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Thursday, November 26, 2015

Indian economy poised to take off – a guest post

The stock market has been in a down trend for almost 9 months. FIIs have turned sellers. Already some experts are predicting a long bear market.

The economy seems to be in doldrums. Corporate revenues and profits are sliding. Investments are yet to pick up.

Amidst the doom and gloom, Nishit has identified several signs of an economic revival. He enumerates them in this month’s guest post.

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The Indian economy is showing signs of ‘green shoots’ and we are in the take off stage right now. Let us see the leading indicators to see if we are about to see good growth:

  1. Fuel consumption has increased which is always a sign of pick up in industrial activity. Goods transport has increased.
  2. The Automobile industry is showing signs of revival. When people have money to spend, they buy cars.
  3. The Capital Goods space is showing good traction at the moment. Capital goods space always does well when industrial activity increases.
  4. The IT industry is showing good results. It has been the sector employing maximum people in last 15 years. Affluence of the new IT middle class will lead to increase in consumption.
  5. Low fuel prices mean that a major inflationary pressure is off. I see at least 100 basis points (1%) cut in interest rate over the next one year.
  6. Low Interest regime is conducive to growth. Borrowings increase, industrial activity increases. It is a self-feeding economic cycle. The interest cycle has yet to bottom. The bottom of the rate cut cycle often coincides with a bull run taking place. In March 2009, the rates bottomed and the markets picked up.
  7. The building blocks are in place for a super bull run for the next 5-8 years. This correction is the last buying. opportunity. I see a scenario similar to the one in 2002-2003. The rest is history.
  8. History often is a roadmap for the future. With good governance, favourable economic conditions globally and conducive domestic growth factors, this is a Black Swan event.
  9. Tax collection has increased. This means there is uniform tax collection. I would say increase the Service Tax t o 16% so all bear the burden and reduce Income Tax slabs, do away with exemptions, simplify the tax structure.

We all know what happens when a Black Swan event happens. Nifty may go down to 6800 to 7200, but eventually we are headed to 10500 minimum on the Nifty and over the next 10 years we may even touch 18000 to 20000 - which will be the end of the super cycle as per Elliot wave analysis. Nations take birth, grow, mature and fail. This is true for everything in life, the time span differs. India’s time is now. The next 10 years will be India’s golden age and the party is just about to begin.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan. You can reach him at nish.stockid@gmail.com)

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