India's GDP growth for 2QFY13 remained muted at 5.3% YoY. Real private consumption slowed down even further to 3.7% YoY. Investment rate showed a minor uptick. But government consumption continues to be the biggest driver.
India remains in the midst of a twin slowdown - private consumption and investment. Lower interest rates and government action towards improving the investment climate will help in reviving GDP growth to 6.6% in FY14E, according to HDFC Securities.
GDP growth at 5.3% was in-line with the estimates. Surprisingly, agriculture reported a growth of 1.2% YoY even though kharif foodgrain production contracted by 5.5% YoY.
Consumption slowdown continued. For instance, real private final consumption (PFCE) growth slowed down further to 3.7% YoY, (-) 30bps QoQ. This is the lowest growth seen in real PFCE in the last 30 quarters. Nominal PFCE did much better owing to inflation.
Services sector growth improved marginally to 7.2% YoY, (+) 30bps QoQ. More importantly, growth in 'trade, hotels, transport and communication' sub-segment (29% of GDP) remained weak at 5.5% YoY (4.0% YoY in 1QFY13). ''We believe this sub-segment will report muted growth in the next few quarters owing to widespread slowdown in discretionary spending,'' it said.
India is in the midst of a twin slowdown - consumption and investment. Hence, the case for lower interest rates looks all the more likely, the stock broker opined. It believes interest rates are likely to come down by 100 bps over the next 12 months.
Investment climate in India remains weak. "Given the low capacity utilization, rising inventory and muted revenue growth, we do not expect a major revival in capex cycle," it said.
However, government action such as a National Investment Board (NIB), passage of key bills and management of subsidies through cash transfers will help in reviving domestic investment and consumption climate, it concluded.
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