Nifty Breaches 8K Amid Cautious Growth Outlook

By ENS Economic Bureau

Published: 02nd September 2014 06:00 AM

Last Updated: 01st September 2014 10:45 PM

Email0

MUMBAI: Even as National Stock Exchange 50-share Nifty hit a record 8,027 on the first trading day Monday after announcement of 5.7 per cent GDP growth in the first quarter, economists and analysts remained skeptical of growth spurting or investments picking up soon.

The surge in Nifty was led by Hero MotoCorp, Jindal Steel, Maruti Suzuki, IndusInd Bank and Tata Power, among others.  Helping the sentiment was a gain in other Asian and European stocks. The US stocks too rallied with S&P 500 at a record. Investment by overseas investors in India crossed $12 billion.

The BSE Sensex surged to historic peak of 26,900.30 points. However, it settled at 26,867.55 — new closing high — with gains of 229.44 points or 0.86 per cent over the previous close.

Traders and investors remained optimistic of further gains. However, on economy a wider sense of caution prevailed, amid some positive factors. A stable rupee following the narrowing of current account deficit, revival in private personal consumption pick up in exports, approval of projects provided succour that the worst may be behind us.

“The growth trajectory in FY2015 has started on an improved note, providing the sense that the worst may actually be over,’’ says Indranil Pan, chief economist at Kotak Mahindra Bank. “However, given structural constraints, the expected investment cycle pick-up will take time. Besides, with no monetary policy accommodation expected for a long time, we do not expect FY2015 GDP growth to be any better than 5.6 per cent and if the policy momentum continues, FY2016 growth can pick up to about 6 per cent.”

India Ratings & Research said the 5.7 per cent figure affirmed that the economy had bottomed out. However, it continues to be cautiously optimistic about the recovery gaining strength in the near term. It expects lighter-than-normal rains to affect agriculture for rest of the year.

India Ratings expects slowing inflation to push consumption growth this fiscal. Yet, the consumption would be lower than achieved in FY2011 and FY2012. Also, the government’s efforts to contain fiscal deficit could compress its spending.

“It will be a challenge to sustain this pace of growth given sub-normal rains, high corporate leverage, tight monetary policy, lingering structural constraints and the need to reign in fiscal expenditures,’’ said Izumi Devalier, Hong Kong-based economist for HSBC.

Even though the RBI has given quarterly credit growth figures up to March 2014, the following months individually so far show a slowing credit off-take. Loan growth in July slowed to 12.6 percent from 13 percent each in June and May.

HSBC’s PMI too shows that the worst may have been over but it’s still some way from even a recent high.

Citigroup’s Rohini Malkani maintains her GDP target at 5.6 per cent for the year to March 2015, stating that risks to growth are balanced.