India's Q2 growth likely to drop to 5.1%

The country's second quarter growth rate is likely to drop to a nearly three and half year low of 5.1 per cent owing to sustained weakness in the industrial sector, reports say.

According to a research report by Karvy Stock Broking, "the GDP growth for the second quarter of this fiscal is estimated to drop to nearly three and a half year low of 5.1 per cent."

This is mainly expected to be driven by sluggish growth in electricity generation and sharp drop in trade sector's growth as compared to last year, it said.

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Echoing similar sentiments another domestic brokerage firm Religare said :"We expect Q2 gross domestic product at 5.1 per cent, the lowest since March 2009, largely driven by sustained weakness in the industrial sector where we expect muted growth of 0.4 per cent".

India had been growing around 8-9 per cent before the global financial meltdown of 2008.

The growth rate in 2011-12 slipped to a nine-year low of 6.5 per cent and in the quarter ended June 30, 2012, the economy grew by 5.5 per cent.

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The government expects the economy to expand by 5.5-6 per cent this fiscal.

Interestingly, while growth rates are expected to slow down, inflationary pressures are likely to get fueled by festive demand and relatively low base.

"While growth is slowing down, we don't expect inflation to sustain at sub-7.5 per cent levels over the coming months. . .," the Religare report said.

The WPI Inflation declined marginally to 7.45 per cent in October, from 7.81 per cent in September but was way above the Reserve Bank of India's comfort zone of 5-5.5 per cent.

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The RBI is likely to press the pause button in its December meeting but may cut rates by January 2013.    

"Overall, we maintain expectations of a 50 basis points cut by March 2013," Religare said in a research note.

The Karvy report further said that GDP estimate for FY13 is 5.3 per cent which is on back of further weakness in the Services sector.

"Services sector is estimated to grow by 6.4 per cent as compared to 8.9 per cent growth in FY12.

Because of sluggish demand for exports, trade sector is expected to weigh heavily on performance in Services sector," the report said.