Central Bank, Union Bank chiefs stress importance of strong growth based on lower inflation
Mumbai: Leading bankers today said that the slowdown in GDP growth to 7.8% in the March quarter was on expected lines and that the Reserve Bank of India and international agencies like the International Monetary Fund had hinted at a dip in growth.
"(It) is not something totally unexpected. It was clear (through) many of RBI's reports and international financial institutions had been hinting that the growth may not be the same as last year," Central Bank of India's chairman and managing director, S Sridhar, told journalists.
Recognising the possibility of a slowdown in growth, banks had already taken the right steps, he said, and the RBI had also downsized its growth expectations for advances and deposits in its annual monetary policy, PTI reports.
With the data released today confirming the slowdown in growth, lenders and other agencies will have to take a "more nuanced" response, Mr Sridhar said.
According to data released today, the gross domestic product (GDP) grew by 7.8% in the January-March quarter versus 9.3% in the corresponding period a year ago, while total GDP growth for the entire FY11 was a healthy 8.5%.
Union Bank of India chairman and managing director MV Nair said one should not read too much into the 7.8% number as it is only a couple of notches below the RBI's forecast of 8%. "A few points here and there should not matter much," he said, but conceded that the numbers were less than what he had expected.
Both Mr Sridhar and Mr Nair drew attention to the RBI's stated policy of targeting rising inflation numbers even if it resulted in economic growth slowing down in the near term.
"I think growth per se should be based on a strong foundation, on a base of lower inflation...trying to control inflation is more important," Mr Nair said.
Mr Sridhar also pointed out to certain positives like the forecast of a normal monsoon and a good show on the exports front. "There is reason for optimism. There is no cause for pessimism at this stage just because the number has come down to 7.8%," he said.
Our second resistance of 5,540 has been breached. Investors shrug off slower growth concerns
The market today opened positive on a strong Asian rally, backed by speculation that European officials will sanction more assistance for Greece. The Sensex and Nifty opened at 18,267 and 5,492 respectively. That was the day's low for the Sensex, while the Nifty touched its intra-day low of 5,490 in the first hour. The market, which was on an uptrend, witnessed a jolt on the news of slower GDP growth in the March quarter. The Indian economy grew by a slower-than-expected 7.8% in the January-March 2011 period, compared with 9.4% in the previous corresponding quarter.
Poor manufacturing sector output growth at 5.5% dragged down overall economic growth, farm output showed tremendous improvement at 7.5% in the quarter under review. Overall, GDP grew at 8.5% in the fiscal year ended March 2011, a touch lower than the government's expectation of 8.6%. A finance ministry official today said economic growth in FY12 would probably be around 8.75%, lower from the earlier target of 9%. The official said the government hoped to meet its FY12 fiscal deficit target of 4.6%.
The market resumed its uptrend quickly, perhaps recognizing a silver lining in slower economic growth that might cause the RBI to soften its stance on interest rates.
In afternoon trade, the Sensex and Nifty hit 12-day highs at 18,527 and 5,572 respectively. The Nifty crossed it first resistance of 5,540 and closed well above it. The Sensex rallied 271 points to close at 18,503 and the Nifty gained 87 points to end the day at 5,560. We can expect the Nifty to reach at least 5,600.
All Asian indices ended positive, in the range of 0.13% to 2.32%. All European markets were up and Dow futures was up a huge 117 points at the time of writing.
Jaiprakash Associates (up 4.59%) was the major gainer in the Sensex stocks, followed by HDFC Bank (up 3.47%), DLF (up 3.27%) and ITC (up 3.07%). The only loser was Cipla, which dropped by 1.05%. On the Nifty, 47 stocks gained, while only two fell and the GAIL stock remain unchanged.
All the sectoral indices ended in the green. The interest sensitive realty sector was the biggest winner with the BSE-Realty index up by 2.53%. FMCG stocks rose on hopes that the timely monsoon rains would help boost rural income, which contributes a substantial part of the revenues of FMCG firms. The BSE- FMCG index was up by 2.25%. BSE-IT rose by 0.50%. The advance-decline ratio on the National Stock Exchange was 1257:484.
