Economy poised for a rebound

4 May 2009,

NEW DELHI: The worst is over and the economy looks set for a rebound. This may sound contra-intuitive after dire predictions of a long and deep slowdown, but economists and investment bankers interviewed by TOI see a revival as early as September, or latest by December.

All of them see growth riding on the back of domestic demand rather than overseas business but caution that some sectors such as IT may take a little longer.

The pace of rebound being projected ranges from an optimistic 8% of GDP to a cautious 6-7% in the last quarter. For the full fiscal, there's consensus on 6.5-7% except a CII forecast that pegged it at 6-6.5%. But a word of caution here will not be out of place. These figures could still go off the mark as the signs may be deceptive. This is just like when the specialists failed to see through the boom to see the bust coming.

"Green shoots of growth are showing in some sectors and we can certainly see a sustainable upward movement by the September-October busy season. Summer is lean period as activities usually slow down before picking up in September... or more in October," Ficci secretary-general Amit Mitra said.

Suresh Tendulkar, chairman of PM's Economic Advisory Council, was more optimistic and said recovery had started. "There have been some pressure on the bottomline and profit growth may not be as high as expected. But the way revenues have grown, it shows revival has started," he said.

Investment bankers agree that a recovery is in the offing but give it a couple of more months. "A turnaround will start showing signs from the third quarter and pick up in the December quarter," said a Mumbai-based economist with a major investment bank, requesting neither he nor his oganisation be identified.

This is the time-frame Arvind Mahajan of global consultancy firm KPMG is also looking at. "A turnaround will start happening in the last quarter of the financial year, or conversely, the end of the calendar year... from December." But he also feels there could be issues. "My guess is growth will be at 6-7% if you are lucky. There may be some issues on the supply side of infrastructure projects. Liquidity issues. If you look back at when we were having 8-9% growth rates, you see a lot of liquidity flowing in that had a bearing on the valuations etc."

Before the good times roll though, some sectors could slip a little more. "The turnaround will not happen as a whole of the economy. Some sectors are bottoming out in the next two quarters," said Mahajan. The investment banker sees oil and gas as flatish, Mitra adds exports by small and medium enterprises in textiles and jewellery. For Tendulkar, the worst performance is behind us -- in the third quarter of 2008-09.

Mahajan's reason for the slow recovery in these sectors: "Japan and Europe will not rebound at the same time as the US. Because they suffered less (than the US) they will take time to bounce back."

All of them identified infrastructure as the engine, driving demand in steel, cement and other manufactured items. "Infrastructure will spur the drawdown on inventories. That's happened in cement and is starting to happen in steel," said the investment banker.

Mahajan sees agriculture in a support role. "It will prompt rural demand but since there's a rigidity in the sector, it is not like the farm sector will carry the economy as a whole. A good monsoon and a good crop will certainly help the economic revival but that will not be the sole driver. After all, you already have good rural demand."

Mitra said steel and cement signified some turnaround in producer side. "FMCG never suffered. Activities in small housing are coming back. All these can be sustained if interest rates come down... projects become viable, start getting off the ground and (with low interest) propel consumer side interest."