Dear Carnelian Family,
Wishing you and your loved ones a very happy & prosperous 2020.
What lies ahead
Let’s start with some flash back of events before moving to expectations from 2020.
Good Bye 2019!!!
2019 has been one of the toughest years for most people in their investing careers. It has been good for some and tough for many. We are sure most of us have been thanking that it’s over and look forward to the New Year with optimism.
Year gone by witnessed major events in India:
- After effects of NBFC crisis – a Lehman like scenario post IL&FS which led to many NBFCs, HFCs, Banks and corporate houses coming under serious stress
- Some of the large stressed Balance Sheets having contagious effect on the economy
- Negative developments like auto/real estate sales slump, real estate NPA issues, Telecom sector hue and cry, etc.
- Both direct and indirect tax collections have fallen leaving little room for fiscal stimulus
- US China Trade war has further added woes to the economy grappling with liquidity stress
- GDP growth rate at 6 year low
All this resulted into a constrained supply of credit which is oxygen for any economy and its growth, leading to loss of business and loss of jobs. This was probably the first time, investors incurred significant losses in the debt markets and mutual funds, which created wide spread panic and loss of trust. NBFCs were shrinking balance sheets, private banks became risk averse. Real GDP growth in Q2 plummeted to 4.5% (6 years low), also aggregate credit growth in Q2 down to 6% (lowest since FY 97).
Low inflation rate (WPI is almost zero) has further impacted nominal GDP growth rate (6 % for Q2 FY 20). With Inflation other than food under control, interest rates are coming down, however overall risk averseness has restricted supply of liquidity only to the stronger balance sheets despite of system being flushed with ample liquidity and decade low interest rates.
· - SIP inflows have been consistent all throughout (Investors have not participated in the fear psychology)
- General elections won by Shri. Narendra Modi led NDA, setting the tone for continuity of macro-economic policy actions initiated in the last 5 years
- Record FPI inflows - FPI inflows into India at approx. 1 trillion are highest in the last 6 years.
· Government’s proactive response: One thing which was constant during later part of 2019 was government and RBI’s prompt intent and action through various structural measures like:
- Corporate tax rate cuts - One of the lowest tax rates in the EM/APAC
- Rate cuts by RBI on a continuous basis
- Real Estate fund for last mile funding for stuck projects (A permanent solution to inherent ALM mismatch)
- Bank recapitalisation
- Partial guarantee scheme by government for NBFCs.<