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Monday, Dec 09, 2019

Market Watch: Recession there, slowdown here

When growth begins to taper off from a period of significant acceleration, it is always hard to predict where it will eventually bottom out, writes Udayan Mukherjee.

india Updated: Mar 12, 2008 22:22 IST
Udayan Mukherjee
Udayan Mukherjee
Hindustan Times

Even as investors remain obsessed about the state of the US economy, recent economic data closer home hasn’t exactly been encouraging. The Industrial production figure of 5.3 per cent for January is a bit of a shocker. Within that the 2.1 per cent growth number for capital goods is so unexpected that it’s probably a blip. However, people react to the same set of data quite differently, depending on their preset positions. So bulls will dismiss it as a one month aberration, bears will embrace it as a harbinger of economic doom but realists will admit that things maybe beginning to slow down a bit more sharply than anticipated earlier.

When growth begins to taper off from a period of significant acceleration, it is always hard to predict where it will eventually bottom out. The government maintains that it should be 8.8 per cent, CMIE says it will be 9.1 per cent while J P Morgan has already scaled its GDP growth number for FY09 down to 7 per cent. Morgan Stanley expects 7.4 per cent. I don’t remember the last time such a wide 30 per cent variance existed between expectations of Indian GDP growth from different think tanks. A consumption slowdown is visible, hopefully the capital goods number is not signalling any sluggishness in investment, as that would be disastrous.

The problem is exacerbated by the fact that inflation has reared its head above 5 per cent. A twin problem of slowing growth and rising inflation isn’t exactly a great backdrop for equity market outperformance. Yes, growth may not slow down as much as some analysts fear and inflation may cool off after a good Kharif crop, but none of these outcomes can be taken for granted, at least yet.

We are in the midst of fairly fluid economic scenarios, both in the US and in India. Valuations have corrected downwards but the headwinds remain. The ostrich approach may not work in such markets, where you bury your head in sand and predict either new highs or a 12000 Sensex. Things are evolving everyday. And for experts who feel that our market's problems are only external with everything hunky dory in India, maybe the current economic numbers will come as a mild shock.