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Epic Research
Chetan Ahya, MD, Morgan Stanley, says that he expects growth to be below 5 percent in coming two quarters and expects 5.1 percent growth for the current year.
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Below is the edited transcript of his interview to CNBC-TV18.
Q: How do you read the recent data? Does it suggest that we have bottomed out as an economy?
A: The data looks stabilized and mixed. We can see a mixed trend in consumption, exports and investment. In last three months there is improvement in exports on seasonally adjusted basis. Consumption is steady whereas investments in public sector projects under implementation are going up but investments in private sector are still down. We are still in stabilization mode rather than any proper recovery.
Q: Some expect current growth to stand at 5 percent. Do you agree with that view? Is there a change that it is a 5 percent or even sub 5 percent performance for the current year?
A: We expect growth at 5.1 percent for the current year and sub 5 percent in next two quarters depending on farm output.
Q: Where is the investment cycle right now because the more hopeful crowd believe that we are troughing out there, the pick up might start in a quarter or two, not yet but we have seen the worst of the investment cycle? Is that wishful thinking or is there any evidence to back that?
A: There is no evidence to back that. We are looking at order inflows numbers for engineering and construction companies. Larsen & Toubro showed good numbers but in aggregate all companies reported lower order inflow year on year. The four quarter trading average numbers is also going down. The order book of engineering and construction companies is also declining on year on year basis. As of now, the new orders trend has not yet picked up.
Q: Were you relived with the inflation figure or are you worried that there is probably going to be both a revision on that parameter and the core didn't move too much?
A: As such not much of a relief. I think it is again showing some signs of stabilization at high level and the good news is that it is not going up. We also look at Consumer Price Index (CPI) numbers apart from Wholesale Price Index (WPI). CPI was almost unchanged at 9.75 percent. The provision numbers of WPI is going down but the final number still remain at around 8 percent.
With the kind of revisions, the provision number which came out for last month will also be around 8 percent and that I don't think still creates any room for RBI to feel comfortable on inflation. So inflation deceleration trend will be visible only from January-February data points onwards. Until that point of time we will stay with these high levels of number for two more months.
Q: What are your expectations from this Parliament session because lots of bills are stacked up; we have seen hope picking up in September? Do you see follow through action over the next three weeks?
A: We are looking for no more negative developments rather than positive developments. Non reversal of FDI in multi-brand retail will be good news and the government does not have any pressure of facing no confidence motion.
We are looking at effort to support private investment, essentially the effort on National Investment Board and whether it is a diluted form of National Investment Board or a fully powerful National Investment Board; the outcome is more important than the structure which is that they can actually move the project clearances and show some evidence.
The finance minister working on GST has raised our hopes but it is yet to be seen that it gets fructified by April 2013. These are the two most important things that we are watching from policy reforms, to support the sentiment towards investment and taking it to another level after the first set of reforms that we have seen.
Q: What expectations do you have from the RBI for period between January to June?
A: We expect a 25 bps rate cut by RBI in that quarter. In all, we expect about 50-75 bps in 2013. We expect eventually the policy rate cuts to come through, but not before that. We are looking for rate cut in the first quarter of 2013.
Q: Do you think IIP numbers might slowly start picking up or you think it is still a very volatile industrial growth trajectory as well for the rest of the year?
A: We expect improvement from March quarter. IIP trend is likely to bottom out from January to March. Growth can be in the range of minus 1 percent to plus 3 percent in next two months. Some improvements are likely in the March quarter and exports will be the most important driver as it plays an important role in industrial output.
It seems like India is not as much dependent on external demand but we have done some statistical work on it and exports does matter to industrial cycle. There will be bottoming out trend in March quarter because of the external demand support.
Also Read: Sensex trades higher despite weak European cues
Below is the edited transcript of his interview to CNBC-TV18.
Q: How do you read the recent data? Does it suggest that we have bottomed out as an economy?
A: The data looks stabilized and mixed. We can see a mixed trend in consumption, exports and investment. In last three months there is improvement in exports on seasonally adjusted basis. Consumption is steady whereas investments in public sector projects under implementation are going up but investments in private sector are still down. We are still in stabilization mode rather than any proper recovery.
Q: Some expect current growth to stand at 5 percent. Do you agree with that view? Is there a change that it is a 5 percent or even sub 5 percent performance for the current year?
A: We expect growth at 5.1 percent for the current year and sub 5 percent in next two quarters depending on farm output.
Q: Where is the investment cycle right now because the more hopeful crowd believe that we are troughing out there, the pick up might start in a quarter or two, not yet but we have seen the worst of the investment cycle? Is that wishful thinking or is there any evidence to back that?
A: There is no evidence to back that. We are looking at order inflows numbers for engineering and construction companies. Larsen & Toubro showed good numbers but in aggregate all companies reported lower order inflow year on year. The four quarter trading average numbers is also going down. The order book of engineering and construction companies is also declining on year on year basis. As of now, the new orders trend has not yet picked up.
Q: Were you relived with the inflation figure or are you worried that there is probably going to be both a revision on that parameter and the core didn't move too much?
A: As such not much of a relief. I think it is again showing some signs of stabilization at high level and the good news is that it is not going up. We also look at Consumer Price Index (CPI) numbers apart from Wholesale Price Index (WPI). CPI was almost unchanged at 9.75 percent. The provision numbers of WPI is going down but the final number still remain at around 8 percent.
With the kind of revisions, the provision number which came out for last month will also be around 8 percent and that I don't think still creates any room for RBI to feel comfortable on inflation. So inflation deceleration trend will be visible only from January-February data points onwards. Until that point of time we will stay with these high levels of number for two more months.
Q: What are your expectations from this Parliament session because lots of bills are stacked up; we have seen hope picking up in September? Do you see follow through action over the next three weeks?
A: We are looking for no more negative developments rather than positive developments. Non reversal of FDI in multi-brand retail will be good news and the government does not have any pressure of facing no confidence motion.
We are looking at effort to support private investment, essentially the effort on National Investment Board and whether it is a diluted form of National Investment Board or a fully powerful National Investment Board; the outcome is more important than the structure which is that they can actually move the project clearances and show some evidence.
The finance minister working on GST has raised our hopes but it is yet to be seen that it gets fructified by April 2013. These are the two most important things that we are watching from policy reforms, to support the sentiment towards investment and taking it to another level after the first set of reforms that we have seen.
Q: What expectations do you have from the RBI for period between January to June?
A: We expect a 25 bps rate cut by RBI in that quarter. In all, we expect about 50-75 bps in 2013. We expect eventually the policy rate cuts to come through, but not before that. We are looking for rate cut in the first quarter of 2013.
Q: Do you think IIP numbers might slowly start picking up or you think it is still a very volatile industrial growth trajectory as well for the rest of the year?
A: We expect improvement from March quarter. IIP trend is likely to bottom out from January to March. Growth can be in the range of minus 1 percent to plus 3 percent in next two months. Some improvements are likely in the March quarter and exports will be the most important driver as it plays an important role in industrial output.
It seems like India is not as much dependent on external demand but we have done some statistical work on it and exports does matter to industrial cycle. There will be bottoming out trend in March quarter because of the external demand support.