JP Morgan chief economist forecasts 'strong rebound' in Indian markets

The economic wounds will be "deeper than anything we've seen since World War Two", says chief economist at JP Morgan.

Global investment bank JP Morgan is forecasting a "very strong rebound" in Indian markets for the second half of the year while it remains "worried" about what it describes as deterioration in the country's public finances, social disruption and the limits of public financing in the long slog back from the coronavirus crisis.

"India is going to be going through a very difficult first half of the year. We have GDP down in the second quarter, 35 per cent annualised pace but we have a very strong rebound in the second half of the year, but one that still doesn't get you back to where you were," said Bruce Kasman, chief economist at JP Morgan, news agency IANS reported.

Kasman leads a team of thirty economists worldwide who set the bank's economic and policy views.

Globally too, JP Morgan warned on Tuesday that whatever rebound happens in the second half of 2020 won't be strong enough to undo the damage absorbed during the first deadly blow from Covid-19.

The economic wounds will be "deeper than anything we've seen since World War Two", Kasman said. "At the same time, it's going to be very short lived."

Kasman thinks the Reserve Bank of India is "almost done but not completely done" with the easing of its key interest rate.

"We have a bottom in the policy rate forecast, 3.75 (per cent) very close to where we are now, Kasman said.

India's central bank has cut its key interest rate to 4 per cent to counter the economic blow from the coronavirus pandemic.

Income and job losses are going to have a "lasting effect" on consumer behaviour, Kasman said.

Fitch Ratings, CRISIL, SBI Research see India economy shrinking in FY21

CRISIL said it expected the current quarter's GDP to shrink 25 per cent year on year.

Fitch ratings, CRISIL, and SBI Research have drastically cut India’s economic growth forecast in the current fiscal year due to a prolonged lockdown. While both Fitch and CRISIL projected the economy to contract 5 per cent, from their earlier estimates of the economic growth at 0.8 per cent and 1.8 per cent, respectively, SBI Research slashed economic contraction to 6.8 per cent from earlier 4.7 per cent.

CRISIL said it expected the current quarter’s GDP to shrink 25 per cent year on year.

In its latest report, CRISIL said it would really be a long road to recovery and going back to the pre-Covid-19 trend level of gross domestic product (GDP) in India will not be possible for the next three fiscal years. The lockdown extension, higher economic costs, and an economic package that lacked muscle are the three key reasons why CRISIL has downgraded the GDP forecast.

ALSO READ: FY21 GDP to contract 5%; pre-virus level unlikely in next 3 fiscals: Crisil

“The economic costs, now beginning to show up in the hard numbers, are far worse than our initial expectations. Given one of the most stringent lockdowns in the world, April could well be the worst-performing month for India this fiscal year,” it said.

Though the agency expects non-agricultural GDP to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent in FY21, CRISIL said.

SBI also calculated GDP growth taking bottom-to-top approach than earlier top-to-bottom one. As such, group chief economic advisor Soumya Kanti Ghosh estimated the district-wise, zone-wise loss in GSDP for each state and found that total GSDP loss due to Covid-19 for states stands at Rs 30.3 trillion, which is 13.5 per cent of total GSDP.

Defensives versus high beta. What should your stock strategy be?

While JP Morgan believes 'cash is king' given the uncertainty that lies ahead, selective buying from a long-term perspective can be done in defensive plays.

With the frontline indices – the S&P BSE Sensex and the Nifty 50 – crashing over 35 per cent from their peak levels given the rampant spread of coronavirus (Covid-19) pandemic across the globe, most analysts remain cautious on the road ahead for the markets. Going ahead, they believe the markets will track developments related to the progress of the health scare and how effectively can the governments combat it.

That said, they do believe long-term investors with risk appetite and those who can digest volatility can start nibbling at stocks given the attractive valuations.

So, what should your stock strategy be? Is it better to allocate more towards defensives or look at high beta names that can deliver handsome returns once the markets recover?

While JP Morgan believes ‘cash is king’ given the uncertainty that lies ahead, selective buying from a long-term perspective can be done in defensive plays. Before investing, investors must evaluate companies carefully and put money in stocks of only those companies with strong balance-sheet and earnings visibility despite the Covid-19 health scare, they suggest.

