The Indian economics is definitely in the primary stages of an upward swing as the wholesale inflation in India has slipped a lot deeper towards the negative zone to hit an all time nine year low and thereby raising hopes for another rate cut as soon as the data projected consumer inflation also eased unexpectedly despite of the unseasonal rains triggering the upside price rise of the vegetables!!! The price index dropped by 2.06% in this February and by 2.33% in the wholesale market in this march.
The core inflation slipped to a sub-zero levels hinting at a weak domestic demand, this decline of the wholesale price was repeated for the fifth month in a row as the inflation is at the lowest level in the current series which commenced in the year 2005. The consumer inflation fell from 5.37% in February to 5.17% in this March which is actually keeping well below to the target of 6% set by the Reserve Bank of India.
So the out of cycle turn rate cut just cannot be ruled out in the coming months and so also a cut in the policy rates is also on the cards as the inflation figures are well within the tolerable limits, and as such the cut in the rates will only help in stimulating the demands and so another downward revision in the repo rate before June 2015 is expected. After cutting rates twice by the 25 basis points in the January and then again in the March was also an out of turn policy move.
Even the industrial growth rose to the three month high of 5% in the February but on the other hand the continued contractions in the production of the consumer durables suggests a weak consumer sentiments and this fragile mindset of the sentiment would drastically improve if the loans become cheaper. Even the home loans have come to sub 10% levels after many years, and the Indian economy is surely expected to grow over 10% soon beating the projections assessed by the IMF, World Bank as well as the Government of India.
All said and done as the high growth projection is not corroborated and aligned with the high frequency indicators like the industrial production and the figures of the car sales which rose to 2.64% in this March. To add to it the unseasonal rains, and a poor monsoon EL-Nino and the Fedral Reserve interest in the offing casts a risk on the agriculture sector, further the government of India has announced a proactive food policies and the benign global commodity prices are also likely to keep the inflation within the RBIs satisfactory limits.
As such most of the companies were entangled in the debt net and so also had bloated balance sheets by the financial yearend of 2013, now we witness twin effects of both the investments as well as expansion backed up by the higher profitability through cost cutting as well as the capex reduction over the last few years. All this reflects the external as well as the domestic inflationary fundamentals only indicates that India has recovered from the doldrums; downturn trend has ended and is on the way to blossom out in the near future, moreover the business cycle upswing is still in its toddler stage. The overshooting of the rupee and the fact that the money and the credit indicators are showing the surge and this was not the political result induced one year rally but it is one decade rally.
The investment activity should be the natural consequence of the companies and the entrepreneurs who spot and realize the profitable opportunities. Both the improved profitability and the profitable opportunities will trigger the fresh round of the investment spending and once the recovery gathers the steam the growth is surely headed for a post ten percentage. At this point of the time the industrial stocks and the deep cyclicals would be the best bet because the global high conviction call Is based on the BSE 500 rather than the sensex or the nifty. It is a bit of a concern that the bad loans and the stressed projects and so also the stranded major infrastructure projects need to be seriously reviewed and also resolved, and the major infrastructure projects on the priority are power, road, shipping and the steel.
India has the best investment climate as compared to its peer BRIC nations -- Brazil, Russia, India and China because of the random drastic measures to change the regulatory and the tax related challenges are impacting the immediate investment plans on board. The investors are taking into the account the India’s growth potential, the huge size of the Indian market and the potential of the country to attract the FDI. So get ready for a big decade of huge upswing.