A lot of the discussion and debate in business media over the last 18 months has been on when the Indian economy will get back to the high growth track, that it last saw about 4 years back. In many ways the events post 2010, with the multitude of scams and clear though surprising political inaction had caused our economy to lose the momentum that it had gathered in a very decisive manner in the 2008 – 2010 period. This was particularly disappointing as India had weathered the global crisis of 2008 much better than most nations – so much so that it was being said that our time had finally arrived !!
The change in 2014 politically was a significant one and the expectations from the Narendra Modi government was huge from all quarters. The business community was the most hopeful and some of the initial steps taken by the government were cause of continued optimism. The stock markets ran up in advance, as it always does sensing that there was a growth story unfolding – everyone agreed that the economy would turn around smartly, the only question was when. Unfortunately, the government got caught up in a series of occurrences that disrupted the momentum considerably.Some of these were opposition induced, like the legislative logjam in the Rajya Sabha but quite a few were self inflicted wounds.
The upshot of all this has been we are still seeing an economy which is struggling to get beyond the 7 % GDP growth in a comfortable manner. There is a lot of discussions on FDI and agreements are in place but action on the ground has been rather limited. To an extent, the impatience of the business community and the general public is justified for the government has a great mandate and it should have done better than it has so far.
With this background however, the fact remains that there are definite indications that the economy is probably turning around the corner. Let us see what are these indications:-
- Advance tax numbers are quite positive and shows that most Indian businesses are projecting a higher growth than expected earlier.
- The IIP numbers have been poor for several months but the last month’s indication is cause for hoping a reversal.
- Inflation is clearly under control and this is likely to continue for some time. The monsoons have been erratic but better than what was expected and this will continue the downward push on inflation.
- Lowering of rates will boost entrepreneurship and business growth in general. More importantly, the government and RBI seem to be finally working in tandem rather than at cross purposes.
- Despite the road blocks, we are getting to be an easier country to do business in. For the first time FDI in India is expected to be more than that in China and this is a huge recognition of India’s current stature.
- Disinvestment has not happened greatly, but as a transparent framework is in place, it can be kick-started at a very short notice. I expect the government to do this in the last quarter of this fiscal.
- The best indicator yet is that all states are now competing with each other to bring investment, irrespective of their political ideology and beliefs. This is a far cry from the earlier situation where only states like Maharashtra and Gujarat were focused on battling it out for large scale investments.
- There is a framework in place for new investments such as smart cities. The speed on these could have been quicker but the acceleration is very likely to come now.
The economy of a country like India is like a complex jigsaw puzzle. You cannot fix it with a single large piece but once some pieces start to fit in the solving of the puzzle is a foregone conclusion. I think we are coming to that stage and in the next 3 months many more pieces will definitely start falling into place. This will gain greater momentum over the January to March period and lead to a stronger and more progressive budget focused on growth.
What does all this mean for the markets? Well, as I said before, the markets normally react by anticipating events and therefore, it is quite likely that they will react positively to these indications. I am convinced that the Nifty will reach a level of 8500 or so by early January and if corporate earning is good for Q3, taking out 9000 is not an impossibility in this fiscal.
How should you look at your investment strategies in the light of these? More on that in the next post.