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1


Bhupali Gursale
022-3935 7800 Ext: 6820
bhupali.gursale@angelbroking.com

2QFY2014 GDP Growth
Growth riding on agriculture and export performance

2QFY2014 GDP | Economy
November 29, 2013

Key highlights
Real GDP growth for 2QFY2014 came in line with market expectations at 4.8% as
compared to 4.4% in 1QFY2014 and 5.2% in the corresponding quarter of the
previous year supported by better agricultural and industrial sector performance.
But growth in the services sector has sharply moderated to 5.9% during the quarter
as compared to 7.6% in 2QFY2013 mainly due to dampening consumption
demand as well as restrained government expenditure.
Owing to the deceleration in non-agricultural growth, real GDP growth during
1HFY2014 moderated to 4.6% as compared to 5.3% reported during 1HFY2013.
On the demand-side, GDP at market prices came in at 5.6% during 2QFY2014
as compared to 2.4% in the previous quarter and 2.5% in 2QFY2012 led mainly by
robust export performance.
Nominal GDP clocked healthy 13.0% growth in 2QFY2014 as against 8.1% in the
previous quarter and 12.0% in 2QFY2012 and we believe it is likely to lend a
further positive bias to the 2QFY2014 CAD (estimated at 0.8-1.3% of GDP).
We continue to believe that in the near-term downside risks to growth prevail due
to subdued domestic demand, fiscal constraints and muted investment outlook on
the back of political overhang and interest rate scenario.
We continue to expect real GDP growth for FY2014 to range between 4.5-5.0%
supported by the performance of agriculture and exports.
Trends in economic growth during 2QFY2014
Growth in agriculture and allied activities came in at 4.6%, the highest level in
9 quarters aided by better kharif output from oilseeds, coarse cereal and pulses during
the period. It compares with 2.7% in the previous quarter and 1.7% in 2QFY2013. We
believe agricultural performance is likely to be stronger in 3QFY2013 and would
continue to support growth during FY2014 as a whole.
Growth in the non-farm sector which now constitutes for almost 90.0% share in GDP
has come in at 4.9% as against 4.6% in the previous quarter and 5.6% in 2QFY2013.
The industrial sector reported higher growth during 2QFY2014 at 2.4% as compared to
0.2% in 1QFY2014 on the back of an overall improvement across its segments. The
mining sector reported contraction of 0.4% as compared 2.8% de-growth in the
previous quarter and we believe that it is likely to gain some traction going ahead too
aided by a low base as well as the reopening of certain mines. The manufacturing
sector reported growth of 1.0% as compared to a contraction by 1.2% during
1QFY2014. The electricity and construction sector reported healthy growth of 7.7% and
4.3% as indicated by the Index of Industrial Production (IIP) numbers earlier.





2QFY2014 GDP | Economy

November 29, 2013
2
Exhibit 1: Trends in Real GDP growth (%, yoy)

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 1HFY13 1HFY14
Agriculture and Allied Activities 2.9 1.7 1.8 1.4 2.7 4.6 2.3 3.6
Industry 1.8 1.3 2.5 2.7 0.2 2.4 1.5 1.3
Mining and Quarrying 0.4 1.7 (0.7) (3.1) (2.8) (0.4) 1.0 (1.6)
Manufacturing (1.0) 0.1 2.5 2.6 (1.2) 1.0 (0.5) (0.1)
Electricity, Gas and Water Supply 6.2 3.2 4.5 2.8 3.7 7.7 4.7 5.7
Construction 7.0 3.1 2.9 4.4 2.8 4.3 5.1 3.5
Services 7.7 7.6 6.7 6.6 6.6 5.9 7.7 6.3
Trade, Hotels, Transport & Communication 6.1 6.8 6.4 6.2 3.9 4.0 6.4 4.0
Financing, Insurance, Real Estate & Business Services 9.3 8.3 7.8 9.1 8.9 10.0 8.8 9.5
Community, Social & Personal Services 8.9 8.4 5.6 4.0 9.4 4.2 8.6 6.6
GDP at factor cost 5.4 5.2 4.7 4.8 4.4 4.8 5.3 4.6
Source: MOSPI, Angel Research


Exhibit 2: Low level stabilization of real GDP growth

Source: MOSPI, Angel Research
Exhibit 3: Moderation in services sector growth
Source: MOSPI, Angel Research


The contribution of services sector, having over 60% share in GDP, to the headline
print has decelerated in the past few quarters. Growth in the services sector sharply
moderated to 5.9% during the quarter as compared to 6.6% in the previous
quarter and 7.6% in 2QFY2013. It can be largely attributed to dampening
consumption demand as well as restrained government expenditure. This is
reflected in slowdown in growth for the trade, hotels, transport and
communication segment which accounts for a higher share (28% of GDP) as
compared to the overall industrial sector. Growth in community, social and
personal services also moderated steeply to 4.2% as against 9.4% in the previous
quarter owing to restrained government spending in order to meet its fiscal deficit
target. The financing, insurance, real estate & business services segment surprised
positively by posting 10.0% growth and contributing about 190bp to the overall
services sector growth.

