• India’s second quarter GDP grew by 7.9% compared to 7.7% y-o-y while 6.1% q-o-q. The figure surpassed everybody’s expectation and is the indicator that the economic activities in the country are performing really well

• Liquidity has been plenty and domestic demand has been good. All of these have contributed to the kind of growth we are seeing. The growth rate will be sustained but whether this increased momentum will continue into the third and fourth quarter has to be seen as the base has now become much larger

• Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, told that he too does not see a need to change the fiscal and monetary policies now because good GDP numbers suggest that we are back on the satisfactory growth path

• Farm sector which comprises of food grains, oilseeds and other commercial crops grew by 0.9% as against 2.7% y-o-y. Very little of kharif production accrues in the period July-September, which accounts for 18% of GDP therefore, bulk of the estimates of GDP of this sector to the extent of 82% in Q2 are based on the anticipated production of fruits and vegetables, other crops, livestock products, forestry and fisheries. The sector performed badly due to a weak monsoon and continued contraction in exports due to slackening demand overseas

• Manufacturing sector grew by 9.2% as against 5.1% y-o-y. Increase in demand from all quarters, low base effect, government boosted stimulus contributed to the robust growth rate witnessed by this sector. A rise in this sector portrays a rise among all production related activities and it traditionally being a income producing sector rather than an income consuming is good for the economy and shows that the stimulus is working to good effect

• However a rise in growth coupled with an increase in prices of raw materials should force companies to increase prices of finished goods which should in turn lead to higher inflation and thus add fresh impetus to the notion that interest rates are set to increase in the next monetary policy

• Mining sector has grown by 9.5% compared to 3.7% y-o-y. This sector has shown the highest growth among al the GDP components.

• Electricity, gas and water supply grew by 7.4% as against 3.8% y-o-y. The growth in this sector is also due to one of the reasons that production from KG basin has started

• Construction has grown by 6.5% as against 9.6% y-o-y.The key indicators of construction sector like cement and finished steel registered growth-rates of 12.6% and 2.1% respectively as against 5.25 and 3.8% y-o-y

• The services sector comprises of three broad headings given below which have more or less all performed quite moderately.

• Trade, hotels, transport and communication grew by 8.5 per cent. The key indicators of railways, namely, the net tonne kilometers and passenger kilometers have shown growth rates of 11.2 per cent and 6.3 per cent, respectively

• In the transport and communication sectors, the production of commercial vehicles, cargo handled at major ports, cargo handled by the civil 2 aviation, passengers handled by the civil aviation and the total stock of telephone connections registered growth rates of 4.5%, 2.9 %, -1.3%

• Financing, insurance, real estate and business services at 7.7 per cent while community, social and personal services’ at 12.7 per cent

Kredent Analysis:

We believe that the GDP numbers clearly highlights the signs of the economic recovery and can provide a direction to the market in the near future. However, most of the growth has come on account of continued government stimulus packages, where the agricultural sector growth has being sluggish. Going forward if the agricultural sector continues to perform like this, could put severe pressure on the inflation front and this can lead to a slowdown in the overall GDP growth rate.

Hence, the best strategy currently is to wait for a breakout above 5200 to go long or a break down below 4900 to start covering ones long positions.

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