“The backdrop of a sell-off across asset classes led by COVID-19 fears means our strategy is set with the primary objective of capital preservation with cash in hand until volatility recedes. We would be selective buyers within Indian equities, albeit with a defensive bias. Our preferred sectors are consumer staples, healthcare, large retail private sector banks and utilities,” wrote Rajiv Batra, Kevyn H Kadakia and Sahil Dhingra of JP Morgan in a recent report.

Budget 2020 was disappointing for lacking vision, says Ashima Goyal

However, the finance minister has achieved a "balancing act" through her moves, Goyal said.

The Union Budget was “disappointing” as it lacked a vision, though measures like relaxing the fiscal deficit target and simplifying income tax are positives, the PM’s economic advisory council member Ashima Goyal has said.

Goyal, who is a part-time member of the Economic Advisory Council to the Prime Minister (EAC-PM), also said that it was a “surprise” not to have a mention of the word ‘slowdown’ in the nearly three-hour long speech by Finance Minister Nirmala Sitharaman.

The Budget document is a “balancing act” between fiscal stimulus to drive growth and the need to be responsible on spending, she said at the Indira Gandhi Institute for Development Research here over the weekend. “Overall it (Budget) was disappointing because they didn't bring out the vision as a first real budget of a new government. It had to give a vision,” she said.

India’s GDP growth is expected to slip to a decadal low of 5 per cent this fiscal, pressured by domestic factors like drop in consumption, as well as global issues.

She said Sitharaman was in a “catch-22” situation from the word go in the Budget making process, wherein any action would have left someone unhappy. However, the finance minister has achieved a “balancing act” through her moves, Goyal said. She elaborated that by adopting the ‘exit clause’ under the Fiscal Responsibility and Budget Management (FRBM) Act, the government gave a stimulus to growth and yet affirmed commitment to rules against fiscal profligacy.

To drive the point further, she said a 0.5 percentage point relaxation in fiscal deficit target offered under the exit clause makes lot of resources available, considering that the overall size of the economy is nearly $3 trillion.

Goyal also welcomed the government's resolve not to adopt policies similar to the response following the 2008 financial crisis.

World Bank pegs India's FY20 GDP growth at 5% as credit weakness lingers

In the report's India section, the World Bank said tighter credit conditions in the non-banking sector are contributing to a substantial weakening of the domestic demand in the country.

The World Bank has projected a five per cent growth rate for India in the 2019-2020 financial year, but said it was likely to recover to 5.8 per cent in the following financial year.

The growth rate for Bangladesh has been projected to remain above seven per cent through the forecast horizon and, in Pakistan, it is projected to languish at three per cent or less through 2020 as macroeconomic stabilisation efforts weigh on economic activity, the bank said in its latest edition of the Global Economic Prospects.

"In India, where weakness in credit from non-bank financial companies is expected to linger, growth is projected to slow to five per cent in fiscal year 2019/20, which ends March 31, and recover to 5.8 per cent the following fiscal year," the World Bank said on Wednesday.

The global economic growth is forecast to edge up to 2.5 per cent in 2020 as investment and trade gradually recover from last year's significant weakness, but downward risks persist, it said.

The US' growth is forecast to slow to 1.8 per cent this year, reflecting the negative impact of earlier tariff increases and elevated uncertainty. The Euro area's growth is projected to slip to a downwardly revised one per cent in 2020 amid weak industrial activity, the bank said in the report.

"With the growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth, which is essential to poverty reduction," World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu, said.

"Steps to improve the business climate, the rule of law, debt management, and productivity can help achieve sustained growth," Pazarbasioglu said.

In the report's India section, the World Bank said tighter credit conditions in the non-banking sector are contributing to a substantial weakening of the domestic demand in the country.

Business Standard

Seeking turnaround, PM Narendra Modi likely to review ministerial work

The PMO will appraise the departments on their performance over the last six months, and will seek solutions to revive growth.