5.9
9.3
7.7
11.4
9.5
8.6
9.2
9.9
7.5
6.5
6.0
5.1
5.4
5.2
4.7 4.8
4.4
4.8
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
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4
(%) Services Industry Agriculture and Allied Activities
4.6
2.4
5.9
(2.0)
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4.0
6.0
8.0
10.0
12.0
14.0
16.0
1
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2
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1
4
(%)
Agriculture Industry Services



2QFY2014 GDP | Economy

November 29, 2013
3

Trends in expenditure on GDP
The demand-side GDP measured at market prices came in higher at 5.6% during
2QFY2014 as compared to 2.4% in 1QFY2014 and 2.5% in 2QFY2013 on
account of robust export performance during the quarter. However, the growth
rates estimated by this approach are largely not relied upon owing to the
discrepancy in data.

Exhibit 4: Contribution to expenditure-side growth (GDP at market prices)

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Private final consumption expenditure 61.1 61.8 61.4 54.7 60.6 59.8
Government final consumption expenditure 11.0 11.0 12.1 11.2 11.9 10.3
Gross fixed capital formation 33.8 34.6 32.0 32.6 32.6 33.6
Changes in stocks 3.9 4.0 3.7 3.8 3.8 3.8
Valuables 2.1 2.2 2.0 1.8 4.0 2.5
Net exports (9.6) (11.0) (11.3) (8.4) (9.9) (6.6)
Discrepancies (2.4) (2.6) 0.1 4.2 (3.0) (3.4)
GDP at market prices (%, yoy) 3.4 2.5 4.1 3.0 2.4 5.6
Source: MOSPI, Angel Research

The weakness in overall consumption trends is reflected in the dismal 1.7% growth
on consumption expenditure, the lowest quarterly growth number observed.
Growth in private final consumption expenditure came in at 2.2% as compared to
1.6% in 1QFY2014 and 3.5% in the corresponding period of the previous year.
Government final consumption expenditure declined by 1.1% after a strong 10.5%
growth in the previous quarter led by pruning of spending on account of fiscal
consolidation considerations. Going forward too, this component is likely to
witness similar trends as the government is unlikely to support growth by loosening
its purse strings.
Exports reported the highest level of growth in the past 8 quarters at 16.3% on the
back of 5.0% growth in 2QFY2013. Going ahead, too we expect export growth to
support GDP owing to the improvement in external demand led by growth revival
in advanced economies, INR depreciation on a yoy basis and low base. Gross
fixed capital formation, an indicator for investment growth, came in at 2.6% as
compared to 1.2% de-growth in 1QFY2014 on the back of a low base.
Broad-based recovery unlikely during FY2014
We continue to maintain that in the near-term the outlook for a pick-up in growth
remains challenging. During FY2014 we do not a broad-based recovery in
economic growth because downside risks prevail from subdued domestic demand,
fiscal constraints going ahead and investment outlook likely remaining muted on
back of the political overhang and monetary policy prioritizing financial and price
stability over growth considerations.



2QFY2014 GDP | Economy

November 29, 2013
4
We believe that growth is likely to be largely supported by the performance of
agriculture and exports. Good monsoon for the country as a whole is likely to
boost agricultural production following below-normal rainfall in the previous year
and is also expected to support rural consumption. We continue to expect real
GDP growth for FY2014 to range between 4.5-5.0% as compared to 5.0% in
FY2013.
Going into FY2015, we expect a recovery in non-farm GDP (to above 6% level)
mainly owing to a revival in global growth and improved external demand
conditions coupled with anticipated upturn in the domestic investment cycle from
greater policy-related momentum post elections and gradual growth supportive
monetary policy measures.




2QFY2014 GDP | Economy

November 29, 2013
5




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2QFY2014 GDP | Economy

November 29, 2013
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