Vijay Kumar Gaba

 Recently, the Reserve Bank of India published the results of the 83^rd round of the Survey of Professional Forecasters. In the latest Survey, professional forecasters have mostly reiterated their previous estimates. The forecasters have assigned the highest probability of the real GDP growth remaining between 6.0% and 6.4% during FY24 and FY25. No significant acceleration is expected in the growth in FY25.

The FY24 growth is seen to be mostly front-ended, with the real GDP expected to grow (y-o-y) by 7.5% in Q1FY24 and thereafter moderate to 6.2% in Q2, 5.9% Q3, and further to 5.5% in Q4. The participants were quite sanguine about the price condition remaining under control with CPI inflation averaging 4.7% in FY25. The trade situation is expected to deteriorate further in FY24, before recovering in FY25. The trade deficit is likely to be close to 1.5% in FY24 as well as FY25. No significant improvement is expected in investment and savings rates.

The key highlights of the latest survey of professional forecasters are as follows:

Growth

The real GDP may grow by 6.1% in FY24 and 6.5% in FY25. The growth in FY24 would be mostly front-ended with 1QFY24 expected to record a growth of 7.5%.

Private Consumption is expected to grow 6.1% in FY24 and 6.4% in FY25.

Investment may grow at 7.1% in FY24 and 7.4% in FY25. The investment rate maybe 31.1% of GDP in FY24 and 31.5% in FY25

Gross Savings Rate is expected to be 29.8% of National Disposable Income in FY24 and 29.9% in FY25.

Fiscal Situation

The fiscal deficit of the central government is projected to be 5.9% for FY24 and 5.4% for FY25. Total gross fiscal deficit (center + states) is expected to be 8.7% and 8.2% for FY24 and FY25 respectively.

Benchmark 10-year bond yields are projected to average 7% in FY24 and 6.6% in FY25.

Trade and balance of payment

The current account balance is forecast to be negative US$52.6bn (1.4% of GDP) in FY24 and US$61.7bn (1.5% of GDP) in FY25.

Imports may contract by 5% in FY24 and grow by 7.8% in FY25.

Exports may Contract by 5.5% in FY24 and grow by 7% in FY25.

Overall balance of payment surplus is expected to be US$24.1 in FY24 and US$16bn in FY24

Inflation

The headline CPI inflation is likely to average 5.2% in FY24 and 4.7% in FY25.

The WPI inflation may average 0% in FY24 and 4% in FY25.

 With each report announcing further success in the endeavors of developing an effective vaccine for SRAS-CoV-2 (previously termed Covid-19) infection, the level of anxiety amongst the stock market traders and investors is rising disproportionately. Most of them appear anxious to find the best trade for the “normalization”. The fact that in past two years, the returns on investment for most of the investors and traders have been sub optimal, is further fuelling the anxiety. Most of them appear to believe that first mover will make extra ordinary gains, while the slow movers will miss this once in a decade opportunity.

Recent discussion with market participants in India, US and Singapore, indicates that they are exploring a variety of ideas that could give extra ordinary return in next one year. Some of the common ideas include technology, healthcare and reflation. Logistics also appears to be fast emerging as one of the favored ideas.

The following are the arguments I have heard from market participants in support of their favorite ideas:

Healthcare: The outbreak of pandemic has drawn attention of global community towards the lacunae present in the global healthcare system. A significant added emphasis shall be given to preventive healthcare; and building of capacities to handle subsequent outbreak of novel viruses. The endeavor to develop vaccine for SARS-CoV-2 pandemic shall provide new dynamics to the collaborative research in the field of pharmaceutical. And of course, the vaccine for novel corona virus does hold material profit opportunity for developers in next many years.

In view of these, the healthcare sector as a whole present material business and investment opportunity for next many years. Personal hygiene, nutrition, supplements, testing, vaccination, medical equipment (for new capacity building as well as upgrade of existing facilities) are some specific opportunities that are being talked about by investors.

Traders are however more interested in “the vaccine” for SARS-CoV-2 that will give immediate revenue to the developers and distributors.

I am inclined towards the investing opportunity in the healthcare sector, but I am not sure about the trading opportunity. In my view, pandemic is a highly sensitive political issue globally. Profiteering from vaccine will be difficult. In Indian context for example, the government has already indicated free vaccine shots for citizens. This means that the procurement of vaccine will be on government tender basis. Making extra ordinary profit in such a scenario will be difficult in my view.

Technology: The pandemic has definitely changed the way we live, work, and travel. Much of these changes may stay. Changes in technology platforms to incorporate the new digital protocols, consolidation of businesses and integration of processes, working from remote locations, need for higher security of data and IPR, in addition to the ongoing shift towards AI and digital, has created tremendous investing opportunity in technology sector.

Again, I am inclined towards investing opportunity in the technology sector, especially IT services; but given the fact that most of the low hanging fruits have already been plucked, I am not sure about the trading opportunities.

I have already written about my views on the so called reflation trade (see Hyperinflation - Highly improbable and Rush to gold as safeguard from hyperinflation could be quixotic

Logistics is a tricky area. I need to explore this a bit more. I shall share my thoughts on this in some later post.