ECONOMY & POLICY : Over the coming few weeks, Prime Minister Narendra Modi is likely to review each department and ministry’s work to evaluate their performance. The review could culminate in seeking inputs from them to turn around the economy, after the country witnessed its worst slowdown in 26 quarters in the second quarter of 2019-20.

Starting Friday, Narendra Modi and his top officials in the Prime Minister’s Office (PMO) will be briefed by various central ministries and departments on their plans as well as agenda for the next five years. They will also apprise the PMO of the work they have done so far in realising the agenda of government’s second term in office.

According to sources, the PMO will appraise the departments on their performance over the last six months, and will seek solutions to revive growth. The commerce and industry ministry, among others, will present its report card to the PMO on Friday.

A part of the performance review started last month

during the Council of Ministers meeting, with a few key ministries such as agriculture and aviation making their presentations.

The fresh set of review meetings are scheduled to take place on January 3 and 4, 7 and 8, and 13 and 14, depending upon the time taken by each ministry, Business Standard has learnt from government sources.

Officials said there is some talk that the exercise could form the basis for some sort of rejig of portfolios of ministers, but this could not be separately confirmed. The stock-taking exercise could also throw up valuable inputs for the upcoming Union Budget.

Gross domestic product (GDP) growth fell to 4.5 per cent during July-September. The finance ministry had said the slowdown has bottomed out and that it expects a gradual recovery from the October-December quarter. Others disagree.

The Reserve Bank of India now sees GDP growth for the first financial year under the second Modi government at 5 per cent, compared to the 6.1 per cent it projected earlier. While the finance ministry hasn’t put out any revised estimates, officials say it is in line with the RBI.

If GDP growth for the year does come in at around 5 per cent, it will be the slowest growth rate since 2008-09.

Bengal to Rajasthan: It's crunch time for states' finances as economy slows

Outstanding debt of states has risen over the last five years to 25% of GDP, posing medium-term challenges to its sustainability.

India’s sharp slowdown is endangering the fiscal deficit targets of its states, threatening to unravel progress made over the past few years and driving borrowing costs higher for some of them.

The states have budgeted a consolidated fiscal deficit target of 2.6% of gross domestic product in the financial year ending March, a recent study by the Reserve Bank of India shows. While the deficit ratio has remained within the mandated threshold of 3% of GDP in the previous two years, doubts are growing about their ability to meet the latest goal.

Any slippage could see India’s overall public finances come under pressure and raise the risk of a downgrade by rating companies. Only last month, Moody’s Investors Service cut the nation’s credit rating outlook to negative, citing a litany of problems from a worsening shadow banking crunch and a prolonged slowdown in the economy to rising public debt.

Outstanding debt of states has risen over the last five years to 25% of GDP, posing medium-term challenges to its sustainability, according to the RBI study. India’s gross general government debt—including federal and states’ borrowings—stood at 69% of GDP, higher than China’s 55.6%, according to the International Monetary Fund.

That spells bad news for states’ borrowing costs. The yield on 10-year bonds sold by West Bengal, which has one of the lowest deficit ratios among India’s 28 states, rose to 7.29% in December from 7.06% in July, data compiled by Bloomberg News show. That’s still lower than the 8.21% at the beginning of the year, as yields tracked the RBI’s aggressive interest rate cuts.

Despite attractive yields on states’ debt that carry an implicit sovereign guarantee, there’s little interest from global funds -- which have used only 2.2% of the 612-billion rupee ($8.6 billion) investment limit available to them in such notes. Part of the reason, according to fund managers, is a lack of price differentiation between the better-run and poorer states

Business Standard

Relax fiscal deficit limit from 3% to 4% of GDP, states ask Sitharaman

State FMs had met Sitharaman for a pre-Union Budget interaction.

Business Standard : Some state governments have asked Union Finance Minister Nirmala Sitharaman to raise their permissible fiscal deficit limit, from the current 3 per cent of gross state domestic product (GSDP) to 4 per cent, after adjusting for inflation.
"The biggest take-home from the pre-Budget discussion of the FM (Sitharaman) is a suggestion by Bihar and Kerala to raise (this) limit," tweeted Kerala Finance Minister Thomas Isaac.

