DSP Merrill raises GDP growth forecast to 7.3%

 In a research report, the investment bank has also raised the growth forecast for Index of Industrial Production (IIP) for the financial year 2003-04 to 6.1 per cent from 5.3 per cent earlier and to 6.6 per cent from 6.3 per cent for 2004-05. It said the growth in IIP during the first half of this fiscal year was above expectations at 5.8 per cent as against its expectation of around 5 per cent.

 DSP Merrill Lynch expects the growth in IIP to further accelerate in the second half as the benefits of good monsoons begin to impact demand, and consequently production, through the fiscal 2004-05.

 The industrial growth in the first half was at 5.8 per cent, which was higher than the bank's expectations. The IIP growth picked up towards the end of the second quarter, led partly by the rising sentiment in the capital-goods and consumer-durables markets.

 Also, the growth was more broadbased, and even the core sector, which was expected to be on a cyclical downturn, also showed signs of revival in September 2003, the report said.

 "Growth in consumer durables segment also showed buoyancy and appears to be on a steady upswing which grew by grew by 8.2 per cent during September 2003. This is the strongest growth in the segment during last 20 months." According to DSP Merrill Lynch, this has been driven principally by the feel-good factor arising from good monsoons this year and should sustain in the coming months.

 The report added that growth in the economy will be accelerated in the second half of this fiscal relative to the first half level, particularly as the benefits of good monsoons translate into higher domestic demand by the fourth quarter of fiscal 2004 and in fiscal 2005.

 The lead indicator (narrow money vs IIP) also supports the view that the economy could be in the early stages of a fresh industrial revival.