Good GDP numbers catch bears on a wrong foot

After a series of gloomy trading sessions the, the bourses erased some of their losses on back of good Q2 GDP numbers announced today. Though the Asian markets started off well, but this could not help Indian equities open on a positive note. The GDP numbers boosted the market sentiments and helped the indices inch up higher.  

It seems that the expected slowdown in growth due to fading effect of stimulus and high inflation remains just a fear so far. We continue to move towards the 9% growth level by the next fiscal. The country’s GDP growth for the Q2 was reported at 8.9%, as compared to a growth of 8.7% y-o-y. All the segments showed a consistent and continued recovery. The agriculture sector, reported a 4.4% growth as compared to its performance in the corresponding previous quarter. The manufacturing activity also continued with a strong growth of 9.8%. In the services space, ‘Trade, Hotels, Transport and Communication’ sector led the growth with a 12.1% expansion compared with 8.2% a year ago. ‘Financing, Insurance, Real Estate and Business Services’ is another segment that maintained strong performance with 8.3% growth. Construction activity expanded by 8.8%, tad slower than previous quarter figure of 10.3%, but still strong enough.

The private consumption and investment expenditure have accelerated in Q2 while government spending has decelerated. The increase in private consumption is quite positive for the much talked about consumption story for the Indian economy. The decline in government spending on the other hand is a welcome development as it will help the economy stand on its own and help cut fiscal deficit going forward. All the above mentioned factors point out to the fact that there has been a robust recovery in the domestic space and will help market trend to remain robust. 

We feel that the correction at least in some segments like banking and infrastructure has been overdone. With good fundamentals in place we advise investors to accumulate quality stocks especially in banking, automobiles, oil and gas and the infrastructure space.