Friday, May 29, 2009

The Indian Economy set to Buck the Negative Trend

For the last couple of months there has been conjecture, discussions debates and what have you, about the state and direction of the Indian Economy. Most parts of the world are undoubtedly in the throes of a major recession, but what of India?

Is the worst behind us? While thinking of this I am reminded of the lines by Alex Tan “Perhaps our eyes need to be washed by our tears once in a while, so that we can see Life with a clearer view again.”

So does it mean that we are on the path of recovery? Consider the following:

1. Car & Motorcycles sales are up by 2% in March 2009, compared to March 2008, whereas in most parts they have fallen from 10-30%.
2. The largest housing lender, HDFC has shown loan approvals during the year 2008 -2009 at INR. 49,166 crores (About $ 10.39 Billion at currency rate of 1$ = 47.3 INR) as compared to INR 42,520 crores ($8.98 Billion) in the financial year 2007-2008 representing a growth of 16%. Actual Loan disbursements during the year were up 21%.
3. While the inflation rate has more or less remained stagnant at 0.7% for week ending April 25 2009, the Commodity price for food items has gone up from a level of 125 in March 2009 to about 130.2 in April 2009 (http://indexmundi.com/commodities/?commodity=food-price-index)
4. The export / import balance in March 09 of $-4.9 Billion is the lowest differential in the last 2 years. (http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx).
5. Foreign Exchange Reserves saw a huge decline between April 2008 (314 Billion) to 252 Billion in October 08, but since then these figures have been seeing a remarkable steadiness so much so that these reserves stood at 251.9 as of Feb 2009 (http://rbidocs.rbi.org.in/rdocs/Bulletin/DOCs/MAYBULCS44.xls).
6. Retail sales seem to be picking up.

Besides the above facts and figures there are some other key indicators. India’s Export earning at about $ 165 Billion as a %age of GDP is low. Of the export earning IT/ITES is about $ 60 Billion, which has not headed south, so even if one would see a negative change for the remaining the worst case scenario is not more than a couple of Billion. Similarly with remittances which had been about $ 27 billion as per the World Bank in 2008, likely to drop, we can see another negative growth of a couple of a Billion Dollars. In a trillion Dollar economy a few Billion dollars less is not going to have a major impact.

We also have the following positives:

The formation of a stable government in India in May 09 has already seen a fantastic rally in the stock markets, so much so that an upward change of 17% in the first few minutes on opening of the stock markets after the election results were declared forced the markets to shut down. While there might be minor corrections in the days to come, it would still show a very healthy position vis a vis other stock markets. This has brought in huge foreign investment back in the stock markets.

Finally we have to realize that 60% of the Indian economy is still dependent on Agriculture and it is ultimately the rain gods and not Wall St. which is the biggest driver. If the Monsoon is good or even average, then there is no looking back.

I think this festive season on Oct-Nov should see a visible rebound with the turbulence of the last couple of months behind us, so in the words of Ramsay Clark “Turbulence is life force. It is opportunity. Let's love turbulence and use it for change.”

2 comments:

Anonymous said...

Hello Sunil,

The statistics you have listed are interesting; and a stable government at the center bodes well for the future outlook of our economy and its expected growth.

As far as the stock markets are concerned; is is expected that they would perform better than the global trend. And would therefore seem to buck it to the extent of the positive deviation it may have over the global trend line. Of course, this is not to say that there would not be periods of drawdown which maybe considered to be reasonable periods to buy stock; as you would appreciate, the zooms do come with their zigs.

Good luck.

Sincerely,

Akash

Anonymous said...

Sunil, India was never under recession, the growth had slowed down, but no recession.

And back in 2008 also the theories of decoupling were doing rounds, but finally Indian mkts tanked, the gdp growth numbers were revised downwards. Hence I dont think India can be decoupled from the rest of the markets.

But no doubt, it should show decent growth in this year, the positive indications are there with a stable government at the center, and infact the q4 numbers of the companies havent been discouraging.

With the right govt policies of encourgaging govt spendin in infrastructure, disinvestment in public sector companies, India should be able to have a decent growth this year.

But then again the stock markets are forward looking and the index seems to have built in the good news of the govt and the budget due in jly, hence there might be a small crash once the budget is out.

Pooja Shah