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GROWTH IN THE INDIAN ECONOMY
Despite many events and challenges, the India Economy has consistently grown annually between 13 - 16% every decade.
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1980 - 89 Real GDP Growth 6%, Inflation 9% - Total 15%
- Operation Blue Star
- Rajiv Gandhi Government
- Birth of the IT industry
- Rise of BJP in Indian politics
- Advent of TV, Maruti car
2000 - 09 Real GDP Growth 7%, Inflation 6% - Total 13%
- Violence in Gujarat post-Godhra
- 9/11, Dotcom bust
- Growth of Indian Generic Companies
- Lehman crisis
- Quantitative Easing
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1990 - 99 Real GDP Growth 6%, Inflation 10% - Total 16%
- Global oil crisis - Gulf War
- BoP crisis - Reforms Commence
- Asian Crisis - Era of Coalitions
- 1st BJP government, Kargil conflict
- Growth of IT, Satellite TV, mobiles
2010 - 21E Real GDP Growth 6%, Inflation 6% - Total 13%
- Coal, NiMo, etc. scandals
- QE tapering, PIGS, Greece
- High FD and CAD, high inflation
- BJP elected twice
- Demonetisation, GST
- Make in India
- Covid-19, Russia-Ukraine war
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HEADWINDS
High Energy Prices and Inflation
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There has been underinvestment in fossil fuels supply resulting in higher prices. In addition, the gas market will remain tight due to geopolitical issues - the war in Russia/Ukraine.
The high inflation seen globally is mainly due to the supply-side disruptions. However, Central Banks worldwide are trying to dampen demand by raising interest rates. The Federal Reserve expressed optimism that it can curb inflation without stalling economic growth and have a "softish" landing. Families and businesses have amassed significant savings during the pandemic. The labour market is extremely strong - and hence a deep downturn looks unlikely. RBI, too has raised interest rates by 40 bps.
This is likely to put some curbs on growth and corporate profitability in the short term. However, there is currently no issue with corporate profitability over the longer term.
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INDIA'S GROWTH
The Next Decade
While events like 9/11, Global Financial crisis, Covid-19, etc. get disproportionate attention, it would be the following silent forces that will drive growth in India:
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Excellent demographics and ample availability of skilled, young, English-speaking and competitive manpower (65% is in the working-age of 15 to 59 years).
- Abundant natural resources except for oil, gas and edible oil.
- Global leadership in services.
- Manufacturing opportunity - Desire of MNCs for China + 1, PLI schemes, defence, etc.
- Low penetration of consumer goods, improved affordability and large unmet infrastructure needs.
- Rapid adoption of digital and a vibrant start-up ecosystem.
- Favourable regulatory environment and improving ease of doing business ranking. (from 134 in 2014 to 63 in 2020).
- Better coordination between Government and business. Government's role as an enabler of business increasing and presence in business to reduce over the medium to long term.
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EQUITY MARKET
The equity markets are safer than they were 6 months ago because at that time no one was looking at risk. However, investors are more cautious now. The following 3-4 months are going to continue to be volatile because:
- The Federal Reserve is likely to have at least 3 rate hikes.
- Quantitating tightening will start, which will remove liquidity from the markets.
- In India, too, we expect rate hikes in June and August policies.
- In this situation of uncertainty and high volatility, it is a good time to:
- Invest through a Systematic Investment Plan (SIP) or Systematic Transfer Plan over a 6 months period.
- Invest in Hybrid funds
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DEBT MARKET
Floating Rate funds would be a good investment in the debt allocation. As
the interest rates rise, they may show unattractive returns for a short
period, but eventually, they will give returns between 5-6%. When the rate
hikes are done, debt will once again become an attractive asset class. Even
now, it would be a good time to start an SIP in Government Securities.
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GOLD MARKET
So far, Gold has not moved up as the dollar index remains strong.
There is still so much uncertainty in the market. There is a war on,
supply constraints, high inflation, rising interest rates, and rising
commodity prices. peripheral countries like Sri Lanka, Turkey,
Pakistan, and Afghanistan are in trouble. At any point, there can be
a Black Swan event again, and gold needs to be held as a hedge
against such an event. The next 2-3 years will be good for gold.
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AKURDI |
WAKAD |
WANOWRIE |
MAGARPATTA |
B-20, Jai Ganesh Vision, Akurdi, Pune-411 035. |
No-1, Nisarg Deep Apartment, Kaspate Vasti Wakad, Pune-411 057. |
No. 26, Shraddha Regency, ’A’ Opp Kedari Garden, WANOWRIE, Pune-411 040. |
No. 14, 4th Floor, Destination Centre, Magarpatta City, Hadapsar, Pune-411 013. |
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