The benchmark Nifty ended the week at 10,829 bouncing back from a 6 month low of 10,637 in the final trading session of the week. The sudden uptrend in the Nifty started after about 1 pm on Friday afternoon, which probably means that the market had got wind of the impending policy announcements by the Finance Minister later in the day. And right on cue, these announcements came after the close of the markets. The Finance Minister Ms Nirmala Sitharaman sought to assuage investor sentiment by rolling back the surcharge on Foreign Portfolio Investors on the one hand while increasing liquidity with a capital infusion of Rs 70,000cr into the banking system on the other. Other announcements included cheaper home and vehicle loans, better transmission of RBI policy rates and quicker GST credit for MSMEs etc. These announcements were timed to address the wide discontent with the performance of the overall Indian economy and the stock markets are expected to cheer these decisions when they reopen on Monday.
So the Government is clearly worried about the economy and is taking short term measures to stem the tide. But experts believe this is not enough – much more needs to be done at a structural level to stem the tide. Notable among these include increasing income for farmers in the agricultural sector, job creation in the manufacturing sector and NPA resolution in the services sector. Truth be told - the NDA Government has addressed these issues in its first term – it just needs to continue addressing them more into its second term. Ultimately the annual GDP growth rate which has slowed to a 5 year low of 5.8% for the last quarter of 2018-19 needs to be reversed back to 8.5% plus and more in order to achieve the Government’s own target of a $5trillion economy by 2024. Is this target realistic? Let’s look at the forecast of the International Monetary Fund (IMF) for the top 10 economies of the world.
So the Government is clearly worried about the economy and is taking short term measures to stem the tide. But experts believe this is not enough – much more needs to be done at a structural level to stem the tide. Notable among these include increasing income for farmers in the agricultural sector, job creation in the manufacturing sector and NPA resolution in the services sector. Truth be told - the NDA Government has addressed these issues in its first term – it just needs to continue addressing them more into its second term. Ultimately the annual GDP growth rate which has slowed to a 5 year low of 5.8% for the last quarter of 2018-19 needs to be reversed back to 8.5% plus and more in order to achieve the Government’s own target of a $5trillion economy by 2024. Is this target realistic? Let’s look at the forecast of the International Monetary Fund (IMF) for the top 10 economies of the world.
Country
|
2018 actual GDP ($tn)
|
2018 actual rank
|
2024 projected GDP ($tn)
|
2024 proj. rank
|
GDP proj. growth rate
|
United States
|
20,494,050
|
1
|
25,728,734
|
1
|
3.30%
|
China
|
13,407,398
|
2
|
21,309,503
|
2
|
6.84%
|
Japan
|
4,971,929
|
3
|
6,848,808
|
3
|
4.68%
|
Germany
|
4,000,386
|
4
|
4,912,299
|
4
|
2.98%
|
United Kingdom
|
2,828,644
|
5
|
3,399,017
|
6
|
2.66%
|
France
|
2,775,252
|
6
|
3,354,126
|
7
|
2.74%
|
India
|
2,716,746
|
7
|
4,729,319
|
5
|
8.24%
|
Italy
|
2,072,201
|
8
|
2,323,028
|
9
|
1.65%
|
Brazil
|
1,868,184
|
9
|
2,468,216
|
8
|
4.06%
|
Canada
|
1,711,387
|
10
|
2,242,038
|
10
|
3.93%
|
Despite the recent slowing down of the global economy, the IMF forecasts that the top 10 economies will continue to grow for the next 5 years with India growing the fastest among the bunch. This will result in India climbing up two steps in the ladder while Brazil will climb up one. The IMFs forecast of $4.7tn for India is close to the Indian Government’s own $5tn target, implying that it is indeed realistic but a stretch target. In order to get there at least one of the three growth drivers – consumption, investments and exports – will have to lead the charge. If two or more drivers fire together we will hit the bull’s eye with ease.
What to Do?
Steep market corrections instill fear and a sense of impending gloom and doom amongst investors. At such times, it is perhaps best to take a step back, look at the bigger picture and try to answer some basic questions.
- Is India’s fundamental growth story still intact? Largely yes.
- Is the Government doing all it can to stem the tide? It has made an earnest beginning.
- Will the Government do all it can to get back on the growth trajectory? It has no choice if it has to achieve its own $5tn target.
Add all these answers together and it should be pretty obvious what you need to do as long-term investors in the Indian markets. If you still have questions or doubts, reach out to your SEBI Registered Investment Adviser who will be able hand-hold you through this patch of turbulence in the Indian economy.
Happy Investing.
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