Core sector growth at 4-month high, but no cause for cheer

Growth in the eight core infrastructure industries grew by 3.1 per cent in July, the fastest pace in the last four months, government data showed. The positive data somewhat lifted sentiments after another survey on Monday showed that India's manufacturing activity shrank for the first time in over four years in August.

Madan Sabnavis, chief economist at Care Ratings told NDTV that there are conflicting signals on the economic front. The PMI indicates the mood in the industry is pessimistic, but core sector data shows something is happening.

"The government has been clearing a number of projects, so there are some elements of hope. Good harvest will lead to more farm revenue and more expenditure on consumer goods. In the third quarter we may see a turnaround," he added.

But markets fell and other economists said there's little to cheer. That's because July's growth is lower than 4.5 per cent in the same month last year. Also, for the first four months of fiscal 2014, the eight infrastructure industries have grown at 1.9 per cent as against 6.3 per cent in the same period last year.

D K Joshi, an economist with ratings agency CRISIL said that this should not be seen as a sign of revival unless it sustains for another 2-3 months.

Trader said markets seldom react to data points, unless forward looking, as these are mostly priced in.

India's economic environment has turned extremely pessimistic and latest GDP data, showing India grew at the slowest pace in the last four years, has confirmed a deep seated slowdown.

Analyst say bold reforms are needed to restore investor confidence, spur growth and reduce a record current account gap. However, measures taken by the government since the rupee began its slide in May have left the market unimpressed.

With elections around the corner, there's little hope of big bang reforms ahead.

HSBC on Monday cut its growth forecast for the year ending in March to 4 per cent from its earlier 5.5 per cent forecast, while Nomura on Friday cut its GDP forecast to 4.2 per cent from 5 per cent earlier.

(With inputs from agencies)