggressively buying mid-cap stocks recently in anticipation of the next wave of bull run in the segment. MF distributors may again be left out in the cold The mutual fund industry, which is still to come to turns with the no-load regime, has been in the news of late following a debate over the need for a no-objection certificate (NoC) from an investor seeking to change distributors. With the market regulator clearly displeased with what it views as a restrictive trade practice, the industry and, in particular, the asset management companies and distributors have come under the regulatory scanner for following a practice which is against investor interest. The buzz on the street is that the AMFI-appointed committee (comprising 2-3 fund houses) has put forward the results of its analysis to Sebi. Initial feedback indicates that the requirement for an NoC will be done away with but the new distributor will not get trail commissions. The news has evoked mixed reactions from the distributor community. Most of them feel that without the trail fees there will be no incentive for a distributor to service his client. The ball is now in Sebi’s court. Motilal Oswal sales head joins to Abu Dhabi fund Jayesh Parekh, a former top institutional sales official at Motilal Oswal Financial Services, is believed to have joined Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund owned by Abu Dhabi. However, ET could not confirm the role of Parekh, who was rated the top salesperson for India in the AsiaMoney Brokers poll recently, in ADIA. Earlier, ADIA had roped in Mihir Vora, equities head of HSBC Asset Management, as a fund manager. (Contributed by Santosh Nair, Deeptha Rajkumar & Nishanth Vasudevan)

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	Two attractive mid cap picks Sanjay Chhabria
	Polaris Software Labs: Buy at CMP Rs177 Nirmal Bang
	Cipla: Healthy growth going forward Punam Choudhary
	Technical Picks: Havells, Power Finance Corp HDFC Sec

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Src:Economictimes, Valenotes

Check out 12 attractive stocks of low-profile sectors

Check out 12 attractive stocks of low-profile sectors

Companies with attractive growth opportunities 7 Dec 2009, 1025 hrs IST

Print Save EMail Write to Editor

Kiran Kabtta Somvanshi of ET Bureau Little tracked sectors like glass, paper, basic industrial materials and packaging offer stocks with attractive growth opportunities. An ETIG study shows that there are at least dozen good companies belonging to such low-profile sectors like glass, paper, abrasives, electrodes, packaging and others. The following 12 companies, while being relatively small in size, hail from sectors that are typically clubbed under the category of 'miscellaneous'. Check out the power-packed dozen companies. Next >>

ABC Paper 7 Dec 2009, 1025 hrs IST

Print Save EMail Write to Editor

Latest Quotes | Charts | News/Announcements | Quarterly Results | P&L | Price History This Rs 200-crore Chandigarh headquartered company is engaged in the manufacture of wood-free writing and printing paper through the use of wild vegetations and agro-residues. The growth in the value-added paper segment in the country presents an attractive opportunity for this company with an unconventional business model. From making a loss in FY06, the company has grown to register a profit of Rs 14 crore in FY09 and Rs 18 crore for the trailing twelve months ended September 2009. The company has also paid dividend in last three years with the average payout ratio of 15%.

For More On this @ Check out 12 attractive stocks of low-profile sectors

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Src: Economictimes.Indiatimes

Nifty likely to face resistance at 5300

Nifty likely to face resistance at 5300

December could be the fourth-straight month where the market may continue to be in range, as depicted by options data for that particular month

Top 5 picks of the day Where are mkts headed? Check dividend yield Switch fund & realign

barring past few days in October.

Positional range for the Nifty seems to be 4800 on the lower side and 5200-5300 on the higher side. The 5000 put has a maximum build-up, but we believe it’s more of buying and we don’t assign more than psychological weightage to it.

The build-up in 5300 call option, of late, indicates call buying, as implied volatility for the same is around 21% and such low IVs in this long expiry (December 31, 2009) indicates the same. Buying of FIIs in index option also supports the argument. Very rarely, in the history of this market, we have seen the market crashing significantly from its highs if the market spends time near the highs in the form of consolidation as we are doing now. Otherwise, falls are immediate and furious.

Against this backdrop, we would suggest buying at-the-money or slightly out-of-money calls of the Nifty, as indices likely to breach the much-talked about resistance zone of 5180-5200. Having said that, it won’t be a run away rally. The new resistance for the Nifty will be 5300.

