The autumn festival season in India shall end with Kartik
Purnima and Guru Nanak Dev's birthday celebrations next Tuesday. From the
following Monday (18th November), a four week winter session of the Parliament
will start. Given that the festival season has failed to bring the much awaited
cheers to the economy, and the distress of common man appears to be deepening
further with each passing month, the government will have lot of explaining to
do. Besides, the Supreme Court verdict on the Ayodhya dispute (expected next
week), may also cast a shadow on the parliamentary proceedings. Going by the
past trends, the treasury side would be happy if the opposition disrupts the
parliament proceedings on non economic issues like Curfew in J&K, phone
tapping by Israeli firm, NRC, pollution, onion prices etc.
As per a recent survey report by Bank of America - Merrill Lynch
(BAML), more than 90% of storekeepers in Mumbai indicated footfalls were lower
than the last year’s festival period.
Notwithstanding the all time high levels on benchmark stock
indices, it is almost a consensus view that "India is witnessing a sharp
slowdown due to waning consumption and businesses had pinned their hopes on
Diwali for a revival in sales. Purchasing managers surveys on manufacturing and
services activity for October indicate that demand in the economy is still
pretty weak."
The economists have drastically scaled down their estimates for
the GDP growth in 2QFY20 from upwards of 6.2% to the range of 4.5 to 5.5%. If
we consider the below par Diwali sales, the corporate commentary and the
erratic weather pattern which has disrupted both the agriculture and
construction activities, the forecasts for 3QFY20 may also require a great deal
of moderation. The growth for full year FY2020 is therefore more likely to be
closer to 5.5% rather than 6.5% as previously estimated. This will reflect
certainly reflect on the revenue collection as well, requiring moderation in
the fiscal balance.
The global scene also does not look very promising either. As
per the CITI Bank Global Research, in the current year (2019), the overall
world GDP is likely to grow at 2.7% (vs 3.2% in 2018). The growth rate for 2020
and 2021 is also expected to remain almost the same as 2019. The developed
industrial economies are expected to grow @1.7% in 2019 (vs 2.2% in 2018) and
slow further to 1.5% in 2020. The emerging economies may likely grow @4% in
2019 (vs 4.5% in 2018).
The global volatility and uncertainty may see sharp acceleration
in 2020 due to Brexit, US Election, Sino-US trade logjam and tense geopolitical
environment. The risks to the estimates therefore could be more on the downside
rather than the upside.
Considering this the Outlook for FY21 also does not look much brighter
at this point in time at least, notwithstanding the weekly dose of stimulants
being administered by the finance minister.
In my view:
(a) The earnings
recession that started from FY12 may continue through FY21.
(b) The fiscal constraints
may force government to increase net effective taxation; though the incidence
of tax may shift towards the wealthy from the middle classes. Expecting any
major tax relief from stock market perspective from Budget for FY21 may be
little unreasonable.
(c) The smaller doses of
stimulants being administered by the government and RBI at periodic intervals
may eventually prove to be counterproductive as with each such dose the ability
of the government and RBI to provide further stimulus is diminishing.
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