Crude prices are a caution, not a warning as yet: Aditi Nayar, ICRA
ET Now|
Jan 05, 2018, 03.16 PM IST
Talking to ET Now,
Aditi Nayar, ICRA
, says volume growth is coming back and capacity utilisation should be better in Q3 and in Q4.
Edited excerpts:
How much of a dampener is crude at $68-70 going to be for Indian macros?
Fuel is something that every sector consumes and as fuel prices start going up, it is going to have a more broad-based kind of an impact on the earnings growth. This is why we are still expecting the GVA growth in Q3 to be around 6.7%. We do not expect it to cross 7% although we do expect it to be an improvement over Q2 growth that we saw earlier.
Other than that, on the other macros, inflation would be affected by the higher crude oil prices, the current account deficit and the fiscal deficit as well. That is something which has a pretty broad-based impact on the macros. But we are not expecting it to be a very alarming situation looking at the trends which are developing so far.
It is definitely something that we need to keep an eye on and what would really be important is whether crude oil prices rise above the current level in a manner that is going to be sustained. If it is just going to be a brief uptick and then settling back to current levels or slightly below that, then it would not be too much of an issue as far as Indian macros are concerned. But if there is going to be a breakout above these levels which gets sustained for whatever geopolitical reasons, then we would have to reassess the impact on all the macros. As of now, it is a caution but not alarming.
With respect to some of the other encouraging data that we got, the December manufacturing PMI is at 54.7. That is at a five-year high. How are you reading into these numbers. Are you seeing an overall recovery on the manufacturing side?
Yes, there are optimistic signs in volume terms from a number of manufacturing sectors and that is something that we do hope will sustain going into Q4 as well. When we looked at our set of early indicators for November, a lot of them were sequentially showing a good uptick over October and if the December PMI numbers do translate into similar numbers on a sector wise basis as well, we would be on track for a pretty reasonable volume growth which is also going to be broad based in the next few months.
But the issue is when will the investment recovery set in? We are at least a couple of quarters away from that. Looking at the broad-based investment recovery, what we are seeing right now in is that volume growth is coming back and capacity utilisation should be better in Q3 and in Q4.
Edited excerpts:
How much of a dampener is crude at $68-70 going to be for Indian macros?
Fuel is something that every sector consumes and as fuel prices start going up, it is going to have a more broad-based kind of an impact on the earnings growth. This is why we are still expecting the GVA growth in Q3 to be around 6.7%. We do not expect it to cross 7% although we do expect it to be an improvement over Q2 growth that we saw earlier.
Other than that, on the other macros, inflation would be affected by the higher crude oil prices, the current account deficit and the fiscal deficit as well. That is something which has a pretty broad-based impact on the macros. But we are not expecting it to be a very alarming situation looking at the trends which are developing so far.
It is definitely something that we need to keep an eye on and what would really be important is whether crude oil prices rise above the current level in a manner that is going to be sustained. If it is just going to be a brief uptick and then settling back to current levels or slightly below that, then it would not be too much of an issue as far as Indian macros are concerned. But if there is going to be a breakout above these levels which gets sustained for whatever geopolitical reasons, then we would have to reassess the impact on all the macros. As of now, it is a caution but not alarming.
With respect to some of the other encouraging data that we got, the December manufacturing PMI is at 54.7. That is at a five-year high. How are you reading into these numbers. Are you seeing an overall recovery on the manufacturing side?
Yes, there are optimistic signs in volume terms from a number of manufacturing sectors and that is something that we do hope will sustain going into Q4 as well. When we looked at our set of early indicators for November, a lot of them were sequentially showing a good uptick over October and if the December PMI numbers do translate into similar numbers on a sector wise basis as well, we would be on track for a pretty reasonable volume growth which is also going to be broad based in the next few months.
But the issue is when will the investment recovery set in? We are at least a couple of quarters away from that. Looking at the broad-based investment recovery, what we are seeing right now in is that volume growth is coming back and capacity utilisation should be better in Q3 and in Q4.