State FMs had met Nirmala Sitharaman for a pre-Union Budget interaction. "This suggestion was agreed to by a large number of states," Isaac tweeted further. "In the current year, the real expenditure of states will decline -- a crazy macro outcome in a time of recession."

States are required to borrow from the market to the extent that their fiscal deficit breaches three per cent of GSDP, under the Fiscal Responsibility and Budget Management rule. In case it does, certain funds from the Centre come at a higher cost.

The states acknowledged having received Goods and Services Tax compensation for August and September, and asked that the Centre now give it for the next two months. They also raised issues pertaining to their respective areas. Jayant Patil, new FM of Maharashtra, asked for Rs 14,400 crore for relief and rehabilitation in the calamity-hit areas. He said the Centre had given Rs 4,400 crore to the state for August and September and it was yet to receive Rs 4,200 crore for October and November.

Delhi Deputy Chief Minister Manish Sisodia and Puducherry Chief Minister V Narayanasamy raised the issue of lower devolution of central funds to them, they being Union territories (UTs), not states. Sisodia also raised the issue of funding of centrally sponsored schemes (CSS). He said a committee had recommended 100 per cent central funding for CSS in UTs with a legislature but the Niti Aayog had refrained from doing so.

Sisodia also wanted Punjab, Haryana and Uttar Pradesh be given funds to subsidise farmers to ensure the latter do not burn their crop stubble, which causes pollution over Delhi.

Narayanasamy demanded that farm loan waivers be announced, with Centre and states sharing the burden.

Madhya Pradesh commercial taxes minister Brajendra Singh Rathore also raised the issue of reduction in funds for CSS.

Can Modi reinvent himself a third time and deliver structural reforms?

Mismanagement at home and increasing protectionism abroad have ensured that India has dropped out of that group of fast-growing emerging economies.

Business Standard : It’s now official: The Indian economy is suffering through a major slowdown, and one that shows no immediate sign of easing.

The only surprise is that the estimate for growth in gross domestic product last quarter isn’t even lower than the announced 4.5 per cent. When the Narendra Modi-led government presented its first budget after being re-elected, it expected growth in 2019-20 to be around 7 per cent. A few months later, the Reserve Bank of India slashed that to 6.1 per cent. It is hard, now, to see how even that rate — relatively slow by India’s past standards — will be achieved.

Hidden in the disaggregated numbers is the story of what has gone wrong. Investment has collapsed. It contracted 3 per cent in real terms last quarter, after growing almost 12 per cent in the same quarter last year. What has grown faster is government spending. It may have been responsible for as much as 40 per cent of whatever growth India did have.

Since early in his first term, Modi has largely abandoned his campaign promise to get government out of business. Instead, he’s relied on the public sector to build a welfare state and prop up growth. In the heady years, as falling oil prices flattered Indian growth and fattened the treasury, it looked like his strategy was working.

But the money is rapidly running out. Including spending by provincial administrations, the deficit is approaching 8% of GDP. Claims that public spending would make investment more attractive for the private sector have not been borne out. There simply isn’t enough money to go around — with the government taking the lion’s share of financial savings, private investment has to be content with the meager leavings.

India’s government has nobody else to blame. The economy has slowed in the past — most recently, during the commodity boom and the “taper tantrum” — but on each such occasion there was some sort of exogenous calamity it had to deal with. There hasn’t been a bad monsoon, or sudden commodity price inflation, or a balance-of-payments crisis. The world economy isn’t exactly booming, yet export-oriented economies like Vietnam and Bangladesh seem to be doing fine. Vietnam grew at 7.3 per cent in the last quarter, and Bangladesh may see two successive years of 8 per cent growth.

Mismanagement at home and increasing protectionism abroad have ensured that India has dropped out of that group of fast-growing emerging economies. It’s fashionable in India to worry about slumping consumer demand and blame it for the slowdown.

As news goes from bad to worse, Modi govt scrambles to revive the economy

Finance Minister Nirmala Sitharaman said this week she's not closing the door on additional steps to support the economy.

