Can India set a scorching pace of growth
Finance

India’s Growth Potential – A macroeconomic perspective

If there is one word the world can’t get enough of – it is Growth! Growth is the amazing factor in financial equations which makes companies stocks go crazy and countries future look crazy. Ofcourse this is particularly true for India which along with China has led the world growth in the past few years.

Can India set a scorching pace of growth

Can India set a scorching pace of growth

India is such a big and massive country that dividing its growth into sectors is not an easy task. Still the Ministry of External Affairs has given us numbers for various sectors (http://indiainbusiness.nic.in/economy/economic_snapshot.htm)

India grew by 6.9% during 2011-12, which is lower compared to 8.4% growth achieved during 2010-11 but is still pretty good (Data from GoI). The chart from World Bank shows slightly different figures but the theme is still the same. Indian population is growing by 1.4% during the same period. To keep things simple I would adjust the growth down by 1.4% to account for this population growth.

Its also interesting to note from the website that “growth rates of over 8 per cent in the sectors of electricity, gas and water supply, trade , hotels , transport and communication, and financing, insurance, real estate and business services. MOSPI expects slow growth in the sectors of agriculture, forestry and fishing (2.5 per cent) , manufacturing (3.9 per cent) and construction (4.8 per cent). The growth in the mining and quarrying sector is estimated to be negative (-2.2 per cent).” And here lies the reason why the world is betting on India for the next growth wave for the world! Over 8% growth rate in the sectors where consumers are in the driving seat! Indian consumer is coming out and demanding there share from the world and that is going to have a multiplying effect on the economy.

What is needed right now?

Good policies to help manufacturing compete with the rest of the world and be able to provide the goods to the Indian consumer. India does not want to become just an importer of goods but wants to make goods for their own consumers.

Emphasis on Construction and Infrastructure: The growth rate of construction and infrastructure need to rapidly increase in India to make up for the past decades and provide way forward. This will not be easy but its success is going to determine the next few decades for India. India has an advantage here but is not realising it. Many countries in EU and China have already developed their infrastructure, driven their growth numbers by infrastructure spending and are now trying to push their consumers to use this infrastructure and consumer to lead the next cycle of growth in the economy. In India we are seeing the opposite trend where the consumer wants to consume but is hampered by the infrastructure and here lies the opportunity. As we get the infrastructure ready it will contribute to the GDP numbers but the consumption it leads to will create a multiplicative effect on GDP.

Will it happen or not? We will see in 10 years! If you have any comments then do share below.

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Business, Finance

Indian Markets May 2009 – A Review

I am currently in my second year of study at IIM Calcutta. I completed my graduation in Electronics from IIT Kharagpur in 2008. At IIMC, I am the PGP Representative and head the Internet Solutions Group.

18th May 2009 – It was the Magical Monday in the history of Indian Markets. Sensex, BSE’s flagship index, broke the upper circuit limit twice, bringing trading for the day to an early halt. Effective trading time was reported to be just a few minutes. The reason – the largest democracy had given the most decisive mandate in almost two decades, bringing the incumbent alliance back to power. The investors, who were wary of a hung parliament followed by political turmoil and even of the probability of a left championed third front coming to power were now suddenly in a mood to celebrate. This reflected in the markets, which rallied not only for a day, but has sustained its levels over 20 days now.

While it’s all very nice to have the market up and healthy again, let’s just have a look at how some of the other key indices across the globe have performed in these 20 days. Between 18th May and 5th June 2009, Dow Jones Industrial Average gained 6%. The other North American index, S&P 500 gained 6.5%. In Europe, FTSE 100 gained 2.1%. Closer home, the Japanese index Nikkei 225 gained 5.4%. In contrast to all these, Sensex gained a whopping 24%.

In India, the general outlook has seen a substantial change. The once wary investors are turning to the markets again, be it the retail investors or the FIIs. Private Equity firms who were “concentrating on their portfolio companies” are starting to look at opportunities again. Companies are back to planning rights issues and even IPOs. Acquisitions, which were once put off are now back on the table. Analysts are again predicting good times ahead. While some expect Sensex to touch 19000 by the end of 2009, others expect this bull-run to continue for at least four years. Even those who had predicted the slump to continue till FY10 have changed opinions.

What exactly did happen? What brought back new life into the Indian markets? A stable mandate? Continuity of policies? Freedom from potential resistance coming from the Left parties? The answer better not be that! Because however decisive a mandate may be, however levels of continuity or stability it may imply, it alone is just not strong enough to sustain a rally at of this magnitude!

The Latest GDP figures don’t look very encouraging either. GDP growth was 5.8% for the fourth quarter of FY09 and 6.7% for the entire fiscal. Compare this to the 9% growth in FY08. The manufacturing output dipped 1.4% in the fourth quarter, compared to a 6.3% growth in the same quarter a year back! Industrial production growth for the fiscal stood at 2.4% compared 8.2% in the previous fiscal year. The Prime Minister has projected a meagre 7% growth for 2009-10, which he himself considers unsatisfactory.

Hence, if we were to summarize, there are no global cues to support or justify this rally. Neither has the economy performed extraordinarily well for the indices to shoot through the roof. So should we say that the markets are performing well inspite of these factors? Or has the market completely ignored these factors in the Euphoria of a stable government and the first sight of raging bulls in months?

If this run is just based on the Election results, then the upside that the market has seen in the past three weeks is definitely inflated. Needless to say, a correction is highly likely to be on the anvil. With companies filing their results by 30th June and a pending financial budget, the market will have to pass through some serious tests to be able to sustain its current levels. This however doesn’t mean that this is not a good time to invest. One can really make good money thanks to the large intra-day swings. Long term investors though, would probably do well to wait at least for a month before putting big money at stake.

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