ONGC, the country's largest oil & gas exploration firm by sales, rose 1.15%, following the March quarter results announced after market hours on Monday. While sales grew by a meager 1%, the operating profit fell by 15% over the corresponding year-ago period. ONCG attributed the weak results to higher discounts on crude sales given to PSU oil marketing companies to meet their under-recoveries on fuel sales at government-controlled prices. ONGC gave a discount of Rs12,136 crore to these firms in the quarter, sharply higher than Rs4,999 crore in the previous corresponding quarter.
Reliance Communications (RCom) rose 2.17%, following the announcement of quarterly results after market hours on Monday. Meanwhile, RCom has decided to initiate due diligence to sell its stake in Reliance Infratel, its passive infrastructure subsidiary.
Order inflows in the power sector were poor in April 2011, but power generation registered an encouraging 7.6% growth year-on-year, and alternate energy sources did much better. Power stocks have by and large underperformed the market over the past three months
Power forms a vital part of infrastructure development. In India, recently, the sector has been riddled with poor order inflows. But the growth in power generation has been encouraging. Renewable forms of power generation also have shown strong growth over the past few months. There have been large orders for wind projects and nuclear power generation and hydro generation have crossed the targets set by the Central Electricity Authority (CEA) for April 2011.
According to a research report by IDFC Securities on the status of infrastructure development, "Order inflows (in infrastructure) in April 2011 fell sharply by 49% year-on-year, due to very few orders in the power generation segment, which has been the mainstay of order inflows."
Power generation has grown by 7.6% over the previous year for April 2011. In 2010-11, the power generation sector contributed 45% to the total order inflows of the infrastructure sector. Power transmission and distribution (T&D) was the second highest contributor with 16.9%.
However, orders for the power generation sector fell in April 2011 to Rs8 billion, which is the lowest in two years. Consequently, the order inflows for infrastructure overall during the month fell by half to Rs76 billion from the corresponding period a year ago.
But, IDFC says, there was some relief for the power sector in May. L&T and BHEL received a few large orders, and Gamesa got a large order from Caparo Energy for wind projects in India. This resulted in a 68% yearly jump in order bookings this month.
The highest growth in power generation was in the nuclear power segment that grew by 40.5% from 18,631 MU (power unit) in FY2009-10 to 26,182 MU in FY2010-11. Nuclear generation achieved a remarkable growth rate of 50.72% over March-April 2011 due to improved availability of nuclear fuel to the nuclear plants.
Nuclear power generated 2,660 MU in April, exceeding the target by 612 MU. Energy generated from hydro-electric stations (excluding import from Bhutan) during the month was 8,875 MU against the target of 7,522 MU. Hydro-based plants and coal-based plants registered a growth of 3.40% and 9.22% respectively in March-April 2011. Thermal power generation grew only by 3.4% due to the negative growth rate of gas-based stations.
Alternate energy generation has immense potential as generation of clean and renewable energy is top priority for the country. The growth in nuclear power generation and hydro power generation has been encouraging.
Unfortunately, the performance of power company stocks has not been great. The BSE Power index was down by 12.11% over FY2010-11, against a 10.96% gain by the Sensex in this period.
According to a chart prepared by IDFC, on the performance of power stocks in relation to the Sensex over the past three month, power equipment manufacturer ABB Ltd outperformed the Sensex by 23.5%, whereas the public sector unit BHEL was lower by 4.4%.
Among power utilities, Jaiprakash Power Ventures was the top performer, beating the Sensex by 26.2%. NTPC and Adani saw lower growth compared to the Sensex-they were 1.3% and 7.5% lower.
Most power transmission companies also displayed poor performance. Kalpataru and Jyoti Structures were 4.5% and 6.2% lower than the Sensex.