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Lap up this correction if you have a three-year horizon; here’s why

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The Indian economy has been growing steadily.

In the first quarter of FY19 ending June 30, India’s GDP grew at an impressive rate of 8.2 per cent on the back of strong core performance and a healthy base. Looking back, India's GDP has risen by an average 7.3 per cent over the last decade and is showcasing a positive upward trend.

Comparatively, the world’s second largest economy, China, reported a 6.7 per cent growth for the quarter ending June 2018 and an average of 13 per cent over the last decade, but the trend is declining.

Our $2.6 trillion economy surpassed France’s in 2017 to be the world's sixth largest, and we shall soon be fifth as we are not far behind the United Kingdom. We are one of the world’s fastest growing economies and it is expected to accelerate further and double to $5 trillion over the next decade.

In addition to the demographic advantage, economic reforms such as GST, IBC, DBT have helped the economy pick up pace on the growth path. In the recent past, there have been some short-term headwinds, such as current account deficit widening to $15.8 billion, which is around 2.4 per cent of GDP, for the quarter ended June 2018.

The weakening of the Rupee against the US dollar and high crude oil prices in the international market led to a rise in current account deficit in the first quarter. Persistent high oil prices may lead to high current account deficit number ($75 billion (approx.) in FY19 vs $49 billion in FY18).

But this would be a transitory phase, as with the implementation of structural reforms like GST and demonetisation, the receipt side of the economy is growing. Net direct tax collections increased 17 per cent YoY in FY18, to Rs 9.95 lakh crore; while GST collection is rising and is set to improve further as more checks and balances are put in place. The rupee has been on a downward trend mainly due to a gradual monetary policy tightening by the US Fed, which has resulted in US dollar appreciation against many other currencies globally.

Another knee-jerk reaction for the Rupee has been the global crises in various emerging countries like Argentina, Venezuela and Turkey, which has made global investors more cautious about emerging markets currencies and equities. However, compared with these nations, we have been much better placed compared with 2013, when India was categorised among the Fragile 5 when CAD was around 6 per cent and the economy was on a much weaker wicket than it is today.

The Turkish lira has fallen by over 40 per cent against the US dollar since the start of 2018, compared with which the rupee has depreciated around 10 per cent. India’s GDP growth saw a temporary dip in 2016-17 and in the first quarter of 2017-18 due to demonetisation and the implementation of GST.

Economic activity has begun to stabilise since August 2017.

And we expect the trend to continue. For longer-term investors, a short-term correction is considered a good opportunity to invest.Notwithstanding the short-term volatility, India continues to be a long-term growth story.

The growth rate is expected to be 7.3 per cent in 2018-2019 and 7.5 per cent in 2019-2020, which solidifies India’s position as one of the world’s fastest growing economies. The government’s focus on rural growth will increase employment and enhance demand, thereby contributing more to the economic growth.

India’s per capita income is around $1,900 which is expected to go beyond $2000 in FY19.

With an increase in income, the long-term consumption story becomes more stable as consumers shift to spend beyond the basic needs of food, clothing and shelter which has been proven in other developed nations, time and again. The resolution of non-performing assets will help improve the banking sector, which will further enable corporate capital spends driven by the demand mechanics.

Moreover, corporate earnings have started picking up after the structural reforms.

We believe India will continue with its growth despite the current short-term global factors.

Under such circumstances, for longer-term investors, a short-term correction is considered a good opportunity to invest in Indian equity at reasonable prices with an investment horizon of not less than three years.




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