Also Read

→ Profit-booking may interrupt D-St ride

→ Markets to remain volatile with negative bias: Analysts

→ Indian cos' add $5.33 bn to their US m-cap in a week

→ Eight-year cycle: Sensex may hit 21,000 jackpot in 2011

→ Rs 58,000 cr blocked with cos suspended by BSE & NSE

So, if the market consolidates in a narrow range, then it will be midcaps which will gather attention. In fact, it has already started. Case in point: Banking and IT. Large caps are consolidating, but mid-caps are showing significant price as well as open interest appreciation. Among large caps, Reliance Industries’ 1080, 1095 and 1110 calls have seen substantial build-up, and we believe this congestion zone is resistance for the stock.

Bharti Airtel has rallied from lower levels predominantly, because of short-covering. Call writing in 320 call suggests upside is limited. BHEL has good support around 2170-2180 levels and good shorts standing in it. We expect short-covering to take place.

By - Siddarth Bhamre, Fund Manager-Derivatives, Angel Broking

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Top 5 picks of the day I Mid-term picks I Where are mkts headed?

Bull's Eye: Yes Bank, Mahindra Satyam, Tata Motors, Bajaj Hindustan, Nestle


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Reaction from double top

he market tested the 2009 high and corrected last week. The Nifty closed out at 5,108.9 points for a week-on-week gain of 3.4 per cent while the Sensex was up 2.8 per cent at 17,101 points. The Defty gained 4.5 per cent as the rupee hardened sharply.

Advances outnumbered declines and breadth in terms of traded shares was good. But volumes were on the low side of average in both cash and derivatives markets. The FIIs were net buyers while domestic institutions sold in small quantities. The BSE 500 rose 3.9 per cent while the Midcaps were up 5.3 per cent. The Junior was also up over 5 per cent.

Outlook: The market tested the 2009 high of 5,181 and reacted from that level. This is a double-top, which has short-term negative significance. A reaction clearly started on Thursday and Friday. There’s good support above 5,000 and the reaction may end there. The long-term trend and intermediate trends both seem positive.

Rationale: Although the double-top suggests resistance at 5,181 is very strong, the week saw a breakout that established a pattern of higher highs. Coupled to higher lows in the past fortnight, this indicates strongly that the intermediate trend is positive. The long-term trend still appears to be climbing, given a rising 200-day moving average.

Counter-view: Opinions differ on the persistence and strength of a double-top pattern. If the double-top causes just a short-term correction, support will come in just below current levels. However, this was a major top in that 5,181 was a 52-week high. So the correction may have deeper or more long-term implications. If the market closes below 5,000, we will probably see another bout of range-trading between 4,800-5,000.

Bulls & Bears: Friday saw a reaction and the market closed towards the lower end of the day’s trading range. Sectors which appeared to be hard hit included banks and real estate companies – these sectors had both gained strongly in tandem before the correction started. Until the reaction bottoms out, banking and realestate are likely to lose more ground than the Nifty. The engineering, power sector and auto stocks appeared to be weak as well but the trends there were more mixed. For example, GMR Infra gained on Friday, while IVRCL lost and these two normally move together.

The pharma sector seems to be quite strong, with many stocks such as Cipla, Glenmark, Divi’s and Torrent gaining substantially. There was also a lot of interest in media stocks with NDTV, TV-18 and of course, the new listing, Reliance Media World generating huge volumes. Some short-covering is taking place in the beaten-down telecom sector where Idea might outperform in the next couple of sessions.

MICRO TECHNICALS

CIPLA
Current Price: Rs 358.95
Target Price: Rs NA

The stock has been bullish since mid-March when it was trading at around Rs 200. The slope of the rise has got steeper and volumes have expanded in the past week. Impossible to project targets since it is in new territory. Keep a trailing stop at Rs 350 and go long. Raise the stop 10 points for a 10-point rise.

