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Economic Survey 2020: Slow recovery on cards but market unlikely to react

For FY20, gross domestic product growth is forecast at 5 percent, which is in line with the Central Statistics Office's projection.

January 31, 2020 / 04:56 PM IST

The Economic Survey 2020, tabled on January 31, expects the second half of FY20 to be better and pegged economic growth at 6-6.5 percent for the financial year 2020-21.

The survey put FY20 gross domestic product (GDP) growth at 5 percent, which is in line with the Central Statistics Office's (CSO) projection.

The survey pointed out that 2019 was a "difficult year" for the global economy, with the growth at its lowest since the 2008 global financial crisis.

Slow economic recovery

The survey indicates that the economy is on the mend but at a slower pace, say analysts and economists.

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"The survey shows that the economic recovery is likely to be slow and shallow despite recent measures to boost investments such as the National Infrastructure Pipeline," said Anagha Deodhar, Economist, ICICI Securities.

Downside risks to the forecast emanate from continued trade tension, risk aversion by banks and crowding out of the private investment. However, positive factors such as government’s thrust on affordable housing, reduction in a corporate tax cut, improvement in ‘ease of doing business’ are likely to support growth, Deodhar added.

Karan Mehrishi, Lead Economist at Acuité Ratings & Research said the expectation is that the recovery will start from the second half of FY20, marking the start of a 12 quarter business cycle.

"The recent reforms such as the public sector bank mergers, enactment of the IBC along with GST led formalization have seen off the initial challenges and are expected to fuel the recovery going forward. The need for augmenting fixed investments by households along with the public and private sector has also been pointed out," Mehrishi said.

"The survey pegged the FY2021 growth at 6-6.5 percent, which seems slightly on the higher side, even though it clearly outlines the need for counter-cyclical fiscal policy in order to create additional fiscal headroom. This possibly sets the base for higher-than-budgeted FY2020 GFD/GDP as well as deviation from the fiscal glide path in FY2021 too. We expect GFD/GDP at 3.8 percent in FY2020 and 3.7 percent in FY2021," said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.

Shrikant Chouhan, Senior Vice-President-Equity Technical Research, Kotak Securities, is of the view that India has lowered GDP forecast by almost 1 percentage point, which is significant but would compel government to work up strong reforms.

How will the market read it?

The growth projection is mostly in line with the expectations and experts are of the view that the market may not react to it.

"The market is not expected to react to this number since it does not surprise on the upside or downside. The focus will only be on the Budget proposals tomorrow," said Vinod Nair, Head of Research at Geojit Financial Services.

Nair is of the view that the Nifty may touch 12,700 level in the next one-year timeframe.

A senior research analyst at Reliance Securities sees some positive signs in the survey's growth projection.

"The economic slowdown in India is also with respect to the world economic slowdown and domestic declining credit. The FY21 GDP growth is being seen at 6-6.5 percent with respect to the increase in private investments in various sectors followed by consumption yielding to growth. It reiterates the government to focus on doubling farmers' income by 2022 and is committed to supporting MSME sectors," said the analyst.

The analyst added that the market should see a positive up move from the current levels as a correction had already been witnessed before the Budget.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

 
Nishant Kumar
first published: Jan 31, 2020 04:56 pm

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