Services growth slips in FY08
All is not well in the country's services sector, the largest contributor to economic growth in Asia’s third-largest economy.
By ET Bureau |
MUMBAI: All is not well in the country's services sector, the largest contributor to economic growth in Asia���s third-largest economy. Since the third quarter of fiscal '07, one of the significant segments of this sector that comprises banking, insurance, real estate and business services, has seen growth dip from a peak of 14.7% to 10.5% in Q4���08.
"That probably has something to do with the lower base in the third quarter of the previous fiscal as also the very sharp increase in banking activity (both deposit and credit growth) in the second half of fiscal ���07, compared to the corresponding period of fiscal ���06," said Saumitra Chaudhuri, member of the prime minister���s economic advisory council. "Going forward I expect this component ��� financial, business and real estate services ��� to stabilise at around 9-10% growth year-on-year."
Banking and insurance also includes contribution from other financial services like NBFCs, brokerages and mutual funds. Business services include information technology and related services, among others. The quarterly break-up of the various components are not available for FY08.
However, anecdotal evidence suggests banks have done better in FY08 than in FY07 as many managed to hold on to their margins. But a strong rupee during most part of the year could have hit growth in export income of IT companies. Other financial services like MFs and brokerages could be hit in the latter part of the year since stock markets started slipping from the fourth quarter of FY08.
According to KPMG executive director Ravi Trivedy, AMCs are the worst hit. While equity mutual funds have seen substantial redemptions the problem with debt funds is that commissions are not significant. For banks, though, deposit growth has been growing at a faster clip than credit growth, leading to a build up of liquidity which could pressurise margins going forward.
Though insurance will not be impacted in the same measure as equity markets, income from unit linked insurance plans which accounts for a big chunk of insurance companies��� investment portfolio could be hit.
"Realty has started feeling the heat too. The current fiscal will witness a slowdown in this sector," said Mr Trivedy.
"That probably has something to do with the lower base in the third quarter of the previous fiscal as also the very sharp increase in banking activity (both deposit and credit growth) in the second half of fiscal ���07, compared to the corresponding period of fiscal ���06," said Saumitra Chaudhuri, member of the prime minister���s economic advisory council. "Going forward I expect this component ��� financial, business and real estate services ��� to stabilise at around 9-10% growth year-on-year."
Banking and insurance also includes contribution from other financial services like NBFCs, brokerages and mutual funds. Business services include information technology and related services, among others. The quarterly break-up of the various components are not available for FY08.
However, anecdotal evidence suggests banks have done better in FY08 than in FY07 as many managed to hold on to their margins. But a strong rupee during most part of the year could have hit growth in export income of IT companies. Other financial services like MFs and brokerages could be hit in the latter part of the year since stock markets started slipping from the fourth quarter of FY08.
According to KPMG executive director Ravi Trivedy, AMCs are the worst hit. While equity mutual funds have seen substantial redemptions the problem with debt funds is that commissions are not significant. For banks, though, deposit growth has been growing at a faster clip than credit growth, leading to a build up of liquidity which could pressurise margins going forward.
Though insurance will not be impacted in the same measure as equity markets, income from unit linked insurance plans which accounts for a big chunk of insurance companies��� investment portfolio could be hit.
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"Realty has started feeling the heat too. The current fiscal will witness a slowdown in this sector," said Mr Trivedy.
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