Wednesday, June 2, 2010

India GDP Surprisingly Hot

India released its GDP result the other day showing a surge in economic growth as Industrial activity and strong services growth helped the Indian economy recover from it's "recession". First quarter GDP came in up 8.6% year on year (slightly below consensus 8.8%), building on the 6.5% rise in Q4 2009. The figure puts India on a similar path to it's neighbour and fellow economy, China, and places it in a similar predicament on the monetary policy front, with India having already increased its interest rate 25bps in April.

So what is the Indian stock market doing? Much like most markets, it bounced back from the panic lows in early 2009, and then dawdled along, until the sovereign debt crisis started to show up in Europe. The RBI will review the interest rate again on the 27th of July, and given inflation is currently running around 10%, and given the good GDP results; unless the Euro situation worsens, it's likely to continue tightening monetary policy.

In terms of the outlook, the Indian economy seems to be relatively strong at this point, echoing the trends of the other big emerging markets like China, Brazil, Indonesia, etc. The IMF noted in its World economic outlook that it expects the Indian economy to grow 8.8% in 2010 and 8.4% in 2011. The HSBC-Markit PMI for india rose to 59.0 in May, from 57.2 in April, and exports have shot up strongly in recent months. Added to that the comments that the RBI has made recently around its concerns on inflation (i.e. it is more worried about inflation than growth), the outlook seems to be very good.

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