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India's guard rails against recession continue to be strong
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IANS | 07 Jan, 2023
The just-concluded calendar year 2022 was tough on many fronts. The
Russia-Ukraine war, rising inflation that led to interest rates rising
sharply, volatile crude prices, and so on. And all of this happened
coming out of over two years of massive disruption on the back of Covid.
In such a scenario, it was just not possible to expect
global markets to perform. They too were under pressure. Dow Jones lost
3,425.86 points or 9.43 per cent to close at 32,912.44 points. NASDAQ
was indeed very weak and lost 5,178.52 points or 33.10 per cent to close
at 10,466.48 points. Looking at what happened in the US, India is
clearly an outperformer.
BSE SENSEX gained for the seventh year
in a row and was up 2,587.22 points or 4.44 per cent for the year at
60,840.74 points. NIFTY gained 751.25 points or 4.33 per cent to close
at 18,105.30 points. BANK NIFTY was a very important sector in the
domestic markets and gained handsomely. It was up 7,504.75 points or
21.15 per cent to close at 42,986.45 points. It could be said that the
BFSI space was the saviour for the Indian markets.
People around
the world are talking in hushed tones that the US could be heading for
some sort of recession. In market or financial parlance, recession is a
cuss word and no one likes to talk or discuss the subject. A strong
economy like the US and recession round the corner? Seems absurd but
that could happen in the latter half of the calendar year 2023.
The
US FED has raised interest rates sharply during the current year. The
rise on four consecutive occasions was of 75 basis points each besides
three more hikes of 100 basis points total. The current rate band in the
US is 4.25-4.5 per cent.
This is the highest rate in a very long
time and has gone up from a band of 0-0.25 per cent a year ago. This is
not all and the FED is talking of more to happen in the current year.
More importantly, this would keep the rates at elevated levels for a
substantially long time.
With the average American hit hard by
inflation, rising interest rates and fuel pump rates which are at
elevated levels, the citizen is just unable to manage his monthly
expenses. While currently the job rate and economic data suggests that
things have not turned out the worse, the lurking fear of the cuss-word,
recession is hurting. When will the FED stop raising rates and then
will reduction happen or continue at higher levels.
The US
imports almost everything of daily use whether it be textiles, consumer
goods or what have you. They survive on exports of technology, defence
equipment and higher end of products. They have their own supply of
crude and play the global markets depending on international prices. The
current relations with China being what they are, they do have to look
for alternative destinations.
Let us now compare the situation in
India. Our economy is comparatively more self-resilient. The two large
components of import for us are crude oil and edible oil. While efforts
to reduce the same are on-going it would be a long-drawn affair for the
time being.
To offset the financial burden, exports of various
products are being undertaken to improve the balance of payments
situation. Incentives under the PLI (production linked incentive) scheme
have been extended to many industries and sectors, and one is seeing
the benefits of the same.
There would be some drop in GDP when
the inevitable recession hits the country. In such a scenario, profits
of companies would take a hit as well. US markets could see an outflow
of investor flows and the direction could be to countries where there is
money making potential or expectation. Would India be a beneficiary of
such a situation? Let us analyse the same in some detail.
Currently
our benchmark indices with the BSE SENSEX at 60,000 and NIFTY at 18,000
are richly valued. The PE multiple of the BSE SENSEX on a trailing
basis is 23.71 while it is 22.99 based on projected basis. (Source:
BSE). Similarly NIFTY 50 has a PE of 21.65. On the price to book basis,
BSE SENSEX trades at 3.53 times P/B while NIFTY trades at 4.22 P/B. On
comparison basis, the Dow Jones PE is 21.23.
There is expectation
that results for the quarter October-December 2022 and January-March
2023 would see a sharp growth in profits and revenue for the benchmark
stocks. Whether that does happen or not is debatable. We have seen how
FPIs sold in the first eight-nine months of calendar year 2022 and
reduced their exposure. The fact that their bets in other countries, by
shifting money out of India, did not pay off, is a different matter.
Our markets bounced back quite sharply and made new lifetime highs as recently as December 2022.
India
held steady because of huge inflows to domestic institutions through
SIPs and direct subscription. Our domestic funds were able to weather
the storm of FPI selling.
The moving of savings to the capital
markets was certainly welcome and in any case it was high time that the
same happened. It would be reasonable to expect that going forward this
would continue. The only variable could be the pace at which it happens.
Looking
at the above. It would be fair to conclude that while a recession or
recession-like scenario in the latter half of the calendar year 2023 is a
possibility in the United States, the same or similar scenario in India
is far off.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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