19/09/2019
Good News: India is relatively doing better.
August 2019 saw fall in imports as well as exports by about 5%. The fall in import of capital goods was evident last month which can translate to lower capacity expansions, lower revenue growth if this trend continues for some more time. GDP growth rate is steadily seeing small reductions. Unemployment levels are at highest level in one decade. Automotive sales are plummeting. INR is weak and Trump will take efforts to keep their currency stronger while USA goes for electorate in about a year.
India’s debt is seeing steady rise in all sectors – Central & State Government, Corporate and household sectors. Collective debt, including Centre & State Government’s balance sheet & off balance sheet values, is close to cent percent of GDP. Off balance sheet items of Government borrowings mainly include carry forwards of subsidies and loans by public sectors. The bulk of budgeted borrowings of Government is spent in meeting interest payments. Household debts have gone up to Rs 22 lakh crores (12% of GDP) but isn’t going to harm if job losses are contained and moderate salary increments occur. In corporate sector interest expenses is growing at a faster rate by 1.5 times of operating income, which is worrisome. Telecom & real estate sector contribute close to 40% of corporate loans.
FIIs withdrew USD 4.5 million in 3 months (June to August 2019). The withdrawal is a mere 10% of their net inflow of USD 45 million in past six years. SIP in mutual fund saw a 7.5% increase in August 2019. For the five month period ending August 2019, SIP inflow was about Rs 41000 crores.
Rest of the major economies in the world is doing worse than India. China’s growth is at its 26 years low. USA’s last quarter shrunk further to a 2% growth and Germany clocked negative. China & the world is haggling with excess capacities, higher debts and lower consumption. While India’s current debts are high, relative debts to GDP were higher in the past on multiple occasions. Certainly Indian economy is stressed but it still is at a safe distance from crisis. Government at the centre, is increasing expenditure to sustain growth but cannot significantly help as its budgets are in higher deficits. Household savings are at pretty low levels and household savings need to get channelized to fund debt.
Next five years can be India’s turn to emerge bigger & stronger. What India requires is BIG investments in CAPEX which has to necessarily come from overseas. Trade tensions between China & USA gives good opportunities to rest of the world and India certainly holds a good chance to grab a plum share. A mere 10% shift of China’s export to India can uplift India’s export by over 30%. Democratic India has remained a net importer all its lifetime. Prudent Government policies to support industrial expansion is the call of the day. Every developed economy has a handful of corporates who deliver a substantial share to their respective country’s GDP. BJP Government needs to ensure that big business houses get into big expansions and make profits for its investors, and also adequately contribute to the exchequer. Government policies, especially in telecom, led to big losses by corporate houses, which is demoralizing promoters to start big businesses. Thrust on R&D is important for India in the long run if it wishes to become the 3rd largest economy after China.
No one ever knows the bottom for investing. It is good time to kick start investing as we surely are near bottom. Markets may take longer than our anticipation to see a boom. Investors are advised to consider a 3 year horizon for sizeable returns. Now is also a good time to shuffle your existing investments. Despite current slowdown many companies are doing exceedingly well and growing. We recommend professional approach to investing for minimizing risks.
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