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POLARIS SOFT
Current Price: Rs 181.25
Target Price: Rs 174

The stock has started a high-volume reaction from a recent 52-week peak. It is likely to pull back till support at around the Rs 174 level. Keep a stop at Rs 183 and go short. Cover the position below Rs 175. The long-term trend is strongly bullish. Consider reversing the position (double-plus) at Rs 174 when the reaction ends.

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ESSAR OIL
Current Price: 145.45
Target Price: Rs 160

The stock has seen gains from support at around Rs 132. It has also seen volume expansion. There’s strong resistance at Rs 150 but that is a minimum target on the bounce. There is potential for Rs 160 to be achieved. Keep a stop at Rs 143 and go long. Book partial profits at Rs 150.

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TUBE INVESTMENTS
Current Price: Rs 70.2
Target Price: Rs 80

The stock has shot up on huge volume expansion. It has been hitting resistance at above current levels. If it clears Rs 72-74, it would be at a new high with a target of about Rs 80-85. Keep a trailing stop loss at Rs 67 and go long. Increase the position above Rs 73 and move the stop up 5 units for every 5 unit gain.

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AXIS BANK
Current Price: Rs 1,027
Target Price: Rs 990

The stock has support at Rs 1,000-1,010 and that is one possible target. If Rs 1,000 is broken, it could fall to Rs 980. Keep a stop at Rs 1,040 and go short. Partially cover between Rs 1,000-1010. Clear the position below Rs 990.

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Volume gains 07-DEC-09 For the first time since taking over Jaguar Land Rover (JLR) in June last year, Tata Motors returned to profitability at the consolidated level.

Seeking new funds 07-DEC-09 Mutual fund houses are aiming to raise money at a time when the existing equity funds are finding it tough to cope with low inflows and redemption pressure.

Healthy gains for Smart Portfolios 07-DEC-09 The markets rose steadily for the better part of the week on news of robust GDP numbers and allaying of fears on the Dubai repayment crisis.

Markets at a glance 07-DEC-09 Key benchmark indices surged as India’s economy expanded at higher than the expected rate of 7.9 per cent for October.

Gold falls the most in a year 07-DEC-09 Gold dropped the most in a year as a rising dollar prompted some investors to sell bullion on the heels of a rally to an all-time high.

Trading focus on the near-term 07-DEC-09 A northwards breakout early in the week was followed by a correction.

Reaction from double top 07-DEC-09 The market tested the 2009 high and corrected last week.

The hedge opportunity 07-DEC-09 Performance cycles indicate that hedging could be an opportunity and not just an imperfect risk management technique.

Analysts' corner 07-DEC-09 Hindustan Unilever (HUL) continues to witness volume deceleration in some of its key categories despite several re-launches, hefty advertising and pricing action implemented by the company since January 2009.

A long-term play 07-DEC-09 JSW Energy’s track record and high revenue visibility are some clear positives, but the IPO leaves little to gain from in the short-term.

Bankable model 07-DEC-09 Godrej Properties’ growth strategy, past performance and brand equity augur well and will help deliver healthy returns in the long run.

Still soft 07-DEC-09 Tata Steel reported a consolidated loss of Rs 2,707 crore for the September 2009 quarter, its third consecutive quarterly loss.

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JSW Energy IPO Analysis

Bajaj Electricals

Page Industries

Godrej Properties IPO Analysis

Godrej Consumer Products

Pratibha Industries

ACC /

Wipro /

Bata India

Src: Economictimes, Business-Standard, DP Blog

Markets setting base for next fall, 15-20% correction could happen: Anil Manghnani

Markets setting base for next fall, 15-20% correction could happen: Anil Manghnani

