S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
35,227.26 |302.39 0.87%	67.44 |0.79 1.16%	31,026.00 | -138.00 -0.44%	77.56 |-1.23 -1.56%	5.00% - 7.00%

 

Improving health of the economy

(Source: MOSPI)
With this, India’s GDP growth for FY 2017-18 averaged at 6.7%, a notch above the RBI’s prediction of 6.6%.

All signs point to an economy emerging from the transitory negative impact of demonetisation and implementation of Goods and Services Tax (GST).

So far good; but there are signs of tiring...

At 2011-12 prices
(Source: MOSPI)
Although, the government spending has propped the economic growth in FY 2017-18, there’s clearly been a loss in the momentum of its spending. Similarly, the growth in household expenditure has been flagged off.

Employment growth…

As per the estimates of MOSPI, the formal sector has created 18.2 lakh new jobs in the Q4, FY 2017-18. In Q3, the economy created 15.4 lakh employment opportunities in the formal sector.

Since these numbers are based on the number of new subscribers added to the Employees’ Provident Fund (EPF) scheme, the actual number can be even higher as well. The data on informal sector isn’t available. 

The RBI has projected 7.4% growth for FY 2018-19 and 7.7% for FY 2019-20.

Can Indian economy achieve this target?

What might work for it:

• The government is expected pump in nearly Rs 6 lakh crore in the economy by way of infrastructure spends.
   
• The government has decided to set Minimum Support Prices (MSPs) for crops at 150% of the cost of production.
   
• The budgetary support of Rs 55,000 crore to Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) is expected to lessen the rural distress.
   
• The prediction of normal monsoon may curb the inflationary pressures which are clearly visible at the moment.

What may not work:

• Quarterly results for Q4, FY 2017-18 suggest that, the Corporate Inc. has been successful in clocking a double-digit. However, there’s been a steep fall in the net profits, which suggests that the cost pressures have been rising. If this trend continues, not only will the tax collections be affected, the wage growth might fall as well—lowering the pace of PECE.
   
• Rising crude oil prices could affect India’s foreign exchange reserve position and may result in the higher inflation as well.
   
• Despite the ever-increasing government expenditure, the job growth has been feeble.
   
• Lull in the private sector’s capital expenditure (capacity addition spends) might slow down the pace of manufacturing growth.
   
• The possibility of interest rate hikes may further have a bearing on economic growth.

Impact on investments

Whether or not India achieves 7.4% grown in FY 2018-19 will largely decide how the equity markets will behave. Any economic underperformance might trigger sharp sell-offs.

On the contrary, if the economy effectively deals with the challenges it faces today, the markets might resume their upward trajectory. The political stability will also weigh heavily on the markets, 2019 being the election year.

As far as investments in the fixed income assets are concerned, they will be largely affected by the monetary policy stance of RBI. Any rise in the repo rates——which signals the potential interest rate hikes——might indicate that the inflation is going out of RBI’s comfort zone.

What investors should do?

• Stop speculating on the macroeconomic events and indicators such elections, GDP, etc.
   
• Revisit the personalised asset allocation plan
   
• Those who haven’t created a financial plan must consider getting it done as soon as possible
   
• Those who want to invest in equity markets, may take Systematic Investment Plan (SIP) route

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