According to studies made by Indian analysts Neelkanth Mishra, Managing Director and India strategist for Credit Suisse
and Pranjul Bhandari, Managing Director and Chief Indian Economist at HSBC, India is poised for positive growth for the
next decade. However, the following year is not so clear because of the global situation.
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DECODING INDIA'S ECONOMY
We are expected to be the fastest growing large economy for the next 2 years. However, we have not yet recovered to previous levels if we see the growth trajectory from the pre-pandemic level. Exports have been a key driver in India's recovery when we are not considered an export-driven economy. Between June 2019 and June 2022. GDP has grown by a cumulative 4%, and exports have grown by 20%. Further, this is high tech exports in IT, Pharma, Auto ancillaries, Speciality Chemicals, Mobile handsets, etc.
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Low and medium tech exports like agriculture, textiles, and leather products, where employment is more significant, have
not done so well. Moreover, high tech may slow down if there is a global recession.
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We have learned how to make roads. When the Golden Quadrilateral was conceived, we could barely find a contractor who could make 50 Km of road, and now we can do 40-50 Km per day. This last-mile connectivity will transform the country. Electricity and Piped water too are moving beyond metros to the rest of the country. All this is happening at the grassroots level - the women will have to spend less time getting water and wood for fuel, which can get them to work elsewhere. The average rural employment is for about 5 months a year. With good road connectivity, this can go up.
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Real Estate has clearly started recovery after 10 years of stagnation. A property is a large part of the
lifetime spending of an individual. Recovery of the real estate sector and the allied industries can add 1%
to the GDP. Indian households are still growing at 2.4%. Affordability has increased. The average house
size is expanding.
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When Covid hit, most states could not spend what funds they had. There is about 2% of the GDP
in the states waiting to be spent. Even with the Centre's fiscal condition deteriorating, fortunately,
they are not curtailing the Capital Expenditure. In FY 2021, the Government spent Rs 128428 lakh
cr on Capex and in the 4 months of April to July, they have already spent Rs 208670 lakh crores.
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We keep mentioning that India is very advanced in Financial digitisation. They are the World leader in
small transactions with a massive volume daily. With 5G, that will only increase. Fast-Tag works smoothly,
helps to collect tolls and control congestion. Welfare schemes are smoothly transferred to the intended
recipient without leakage.
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Formalisation of the economy has resulted in Macro stability in the country. However, it was a
forced formalisation (through GST), and that has caused many small and medium companies to
shut shops. Digitisation of manufacturing is essential to help these small manufacturing outlets.
This could include access to raw materials, credit, logistics, warehousing, quality testing, domestic
and export markets, innovation in Artificial Intelligence, etc. There are 2/3 of companies working
on such platforms.
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Private equity funding is much more significant than Public Equity funding. Risk capital is now available
as an Angel investor in every city, where small ticket investment can show proof of concept. Last year's
disastrous performance of the New Age companies was a part of this evolution. There are now valuation
anchors, investors, and recipients who will be more prudent to go forward.
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Trade deficit has ballooned from US$ 14-15 bn per month to about double that now. The Dollar is
the risk-off trade, and the Dollar index is at multi-decadal year highs at 114+ level. Unfortunately,
we have burned about US $ 75 bn trying to defend the rupee. It is time for the RBI to conserve its
Dollar reserves or find ways to attract fresh dollar inflows.
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Finally, we come to inflation. Core inflation has been stubbornly high for months. So it will be difficult for
Inflation to come down to 4%. However, the World Order has changed - we are de-globalizing, high fiscal
deficits, work ethic has changed, which has caused lower productivity - all this is inflationary. So there
may be a need to relook at the inflationary targets.
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In conclusion, there are many issues worldwide, and a recession is looming. So far, the problems have been in peripheral
countries like Sri Lanka. However, if this spreads to more mainstream countries, and Britain is having massive issues, this
could cause pain in all markets.
However, there is no doubt that over the medium term, India's growth is unstoppable.
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EQUITY MARKET
As the US risk-free yields rise and the Dollar strengthens, FII is selling in India - concentrating on the most liquid stocks, mainly in Banking and Financial Services. However, with the huge SIP book, domestic investors continue to buy. India's Macros continue to be good, although the markets are expensive at 17% above the 4-year average. When the Macros are good, the markets are unlikely to correct to the 4-year average. Although we may have a time correction continuing (and have already had one for 1 year) - it would be a good idea to buy at every dip, which will reward you over the next 2/3 years.
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DEBT MARKET
In line with most Central Banks around the world, RBI raised interest rates by the expected 50 bps.
Over the last year, equity, debt and gold markets did not give any returns. However, it is now in the
debt market that we can see clear visibility of over 7% returns over the next 3 years.
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Gold
Gold is not behaving as a hedge against inflation currently. This is mainly because of
the extraordinary strength of the Dollar. This year the Dollar Index has gone up 18%,
and gold in the international markets has fallen almost 11%. However, in India from the
beginning of 2022, gold has remained flat, and has protected capital, partly because
the rupee has weakened.
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