To begin with, when I
look at Indian economy, my attention first turns to the trade. Latest numbers
show trade deficit falling to $13.08 billion in December 2018 against $16.67
billion in November 2018. The economists did pray for a declining trade deficit
to create favourable trade scenario for India. India happens to be amongst
poorest of G20 countries and the only logical way to wriggle out of this label
of being poor is to be an export-driven economy. The Indian rupee having its
own volatility amidst the growing trade concerns (both locally and globally),
rise in exports can bring in immense cash flows in the country. India’s import
bill has declined 2.44% to $ 41.01 billion, biggest fall since August 2016. The
reason for this is hugely attributable to declining oil prices amidst global
tensions (Oil constitutes 27% of India’s import bill). Another strong reason I
found for falling imports is lesser reliance on gold. Owing to Nirav Modi scam,
there was huge restocking of gold in 2017 as gold imports seem to have fallen
24%. We have few measures to further reduce imports. The Gold Monetization
Scheme (GMS) helps mobilize gold held by households and institutions in the
country and put it to productive use in return for an interest. Recently,
Government also increased its purview to include a smuggled gold too. Prime
Minister Modi had repeatedly put emphasis on reducing oil dependency from 82%
to 63%. Stated owned Indian Strategic Petroleum Reserve has built 5.33 million tonnes of
capacity at Vishakhapatnam, Mangalore and Padur which can help meet 65 days of
country's oil needs in case of contingent situations.
One of problems which are plaguing the economy is the rising liquidity problem in NBFC sector. NBFCs are yet to come out of the dark phase after the ILFS default which created a risk aversion amongst the investors. The borrowing costs are expected to rise by 50-150 bps as it would be difficult for NBFC to raise capital. However, banks like SBI are ready to take over the loan portfolios through securitization albeit the risk averseness of investors can still be traced to declining NBFC stock prices (The small cap NBFC companies will bare most of the brunt). The Reserve Bank of India needs to monitor funds and direct money based on a proper well-defined assessment mechanism. The RBI also needs to carve out a financial blueprint based on real-time data for NBFC sector spanning a decade to prevent a further asset-liability mismatch. On the equities front, 2018 initially observed lacklustre corporate earnings which showed a revival late in July-September Quarter. The interest rates were hiked twice in the course of year by 25 bps each time which did lead to a low equity performance. The stock markets observed a correction later into the year after making consistent highs (which most analysts suggested it was a bubble). Mid cap and small cap stocks had rich valuations and suffered the most during correction albeit the large caps stock remained resistant. US-China trade tensions crept into global equities which lost $13 trillion, half of which was accounted for by the trade war.
One of problems which are plaguing the economy is the rising liquidity problem in NBFC sector. NBFCs are yet to come out of the dark phase after the ILFS default which created a risk aversion amongst the investors. The borrowing costs are expected to rise by 50-150 bps as it would be difficult for NBFC to raise capital. However, banks like SBI are ready to take over the loan portfolios through securitization albeit the risk averseness of investors can still be traced to declining NBFC stock prices (The small cap NBFC companies will bare most of the brunt). The Reserve Bank of India needs to monitor funds and direct money based on a proper well-defined assessment mechanism. The RBI also needs to carve out a financial blueprint based on real-time data for NBFC sector spanning a decade to prevent a further asset-liability mismatch. On the equities front, 2018 initially observed lacklustre corporate earnings which showed a revival late in July-September Quarter. The interest rates were hiked twice in the course of year by 25 bps each time which did lead to a low equity performance. The stock markets observed a correction later into the year after making consistent highs (which most analysts suggested it was a bubble). Mid cap and small cap stocks had rich valuations and suffered the most during correction albeit the large caps stock remained resistant. US-China trade tensions crept into global equities which lost $13 trillion, half of which was accounted for by the trade war.
The numbers were not so
extravagant in 2018 but we can hope for some promising numbers depending on the
results of general elections. With a decrease in consumer price index to
18-month low of 2.19%, the Monetary Policy committee may go in for some rate
cuts now to boost borrowing. Given the
fact IIP numbers have been at 17-month low to 0.5%, it is imperative that
Government adopts some measures to boost consumption.
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