(Express illustration)
Oscar Wilde, the famous Irish poet and playwright, got it right. He said a cynic is a man who knows the price of everything but the value of nothing. There is a lot of cynicism in the financial markets. Global inflation is stubbornly high, and uncertainty over global supply chains continues due to the war in Europe and the US-China trade relations.
Jamie Dimon, the chairman and CEO of JP Morgan, a giant global bank, was quoted saying that the odds of a recession in the US have increased due to the banking crisis. That means America could see stagflation, low or no growth and high inflation. That will hurt all significant trading partners of the United States like Europe, China, India and others.
In an interconnected world, India cannot stay insulated for long. Many pundits argue that equity assets in other parts of the world are much cheaper than those in India. Foreign investors will likely continue to pull more money from India and invest in markets that offer value.
From your standpoint, this is a time to ramp up your financial knowledge. This column advocates giving more time to your money by learning to connect the dots. Institutional forecasts indeed predict a gloomy picture for most countries. However, you must look around yourself and learn from the data that tells you a growth story.
The latest World Bank estimate lowers India’s economic growth projection to 6.3% in 2023-24. In its latest forecast, the Reserve Bank of India pegs it at 6.5%. The global institution blames rising borrowing costs, slower income growth and lower-than-estimated consumption. The RBI pins hope on the government’s capital expenditure, higher capacity utilisation and moderating commodity prices to boost manufacturing and investment activities.
India’s 10-year bond yields, a benchmark for financial stability, have hovered around the 7% mark for some time now. The Indian rupee has remained stable despite volatility in other currencies against the US dollar. There is no fear of a sharp surge in the current account deficit in the short term, according to the latest observations by the RBI.
The other essential indicators are related to credit growth. Non-food bank credit rose by 15.4% in March 2023. The total flow of resources to the commercial sector rose by Rs 26 lakh crore in 2022-23. That number was Rs 19 lakh crore in the year-ago period.
The other important observation was by CRISIL, the credit rating agency. The ratio of credit ratings upgrades to downgrades fell sharply to 2.19 in the second half of 2022-23 from 5.5 in the first half of the financial year. However, it is still higher than the 10-year average. “Corporate balance sheets have strengthened significantly, observes the rating agency. The average gearing for most companies tracked by CRISIL is near decadal lows. Gearing is the ratio of debt to equity. That shows companies can expand if the demand for goods and services rises in India.
That brings us to the India growth story.
“The aggregate demand conditions were resilient in Q4 of 2022-23, even as private consumption showed some signs of a slowdown,” said RBI governor Shaktikanta Das in his monetary policy observations. Urban demand indicators like passenger vehicle sales and credit card spending registered robust growth in February. Rural demand indicators such as consumer non-durables, tractor and two-wheeler sales registered healthy growth.
As you connect the dots, you realise that internal factors drive India’s growth story. The external factors in the form of a global slowdown threaten it. From your standpoint, investing in the sectors that drive India’s domestic growth story is the way forward for the foreseeable future.
You do not have to know the intricacies of every sector. It is sufficient to understand that as India’s economy grows steadily, companies will continue to ride on it. Investing in the India story is a bit like nurturing a tree. The fruits of your labour would accrue only when you give it sufficient time to grow.
Ramp up your financial knowledge
Internal factors drive India’s growth story. The external factors in the form of a global slowdown threaten it. From your standpoint, investing in the sectors that drive India’s domestic growth story is the way forward for the foreseeable future.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)