Anil Manghnani , Director, Modern Shares & Stock Brokers believes that while the market may top out maximum at 5400, it seems to be setting up the ground for the next fall. He continues to be negative on real estate stocks. Here is what he told ET Now this morning. A bit of a flattish close yesterday, 5131, last day of the week, how do you expect it to pan out? It will probably be subdued trading now, last two days markets not been able to hold onto the intra-day gains. There is a little bit of, not fatigue but little bit of pause, I mean remember the market has gone from 4800 to nearly 5200 in four trading sessions as such. So, some pause even today may be more stock specific action but I would say whether we top out at 5200-5300-5400, I am not sure but this time around I feel we are setting up the base for the next fall. Without sounding overly bearish, what I am trying to say is the last two occasions we were at 5100, you did not get the sense that the retail participation was there, momentum stocks were not moving, speculative action was not there. You had voices where there is the redemption pressure, it is very rare in India. You hear markets at a new 52-week high and redemption pressure but that seems to be subsiding now. The scepticism seems to be a little bit off now and the people are coming back to the market. So even though this Nifty may have some leg on the upside, I just feel that now with the participation increasing there will be more risk which will create the excess for the next correction. So you will see movement but there is going to be some sort of creation of the next fall. It will be difficult to understand, I mean to explain but now is the time to be careful in this move to 5300-5400 where the excesses are going to be created. The next time the fall comes, you will get that 15-20% correction. Every time we get a fall of let’s say 300-400 points, everybody talks about that 20% correction and the market bounces back but this time around we are creating that sort of scenario where we will be susceptible to a fall. Stock specific in this session and you are looking at real estate, that is your target on the sell side? More so from the fact that they are weaker sectors and they have had a nice bounce from the lows of Friday. So anywhere close to 94 to 100 sort of levels is a good range to exit Unitech, especially you are stuck earlier or you bought on Friday. So that would be a range for me. You sell between 94 and 101 and your lower target should be back to 86 and 80. Even weaker than Unitech is DLF because that actually went and made a fresh low in the fall of Friday. When I say fresh low to October end lows. That is more weaker, so 388 to 402 would sort of be the profit booking or exiting zone if you are stuck with a view that the stock will fallback to about 370 and 353 levels.

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'Emerging mkts to provide strong returns'

Allan Conway , Head, Emerging Markets, Schroders believes emerging markets will continue to be strong performers in the next year too. He believes the decoupling process is well and truly on. Here is the full transcript of his chat with ET Now: ( Watch Video ) It appears that at global level, markets are now ready to buy risk because of dollar carry trade, significant inflows are now coming to emerging markets? The first thing I would point out is that when we talk about buying risk, in the past investors viewed emerging markets as risky assets. The fact is there has been a re-appraisal of risk in the marketplace. We would actually argue that the risky assets now are the US equities, European equities, Japanese equity markets. The safe haven equity markets are actually now the emerging countries and this re-appraisal of risk is causing a lot of increased interest in emerging market investment. One of the things that I do in some of the presentations I make is I give investors an example of a country, I call it country X which has very bad fiscal position, poor current account, depreciating currency, low level of reserves, high reliance on foreign capital to finance its debt and I asked investors which they thing country X is and in the past everyone would have said that is an emerging country. Today that country is the US. The US today looks more like an old fashioned emerging country and today’s emerging are much-much stronger. So there is re-appraisal of risk now going on in the marketplace we believe. But if you really analyse a market like India, we have got $15 billion of institutional inflows in the year 2009 and that is some kind of a record, how much do you think the current inflows for Indian market are actually because of dollar weakness? You must remember that the inflows you are seeing this year are after some very significant outflows last year. If we take emerging as a whole, the data we see is the money that is coming to emerging in total this year is only a fraction more than the total that came out last year. So net over the two years it actually broadly flat. Now obviously the weak dollar has encouraged the carry trade, positions that you are starting to see. However we would argue that a lot of the money going into emerging markets is now particularly coming from institutions rather than retail because institutions are now looking at emerging as strategic investments rather than tactical. So carry trade has a real but much more important has been this reappraisal of exposure to emerging and acknowledging that they are much stronger than the developed and institutions moving to a strategic allocation. To actually draw parallel here, the yen carry trade lasted for years before it went burst, what is your sense, will the dollar carry trade also perhaps exist and coexist for another five six years more before it actually fades away? We should expect to continue to see dollar weakness. There will obviously be short time periods, short periods where the dollar has a bounce but there are three underlying factors that would give you ongoing dollar weakness, one is obviously the economy that is low growth, high debt, underlying, weak economy in the US, indeed this crisis is probably knocked off 50 basis points from their trend growth.

