Shepherding The Indian Economy
The RBI has steered the Indian economy like Sunil Gavaskar shepherded the Indian cricket team in his debut series against fearsome West Indies fast bowlers. Inflation is within the target range and on a downward trajectory. Growth is the fastest among major economies. Banking NPAs are decadal low. Rupee is stable. Forex reserves are the fifth-largest in the world and on an upward trend. Real interest rates are positive and give elbow room to cut if needed to support growth. I would not be surprised if Nobel laureate Joseph Stiglitz repeated his comment that the US would not be in deep trouble if Shaktikant Das were the Chairman of the US Fed.
The RBI and the government is doing a jugalbandi like Pandit Hari Prasad Chaurasia and Ustaad Zakir Hussain. The fiscal deficit is high to fund Covid expenses, but India's debt-to-GDP ratio improved between the subprime crisis in 2008 and the Covid crisis in 2022. Infrastructure build-up in ten years between 2014 and 2024 will be more than that built in 67 years between 1947 and 2013 through higher allocation and speedier execution. The trade deficit was a worry a few months ago but is under control with booming services exports and becoming an exporter from an importer in sectors like mobile phones and toys. The monsoon is likely to be impacted by El Niño, but the damage should be bearable with proactive steps by the government. K-shaped recovery is a cause of concern, with consumption at the bottom of the pyramid not growing as much as at the top. Hopefully, by capturing China+1 opportunity, India can create many jobs to benefit the bottom of the pyramid.
Markets Moving in Tandem
Stock markets too are reflecting this jugalbandi. SIP in equity funds has kept indices supported. FPIs realise that there is no market like India with a combination of 3G -- growth, governance, and green. They have also learned that in all other markets entry is easy and exit is difficult, but in India exit is easy (could take out $35 billion between October ’21 and June ’22). Still, entry is difficult (markets are higher with just one-third of flows). India is becoming a low beta/defensive market as volatility caused by the FPIs is counterbalanced through mutual funds.
When flows (domestic as well as global), sentiment (positivity of entrepreneurs), and fundamentals (growth and governance) come together, markets have limited downside and higher upside for long-term investors.
The markets undoubtedly will go up and down with events like Fed pivot and the general elections.
Long-term investors will make money if India maintains the “Triveni Sangam” of better earnings growth, governance, and green commitment than peers.
Maruti Suzuki best illustrates the story of India. Since its listing in 2003, it has delivered more returns in 20 years (in $) than major Japanese automakers (Honda, Toyota, Suzuki, and Nissan) combined, Major German automakers (Volkswagen and Mercedes Benz) combined, and major Korean automakers (Hyundai).
Once in a while, in the Maruti factory, a leopard visits. Without getting perturbed, they call wildlife authorities, send the leopard back to jungle, and resume the manufacturing of cars.
Investors will have to be like Maruti management. Stay calm with events like Covid 19 or the subprime crisis. Stay invested and reap the rewards of India's growth story.
