Moneycontrol Pro Weekender | Don’t worry, be happy 

India will remain an attractive investment destination even if its growth slips a bit from the RBI’s 6.5 percent forecast for FY24

Dear Reader,

GDP growth for the April-June quarter came in at a sizzling 7.8 percent year-on-year, which put a smile on the face of the markets on Friday. But most economists, diligent practitioners of the dismal science, merely said the growth was on expected lines and rapidly went on to enumerate the risks ahead.

Nomura Research economists voiced the concerns of most of them in the title of their report: ‘India: Strong growth in Q2, but can it sustain?’ Their forecast said, “Weak monsoons, higher food inflation, likely slowdown in government capex and sluggish global growth are all signalling a slowdown in domestic demand, going forward.’’ The 7.8 percent growth is as good as it gets. That was also probably what the Kotak economists meant when they headlined their report, cryptically: ‘1QFY24 GDP: Local Maxima’, helpfully explaining, “We expect GDP growth to have peaked out in 1QFY24 and growth rates will gradually taper off.”

That growth would peak in the April-June quarter was a foregone conclusion, simply because of the base effect, which we were at pains to point out here. Indeed, just to rub it in, we underlined that the Compounded Annual Growth Rate (CAGR) of real GDP between June 2019 and June 2023 is 3.2 percent.

What matters to most of us, though, is not the CAGR, but whether things are getting better now. And Moneycontrol Pro columnist Gaurav Kapur hit the nail on the head when he said the GDP numbers highlighted the strong momentum in the economy. On Friday, any doubts on that score were put to rest when the India Manufacturing Purchasing Manager’s Index (PMI) came in at a reading of 58.6, the second-best improvement in the health of the manufacturing sector in nearly three years.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said: "The PMI results for India painted a vibrant picture of the nation's manufacturing landscape in August. Robust and accelerated increases in new orders and production suggest that the sector looks set to provide a strong contribution to second quarter (fiscal) economic growth.” The press release said demand strength was pivotal to August's robust performance, spurring the fastest upturn in new orders since January 2021. Those strong order books, at the firm level, are seen in Va Tech Wabag and Gabriel India, for example. And if this is the strength of manufacturing, the PMI for services should be even better, if the trend of the past months holds. Clearly, the PMI numbers do not show any reduction of demand due to inflation.

To be sure, the India Manufacturing PMI was at 58.7 in May 2023 and that led to growth of a comparatively tepid 4.7 percent in manufacturing gross value added in the June quarter. It’s also true that much depends on the monsoons -- our Monsoon Watch column by Lekha Badlani-Jhamnani and Anubhav Sahu asked the crucial question: “Can September make up for the August break?” Also, one of our charts of the week headlined, ‘Lending Rates and the Transmission of Pain’ said interest rates in the economy are now tight enough to pinch not just consumption demand but investment decisions, too.

But here’s the thing -- even after factoring in all these concerns, most economists say their forecasts are only a bit below the RBI’s forecast of 6.5 percent growth for FY24. Indeed, if the government controls food inflation, which it has every incentive to do before the general elections, fears of lower consumption may come to naught. And the Economic Advisor to the Government of India has said private capex has already taken off. He should know.

The bottomline is that even if growth for the entire year slips a bit, it doesn’t really matter, simply because on a relative basis the Indian economy is shining. No economy came close to India’s 7.8 percent growth in the June quarter—the nearest was China’s 6.3 percent and we all know the problems associated with that economy.

That applies for the Manufacturing PMI for August as well. Compared to India’s 58.6, China’s was 51, Indonesia’s was 53.9, while the manufacturing PMIs for Japan, Australia, South Korea, Taiwan, Thailand, Malaysia, the Philippines, the UK and the Eurozone were all in contractionary territory, logging in below 50. And while it is true that the PMI is unrepresentative of the entire economy -- the RBI study of June quarter corporate results showed the smaller listed firms struggling -- it reflects the activity of the biggest firms, which is what matters most to the markets. Simply put, India will remain an attractive investment destination even if its growth slips a bit from the RBI’s 6.5 percent forecast for FY24.

Who knows, perhaps a bit of optimism may even help the economy. After all, it was John Maynard Keynes who said, “if we consistently act on the optimistic hypothesis, this hypothesis will tend to be realised; whilst by acting on the pessimistic hypothesis we can keep ourselves for ever in the pit of want.” Less pompously, singer Bobby McFerrin said the same thing in his hit song, ‘Don’t worry, be happy’, where he sang these words of wisdom:

“In every life we have some trouble

But when you worry, you make it double.”

Cheers,

Manas Chakravarty

Here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks 

Why this Mr Consistent deserves a place in any long-term portfolio, Ami Organics, Ruchira Papers, CSB Bank, KIMS: A guidebook for investors after the stellar stock run, Rishabh Instruments IPO, IMFA, Visaka Industries, SBFC Finance: Can this new kid find a foothold in the listed financial services space? Info Edge: IT hiring slowdown comes to the fore, Weekly tactical pick, Sirca Paints

Markets 

India’s F&O market is in a state of flux, how it will affect trading

In The Money: Enhancing the Naked Short Call via the Bear Call Spread

It’s time new-age traders woke up and smelt the coffee

Large caps hold sway over corporate profits

Rising capex, easing margin pressures: Are banks poised for a rerating?

Personal Finance 

The race for returns: How active largecap funds are acing the game

Understanding the approach to ace equity investing

Financial Times 

El Niño’s storm clouds gather over global food prices

Chinese companies’ earnings to lay bare impact of economic slowdown

India’s deal activity remains strong as clean energy demand rises

Superbugs: why it’s so hard to stop the ‘silent pandemic’

Corporate governance: shareholder votes stop directors from going overboard

UPS/FedEx: picking a delivery hero is a wager on wages

US should use chip leadership to enforce AI standards, Deep Mind co-founder says

Companies and industry 

Can Vedanta’s demerger proposal keep shareholders and promoters happy?

Is the Zomato rally sustainable?

NBFCs risk profitability if they binge on unsecured loans

What explains JSW Steel’s attraction for Teck Resources’ steelmaking coal business?

Sluggish e-2W sales puncture the hype

Container shipping industry to stay anchored for a while

Indian pharma firms reap the best of both worlds in Q1 FY24

Consumer firms’ ad spends rise but still below pre-COVID levels

Gokaldas takes Africa route to sidestep US duties

Power Grid

Why PE firms may find Cipla acquisition a different ball game

Steel output’s surprising jump in July is not what it seems

Economy 

Pro Economic Tracker

India’s deal activity remains strong despite startup funding winter

MSME growth needs to come to the rescue of gig workers

Geopolitics and geoeconomics 

ECB president quotes Kierkegaard at Jackson Hole to warn of policy risks

The North-South divide — India needs to balance heart with head

The Eastern Window: China’s dominance over South China Sea seriously challenged

Policy 

SEBI’s Brightcom order raises larger issues on regulation

India’s MSMEs need strategic government push to flourish

India’s bad bank is up to no good

Jan Dhan scheme—add more thrill to no-frill accounts

Can Swiggy, Zomato satisfy India’s jobs hunger?

India’s antitrust agency needs to be beefed up

Startups and Tech 

News Media vs Big Tech: The generative AI factor

Zepto is 2023’s first unicorn, but does it deserve to be one?

Others 

Is India ready for the WFH and hybrid workplace culture?