India’s 2QFY09 GDP grew at 7.6%

Indian economy grew at 7.6%oya in Q2 2008-09 (July-Sept) higher than the consensus expectation of 7.2%; (Q1 2008-09: 7.9%; Q2 2007-08: 9.3%). The 1HFY09 Real GDP growth stood at 7.8%yoy. Nominal GDP in 1HFY09 stood at 17.5% (price effect).

* The manufacturing sector, as expected from IIP numbers, grew at 5%oya while construction growth surprised on the upside growing at 9.7%oya resulting in a growth rate of industry at 6.1%oya. Services sector grew at 9.6%oya, declining less than manufacturing sector with trade and transport growing at 10.8% (11.2%oya in Q1 FY09) and financial services at 9.2% compared to 9.3% in Q1.
* Growth in private consumption declined in Q2 2008-09 over previous quarter (5%oya vs. 8%oya in Q1FY09) due to the negative impact of higher interest rate and very high inflation. It was the slowest growth since last 3 years. Growth in investments was surprisingly high at 13.8%oya compared to 9% in Q1 FY09.

Bottom Line: We believe that going forward GDP growth is likely to moderate in next two quarters. Manufacturing, construction, trade & transport sectors will decelerate in coming months. Given the ongoing decline in overall funding to the industry, the investment growth (GFCF) is likely to trend down to single digit levels in coming quarters. Lower inflation and declining interest rate may spur consumption. Government spending in next few months (it being an election year) will support growth. So we expect India to soft land with around 7% GDP growth in FY09 (compared to the 9% outcome in FY08).