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Src: Economictimes.Com

Srisai's Instinct Stock Calls for Dt: 04.11.2009

Srisai's Instinct Stock Calls for Dt: 04.11.2009


This(Srisai's Instinct Stock Calls) will be a New Initiative of this blog to Publish Blog Author's Own Investment/Trading Calls for Short-Medium Term perspective. But All these Calls are not given on Purely Technical perspective. Most of these Calls are given by Blog Author from His past Investment/Trading experiences. So Do not expect More depth in Calls. Author has tried his best to give some calls for the benefit of Investors/Traders from his experience and from some media/web/news based call. So author request all the investors/traders to take/try these Calls as RISK CALLS. And Keep Strict Stop Loss Own (or) Keep Resi,Supp levels As Stop Loss for their Trading(or) Trade/Invest @ your Own Financial Risk. All type of Comments are Welcome about this New Initiative. Dont Forget to Keep Stop Loss and Again Author Remembering you that he is giving calls only from his past trading experience...


Nifty Future cmp 5132


NFut struggles to cross 5181 levels... LOng only above this level... Supports at 5114-5052-5056 levels...


ACE: cmp 34

Buy For Investments... Supports @ 31.8-29.4 levels... Resi @ 36-38 levels..


Polaris cmp 191


I think Stock has cross crucuial resi @ 185-188 levels... As long as this level holds, then could see further upside...



Sunflag Iron: cmp 25.3

This stock everytime bounces to 27 levels and returns ..... Will this break that level and Breakout?????


Rcom: cmp 179

(Outside call)

If breaks 182-185 with good volumes, then could see a 10-15 % upside... StopLoss at 174..



By

Srisai..

Heard on the street

Heard on the street

Parent’s show of strength boosts Thomas Cook A series of positive developments helped shares of tour operator Thomas Cook (India) jump 11.93%, or Rs 6.90, on Monday to end at Rs 64.75 on BSE. According to analysts, the demand uptick in the travel and hospitality sector during the past couple of months has been boosting sentiment in the counter. The improved sentiment is expected to continue over winter, the peak season. Around the same time last year, the business was dull as a result of the global financial crisis and the subsequent Mumbai terror attacks. But what appears to have helped the counter on Monday was the strong set of numbers put out by the company’s European parent Thomas Cook for the full year ended September 30, 2009. Thomas Cook (India) touched an intra-day high of Rs 67 and low of Rs 59.70 before closing at Rs 64.75 on BSE. Institutional buying lifts Man Aluminium After two sessions of harsh selling, institutional investors started buying shares of Man Aluminium at lower prices in sizeable quantities. Man Aluminium shares were pounded on bourses last week (post-reports of Dubai debt debacle) as investors feared Dubai Bank PJSC, which holds 4.3% in the Indian aluminium company, would dump its India equity holdings, including Man Aluminium, to make good their losses in Dubai. Firm aluminium prices also supported the shares of the company. The near-month aluminium contract on MCX was trading at Rs 93.25 per kilo, up by Rs 0.70 from Friday’s close. Shares of Man Aluminium ended 1.9% higher at Rs 42.90 on the BSE on Monday. Earnings growth hopes trigger demand in Marico Institutional investors have been active in the Marico counter on hopes of better prospects for the company, after a leading Mumbai-based broking house said the company would sustain earnings growth amid national rollout of new products. In its research report, the broking house said the company’s strategy to reinvest savings in brands will help it post better volume growth even as the topline would moderate due to diminishing price growth. Recently, FII Arisaig Partners acquired nearly 17 lakh Marico shares to raise its stake to 5.2% through open market purchases. The stock has been seeing some action in the current market though it has underperformed the recent bull run. Marico closed marginally up at Rs 103.5 on Monday. The delivery ratio, which reflects long-term investor interest in a particular stock, has been healthy between 45 to 65% during the past few days. Contributed by Reena Zachariah, Shailesh Menon & Vijay Gurav

Src: Economictimes

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

Top 10 challenges for India What is IIP? Know what is monetary policy India's slow road to economic reform

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.

Also Read

→ Living with 100% food price hike

→ Domestic demand will help India grow faster: FM

→ No need for panic: FM on Dubai crisis

→ Three developers seek to exit SEZs

"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..