India's GDP growth momentum up in Q1 2013: BNP Paribas

Surprise upside in industrial production in Feb combined and some recovery in exports suggest that the GDP growth should have picked up in Q1FY14

Indian economic growth is likely to have edged up in the first quarter of 2013, after having bottomed out in the previous quarter ended December 31, 2012, global financial services major BNP Paribas has said.

In a research note on Indian economic, BNP Paribas said that the surprise upside in industrial production in February combined and some recovery in exports suggest that the GDP growth should have picked up in Q1 2014.

According to the report, the economy probably touched its bottom in the final three months of 2012 when GDP growth was about 4.5% year-on-year.

"The trend reinforces the sense that investment demand, while still muted, is reviving and the economy probably touched bottom," the report said.

IIP for the month of February came at 0.6% year-on-year as against the street expectation of marginal decline.

"Indian industrial production surprised to the upside in February, trumping market expectations by almost 2 percentage poins. Capital goods production was the prime source of surprise as other segments were weak," BNP Paribas said.

According to a separate report by global financial services major Morgan Stanley, the worst is likely to be over for the Indian economy.

"Trailing macro data points are a cause of concern for investors, but we believe that the worst may be behind," Morgan Stanley said.

It further said that "the government has initiated steps to correct the bad growth mix (high fiscal deficit and low investment spending). We believe this will help to gradually improve the macro stability indicators".

As per BNP Paribas, the pick up in GDP growth in the first quarter of calender year 2013 might not have been strong enough to push the FY2013 GDP growth forecast of around 5%.

On inflation, the report said the March CPI report showed inflation was down more than expected, but still "uncomfortably high".

Accordingly, the RBI's room to push down rates aggressively to reinforce the current tepid cyclical upswing remains limited, BNP Paribas said.

RBI, in its mid-quarter monetary policy review on March 18, reduced the repo rate by 25 basis points from 7.75 to 7.50% to help revive growth.