December 1, 2022

The Professional Times

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Should Indian Investors be Worried About Recession Concerns?1

Economists declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.

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Recession is a word which has been regularly featuring these days on all kinds of media.

Experts have been talking about a likely global recession. How much Indian investors should be concerned about this and how should one tide over such a phase? 

Economists declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.

Recession phases generally see the stock markets correcting by about 20% or more which generally is a worry for investors more particularly investors who hold equity-oriented investments.

Globally while many experts see recession in the vicinity, equally most experts see India in a relatively comfortable position. What is giving so much comfort in favour of India?

Here are a dozen facts which give an edge to India:

  1. Unemployment index of India is at 6.5%, the lowest in 4 years
  2. GST collection rises 26% in September to 1.47 lakh crores. Net direct tax mop up rises 23% to Rs 7.04 lakh crore so far this fiscal. Income and corporate tax collections were at a record high of Rs 14.09 lakh crore in 2021-22
  3. Backed by buoyant revenue collections, the government has decided to lower borrowing for the current fiscal by ₹10000 crore than earlier projected for 2022-23 in the budget
  4. Bank credit grew at 16.2 per cent in the fortnight ended September 9, the highest in about nine years, supported by revival in the economic activity post-Covid, increased working capital demand and rising discretionary spending
  5. As compared to other leading currencies like Euro, British Pound, Australian Dollar and Yen the Indian Rupee has depreciated the least against the US Dollar 
  6. Among the very large emerging economies, India has the highest growth potential at 7%-plus and is among the most attractive investment destinations now
  7. Inflation in India which is at 7% is one of the least among emerging economies which currently have an inflation of 10% or more
  8. India recently became the world’s 5th largest economy surpassing UK and is projected to become the 3rd largest by 2030
  9. Due to India’s relations with Russia and Iran, who are at odds with the West, India receives low cost oil and gas. India also continues to maintain good relations with Europe and the US
  10. Most global stock indexes like the Nasdaq 100, Dow, Dax, Hang Seng, Nikkei, are far lower from a year back whereas Indian indices like the Sensex and Nifty 100 are stable to moderately up over the last one year
  11. The lending rates of the US have historically been 2 to 3% lower than in India but currently the lending rates in India have risen lesser compared to the US, leading to India’s lending rate being almost on par with the US, which is a positive development favouring India
  12. The 10 year GSec yield in the US has spiked by 150bps in less than 2 months to 4% (now trading at 3.77%). Indian 10yr GSec yield has risen only 35 bps from its recent lows ~ 7.4%. This is the thinnest yield differential between US Treasury and Indian GSec 10yr yields in 13 years

Does this score of facts giving solace to India mean that you can relax ignoring the fear of recession?
Watch this space to know the answer for this …

Written by

V.Krishna Dassan, Director -Wealth Management, Dhanavruksha Financial Services

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