Tuesday , 21 August 2018

Acche din kab ayenge?

By Tensing Rodrigues*

Achhe din have come and gone. Yes I mean it with purely investment in mind and no politics. Over the last five years the BSE Sensex has moved from about 17,000 to about 32,000, a gain of about 69 per cent. A more interesting view would be look at how some baskets of stocks in the investor’s portfolio have fared.

Let us look at the performance of some better known MF schemes. During this period SBI Bluechip Fund returned about 18 per cent annualised, Aditya Birla Sunlife Top 100 Fund and Franklin India Flexi Cap Fund returned about 17 per cent and the Reliance Top 200 Fund and DSP Black Rock Focus 25 Fund returned about 16 per cent. If that was not ach’che din what are you waiting for? Agreed 69 per cent over five years or 17 per cent annualized is nothing to be excited about. It was definitely not one of the roller coaster rides we have experienced earlier. But personally I prefer the slow climb- faster the rise, the sharper is the fall.

Opinions differ as to the future. Some feel the good days could last in fact be better. Others feel the slow ride is over. It will be slower now or grind to a halt. The big burden hanging on our minds is the after effects of GST and demonetization. These definitely have had an impact. But I feel we need to give the economy a little more time to get adjusted to the new normal. But that could take a long time. The real problem I feel is beyond the numbers. It is the sentiment that has taken a dip. To put it figuratively, Prime Minter Modi’s honeymoon with people is over. The time now has come to handle the harsh realities of life. GST and demonetization were just two of those unpleasant moves. And as such cannot do any good to the sentiment.

What is really bad is that the next General Elections are just a year away, or so. And that means Modi is greatly constrained in pushing through reforms. The purse strings have to be loosened. If I have learnt one thing in the last century of Indian democracy – whether it is at the national level or the village level – we are not really interested in our good. It is our immediate gratification that matters. So for the next one year or so we are not likely to see anything happening. The markets could be in a suspended animation. The current sentiment in the country is well reflected in McKinsey Global Survey, September 2017.

In a similar survey conducted in March 2017, 73 per cent of the respondents had said that the conditions in the country were better than before. But in the September survey only 57 per cent hold that view. But there is a golden lining to that turn to pessimism as 48 per cent of the Indian respondents in the McKinsey survey consider “pockets of growth” as the likeliest scenario going ahead.

There are however some reasons to cheer. Though the global markets have remained volatile in recent times due to geo political tension the macro-economic data points continued on the path of improvement in US economy. However Trump’s inability to push reforms and faster than expected scale back of the quantitative easing could lead to volatility in US markets in the medium term. The robust macro data is underscoring Europe’s strong economic revival and Chinese economy seems to be stabilizing.

While the GST led disruption slowed down India’s GDP growth to 5.7 per cent YoY in in the second half of this year, the full financial year GDP is expected to improve as most of the macro economic variables remain positive pointing towards improving structural strength of the economy. Going ahead the improvement in GDP growth is likely to be on the back of continuous spending by the central government along with the state government investment and the support from the capital expenditure plans of the public sector companies. Private investment too is currently showing early signs of revival.

Though, GST is blamed for slowdown in GDP and weak corporate earnings it is likely to drive the GDP growth in the long term driven by formalization of the economy and higher tax base leading to higher revenue for the government. Higher revenues in turn could be utilized to augment the GDP growth and improve the fiscal situation of the country. Reduction in rural stress and recovery in rural demand, given the steady progress of monsoon, farm loan waivers and increased minimum support prices are also likely to be one of the key driver for growth along with the consistency of urban consumption demand.

*The author is an investment consultant. Readers can send their comments and queries to investment.ideas.shop@gmail.com

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