We expect a pick-up in activity in the second quarter of fiscal 2009. Several large investments that were mothballed in part due to election-related uncertainties will likely be put back in place. There are several other reasons which suggest…that there will be an improvement in investment demand in the second half of 2010. Domestic demand indicators have shown substantial upticks recently. Historical peak-to-trough declines in the investment cycle suggest a bottoming out in the first half of 2009, and the economy continues to have significant pent-up demand for investment, especially in infrastructure and affordable housing.
We think that monetary policy easing is at an end... We expect the rupee to appreciate further against the dollar.
Pranjul Bhandari & Tushar Poddar
While some incremental data have yet to recover (exports, industrial production), we think India will do better in FY10 on the back of election results, an improvement in the investment climate, both domestic and global, and signs of thawing credit markets.
Rohini Malkani & Anushka Shah
Citigroup Global Markets
April’s industrial production data points tentatively to a stabilization of the industrial sector. Demand for the industrial sector’s consumer goods appears to remain weak, but this has been offset by government infrastructure and construction projects. Although borrowing rates remain high for businesses compared with regional peers, interest rates have fallen and this has helped to boost demand for housing and construction.
In coming months, industrial production is likely to continue to show signs of improvement. Already, the recent rise in commodity prices has led to increased production in mines, while recovering domestic demand has led to electrical production recovering. These trends will likely continue in coming months.
Associate economist, Moody’s Economy.com
We expect industrial output growth to average 4.2% year-on-year (y-o-y) in FY10 from 2.6% in FY09. We believe the rate-cutting cycle is over and expect Reserve Bank of India (RBI) to start withdrawing liquidity by fourth quarter of 2009, followed by rate hikes in 2010. We expect industrial output growth to improve sequentially. We expect industrial output growth to rise 4.2% y-o-y in FY10 from 2.6% in FY09.
On the policy front, we judge the RBI rate-cutting cycle is over. Our view is RBI will withdraw liquidity by issuing market stabilization scheme bills, possibly by as soon as fourth quarter of 2009. We expect this to be followed by cash reserve ratio hikes of 100 basis points and a cumulative 75 basis points policy rate hike in 2010.
India economist, Nomura Financial Advisory and Securities (India) Pvt. Ltd
The biggest surprise came from the intermediate goods sector, which recorded a strong growth of 7.1% in April, after having remained in the negative territory for seven months in a row. We feel the intermediate goods sector has turned a corner.
RBI’s rate-cutting cycle could be very close to the end. Given the buoyant performance of equity markets so far, coupled with signs of an incipient growth recovery in the real economy, the chances of further incremental rate cuts from RBI get reduced considerably. A last 25 basis points (One basis point is one-hundredth of a percentage point) rate cut in the July monetary policy, therefore, becomes an extremely close call and will purely be dependant on how financial markets perform.
Indranil Pan and Kaushik Das
Kotak Mahindra Bank Ltd
It may not have been anywhere near as strong as China’s 7.3% industrial growth rate in April (and 8.9% in May), but India’s 1.4% y-o-y out-turn was a pleasant surprise as the market had expected a 0.1% y-o-y fall. Output growth almost certainly bottomed on y-o-y in March and we are looking for a healthy upward trend to develop from here. This is certainly the message of India’s Manufacturing Purchasing Managers’ Index, which may provide a short-term lead, and has jumped from a low of 44.4 in December last year to 55.7 in May.
It is domestic activity that looks to be leading the upturn, thanks mainly to the government’s fiscal measures, as exports continue to collapse. The worry here, of course, is that the government can’t support growth forever given the state of public finances. We think they will. First, the lagged effects of the interest rate cuts have still to be felt, while it shouldn’t be too long before exports also begin to contribute, at least modestly. Our lead indicator model suggests that the regional trade cycle will begin to turn from the third quarter of this calendar year.
Senior Asian Economist, Hongkong and Shanghai Banking Corp. Ltd