2.

Market Trends and Outlook

2.1 Key economic indicators-India
India is Asias third largest economy with a population of around 1.2bn. During the last decade,
the country went through a period of rapid economic growth. It had an average GDP growth rate
of more than 7% in the first decade of this millennium. However, in fiscal year 2012 and 2013,
the country saw a successive decline in GDP growth rate over all quarters due to high inflation
rates combined with high interest rates. The economy showed some hope in the fourth quarter
of FY13, registering a GDP growth of 4.8% but dipped again in the first quarter to a low of 4.3%.
This was the lowest growth witnessed in the last seventeen quarters.
Chart 15: Quarterly GDP growth rate-India (y/y change in %)
9.0

8.0

8.0
6.7

7.0

6.1

6.0

5.3

5.5

5.3
4.5

5.0

4.8

4.8
4.3

4.0
Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14
Source: MOSPI

In June 2013, Fitch revised Indias credit outlook from negative to stable with a BBB- long term
rating. Current account deficit grew to around 5% of GDP in March 2013 which fuelled the
depreciation of the Indian currency causing the INR to reach an all-time low of 68.85 against
USD on August 29. However, Moodys kept the countrys outlook stable in its August review.
Chart 16: Average monthly USD to INR exchange rate
66.00
64.00

62.70

62.00

63.80
61.51

62.59

61.84

59.75

60.00

58.13

58.00
56.00
54.00

54.96
54.82 54.65 54.24
53.84 54.40 54.36

52.00

Source: x-rates.com

Oil & Gas

India

11

Indian economy has been suffering from high inflation rate since the beginning of FY10. The
most worrying factor was the consistent rise in food prices which was eating into disposable
income of Indian middle class. This hurt the household savings rate as well as sectors like
automobile and construction, which are highly dependent on the rising middle class of India.
Both the inflation indicators namely Wholesale Price Index (WPI) and Consumer Price Index
(CPI) were above the comfort zones of RBI in FY14.
Chart 17: Inflation during FY14-India (in %)
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0

11.2

10.6 10.8 10.9 10.4

9.9

9.3

7.4

7.3

7.3

6.8

9.9

9.6

6.0
4.8

4.6

Monthly Wholesale Price Index-Inflation

5.2

9.5

5.8

9.5

9.8

6.1

6.5

10.1

9.9

7.0 7.5
6.2

Monthly Consumer Price Index-Inflation

Source: RBI

In order to curb inflation, RBI increased the policy rate (repo rate) 13 times between March 2010
and October 2011. RBI raised hopes of the industry by cutting repo rate by 50 basis points
between January 2013 and May 2013, but had to gradually raise it again due to sticky inflation.
The higher interest rate led to a lower credit off take which transpired into an industrial
slowdown affecting almost all sectors of the Indian economy.
Chart 18: Repo rate (Benchmark interest rate in %)
9.00

8.50
8.25
8.00

8.50
8.00

7.50
7.25

7.50
7.00

8.00

8.00
7.75
7.50
7.25

7.75
7.50

6.75
6.50

6.50
6.00

6.25

Source: RBI

Oil & Gas

India

12

The index of industrial production is an indicator tracking the manufacturing and production
sectors of the country. The general index of Industrial production recorded a contraction of 0.1%
y/y in 9MFY14. Due to consistently high inflation and a slowing GDP growth rate, a situation of
stagflation hampered the industrial production in the country.
Chart 19: Index of industrial production (Base 2004-05=100)
180
165.5

170

160

170.3

172.2

FY12

FY13

168.1

152.9

150

145.2

141.7

140
130

122.6

120
110
100
FY07

FY08

FY09

FY10

FY11

9MFY14

Source: MOSPI

Crude oil production, natural gas production and production of refinery products constitute three
of the eight core industries of Indian economy. While the eight core industries together
contribute 37.90% to the IIP, the crude oil production individually has a weightage of 5.22%, and
natural gas production and refinery products have a weightage of 1.71% and 5.94%
respectively. Both crude oil and natural gas production i.e. upstream business slipped in the first
eleven months of FY14. The downstream segment comprising of refining industries also
registered a subdued growth during this period. .
Chart 20: Y/Y change in index of industrial production (Base 2004-05)

50%

45%

40%
27%

30%
20%
10%

7%
0% 2%

1%3%

12%
10%
3%

1%

1%

3%

2%

0%
FY08
-10%

-2%FY09

FY100%

FY11

-20%

FY12

-1%FY13

-9%
Crude oil

Natural gas

11MFY14
0%
-13%

-15%

Refinery products

Source: MOSPI

Oil & Gas

India

13

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