Business Standard : The bad news is getting worse for India’s economy and Prime Minister Narendra Modi is exhausting all options to stem the fallout. Data on Friday will likely show the economy had its weakest performance last quarter in more than six years, with the growth rate dropping below the symbolically important 5% mark. It’s a culmination of several months of downbeat figures, from plunging car sales to shrinking factory output and an export slump.

Having left much of the stimulus burden to the central bank early this year, Modi is now taking bolder steps to reverse the decline. In recent months, the government has slashed corporate taxes, set up a special real-estate fund, merged banks and announced the biggest privatization drive in more than a decade. While authorities are committed to doing more, the policy room may be narrowing. “Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy,” said Taimur Baig, chief economist at DBS Group Holdings Ltd. in Singapore. “Production and sales are under pressure, and public spending is running out of room due to poor tax collection.”

Why in India, 6% Economic Growth Is Cause for Alarm: QuickTake

Friday’s eagerly awaited data will probably show gross domestic product grew 4.5% in the July-September period from a year ago, according to the median estimate of 41 economists surveyed by Bloomberg. That would be the slowest pace since the March quarter of 2013. India was the world’s fastest-growing economy until last year, posting quarterly growth rates of as high of 9.4% in 2016. A crisis among shadow banks -- a key source of funding for small businesses and consumers -- weak rural spending and a global slowdown have since conspired to bring down growth steadily.

“The nature of the slowdown is broad-based, with consumption as well as investment oriented sectors feeling the pain,” said Indranil Pan, chief economist at IDFC First Bank Ltd. in Mumbai. “Continuing poor domestic sentiment along with the lack of any demand uptake globally would ensure that any recovery process would only be gradual.”

Aggressive Easing

The Reserve Bank of India has already cut interest rates by 135 basis points this year to the lowest since 2009, with more easing to come. The central bank is expected to look through the recent breach of its 4% medium-term inflation target and deliver another rate cut on Dec. 5. India’s Central Banker Das Faces a Tough Balancing Act (1) “The onus is on the government to do the heavy lifting,” said Devendra Pant, chief economist of India Ratings and Research, a local unit of Fitch Ratings Ltd..

GDP growth seen slipping under 5% in Sep quarter; may be in 4.2-4.7% range

A look at six indicators shows all of them have collapsed from positive growth in April to contraction in Sept.

Finance minister Nirmala Sitharaman told the Rajya Sabha on Wednesday the country was not in recession yet, and won’t ever be.A set of data arriving in a day may qualify the statement to some extent. The Ministry of Statistics and Programme Implementation (MoSPI) will release the data on gross domestic product (GDP) for the July to September quarter of the fiscal year 2019-20 (Q2FY20) on Friday.

Raising slowdown concerns, economists whom Business Standard earlier spoke to have concurred on one thing: The growth in GDP in Q2 would be between 4.2 and 4.7 per cent, slower than the 5 per cent achieved in Q1.

The actual data could be more serious as the lowest-ever quarterly growth clocked since 2012-13 (when the new GDP series began) was 4.3 per cent, in the March quarter of FY13, when India was battling high inflation and political turmoil, in addition to pressures from the global economy.

Representative data for the July-September quarter proves their point to a great extent. A look at six indicators — imports, exports, rail freight earnings, electricity and diesel consumption, and overall industrial production — shows that all of them have collapsed from positive growth in April to contraction in September.

These indicators are a collage of manufacturing and services sector indicators in the country, encompassing a substantial part of the economy.

While the growth in Q1 was 5 per cent with positive leading indicators, Q2 has been characterised by all indicators in red. Port traffic too has stagnated, growing 0.4 per cent in the April–October period, entirely brought down by a severe contraction in coal imports.

Growth in consumption of fast-moving consumer goods, such as shampoo sachets and coconut oil, has weakened to 2 per cent in Q2FY20, with the stress concentrated in north Indian states.

Shubhada Rao, chief economist at YES Bank, told Business Standard that except services propelled by the government’s budgetary funding, all the sectors of the economy are a drag on growth in the September quarter.

But she also said that the Indian economy is going through a transition phase, and some near-term impact was expected.

