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GDP estimates revised up, corporate profit estimates revised down

GDP estimates revised up, corporate profit estimates revised down
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First Published: Tue, Jan 25 2011. 12 23 AM IST
Updated: Tue, Jan 25 2011. 12 24 AM IST
The Reserve Bank of India’s review of macroeconomic and monetary developments for the December quarter has a simple and hawkish message: downside risks to growth have receded, while upside risks to inflation have increased. Fighting inflation rather than supporting growth is, therefore, the objective and this is emphasized by the central bank’s assessment that if anything can derail growth, it is inflation. It’s all the more necessary, therefore, to tame inflation.
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That growth is robust is also evident in the professional forecasters’ survey carried out last December, with its median estimates of real GDP growth for 2010-11 revised up from 8.5% to 8.7%. Significantly, the estimate of average wholesale price inflation has also been notched up from 8.1% to 8.5% for 2010-11 and from 5.6% to 6.6% for 2011-12.
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Interestingly, though, its estimate of growth in corporate profits after tax in the December quarter of 2010-11 for the firms listed on the Bombay Stock Exchange has been trimmed from 15% to 12.8%, for the March 2011 quarter, the earlier estimate has been revised down from 20% to 15.8%. Similar downward revisions have been carried out in estimates for the first and second quarters of FY12. Clearly, whatever be its prognostications about GDP growth, the forecast is for a moderation in corporate earnings. One reason could be that while the real GDP growth rates have been revised upwards, the growth rate for the industrial sector has been revised down and most listed firms are in manufacturing. The question is: does the lower earnings forecast for the corporate sector explain the recent fall in the stock market?
Graphics by Ahmed Raza Khan/Mint
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First Published: Tue, Jan 25 2011. 12 23 AM IST