Why delivering a big bang package of reforms is doable for Modi govt

The important thing is to signal to the market that the government is serious and ambitious.

Business Standard : The Indian economy keeps on easing back. The month to month Index of Industrial Production tumbled to an eight-year low in the period of September, shrinking by more than 4 percent. As indicated by India's national bank, development in bank credit to ventures around the same time tumbled to 2.7 percent, the most reduced in a year. While the numbers for administrations are somewhat better, even they remain at a two-year low.

Market analysts have little confidence that things will pivot alone. The administration urgently needs to resuscitate speculation. The best way to do so is to grasp something it's dodged so far: a genuine change "huge explosion."

Budget 2020

Authorities can sincerely say that they've executed a lot of changes since Prime Minister Narendra Modi first came to control in 2014. In his first term, the administration initiated another liquidation code and an across the nation merchandise and-enterprises charge. It's recapitalized and solidified state-possessed banks. In September, it sliced corporate assessment rates from 30 percent to 22 percent for existing organizations and to only 15 percent for new organizations; that at long last makes India focused with the remainder of Asia. The administration likewise declared alleviation measures for the focused on land division and disclosed new discounts for exporters.

Modi plainly lean towards a steady way to deal with change, one that diminishes the odds of a political kickback. He needs to fear supporters as much as, if not more than the profoundly debilitated resistance. Powerful voices inside the decision Bharatiya Janata Party and its subsidiaries firmly contradict clearing exchange accords, for example, the Regional Comprehensive Economic Partnership (RCEP) and the privatization of state-claimed organizations.

While supportive, however, these measures without anyone else's input aren't sufficiently able to restore the creature spirits of Indian and remote financial specialists. India's issues are just excessively profound. The profits from the constrained changes did during the 1990s and mid 2000s have dwindled. The nation is progressively incorporated with the worldwide economy - it's consented to organized commerce arrangements with Southeast Asian countries, Japan and Korea - which just features its absence of aggressiveness.

Financial specialists, including Indians who have more alternatives now in view of extensive capital record progression, may think that its increasingly gainful to put somewhere else in Asia. This is especially valid for assembling yet additionally of administrations: Even in zones, for example, data innovation, where India was at one time a world-blender, rising wages have made it a less appealing spot to work together.

At 6%, UN body projects 7-year low GDP growth for India in 2019

The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

The United Nations Conference on Trade and Development (UNCTAD) has pegged India’s economic growth rate at a seven-year low of 6 per cent in calendar year (CY) 2019. It also highlighted the pitfalls of shadow banking in countries such as India and China, citing the example of Infrastructure Leasing & Financial Services (IL&FS).

The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

India’s economy grew 7.4 per cent in CY18. It grew below 6 per cent in 2012 — called the policy paralysis year — under the UPA 2 government.

“Growth projections for India have been marked down because of a sharp fall to 5.8 per cent in the first quarter of CY19 (relative to the corresponding quarter of the previous CY),” said UNCTAD in its trade and development report for 2019.

It should be noted that UNCTAD did not take into account an over 6-year low economic growth rate of 5 per cent that the country recorded during the second quarter of CY19.

Highlighting the risks of shadow banking, it said such institutions were fragile alternatives to public banks and development finance institutions, as the roles of the latter were reduced or done away with, as part of liberalisation.

Quoting a study, UNCTAD said an example of this development was Infrastructure Leasing & Financial Services (IL&FS), which sourced capital using short-term instruments such as commercial papers (CPs) to fund long-term investments.

This maturity mismatch did not prove to be a problem initially, because of the presumption that being a government-sponsored entity, it enjoyed sovereign guarantee.

Owned one-third by state-owned financial entities, IL&FS was one of the largest issuers of CPs and enjoyed a triple-A credit rating.

However, by August 2018, it suffered a series of bond defaults by group entities, leading to a change in management, legal proceedings, and a painful restructuring of the company that is still in progress, UNCTAD said.

The report also highlighted concerns over SDGs. It said these concerns were compounded by the dizzying rise in debt levels to a scale similar to those seen before the financial crisis.

Business Standard