Will Recovery in Economy Sustain?

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Will Recovery in Economy Sustain?

We have seen a faster and better normalization of economic growth in last couple of months. The million-dollar question is that will this sustain?  I am fairly confident that this recovery is not temporary and that we should see a sustainable growth. If the liquidity and low interest rates continue, if inflation does not spike very quickly, it should sustain. A reasonably loose monetary policy and liquidity and low interest rates should enable us to come out of this crisis reasonably well.  However, in the longer term, the investment cycle has to pick up and we have to see a return of spending on infrastructure for us to sustain us in the longer run. That is where the focus should be and we should wait and watch.  In the long run, we have to see the private investment cycle kick back if we have to sustain this growth story.

Further, the lead indicators tell us that recovery is faster than what most people expected. Deeper cyclicals like steel and cement are showing signs of rapid improvement in growth. We were expecting normalization in core sector during Q4 but have already reached pre COVID-19 levels both in terms of volumes and prices. That means we have seen a faster and better normalization of economic growth. A reasonably good demand has been witnessed in rural sector also due to a favorable monsoon in most part of the country. The rural demand too is likely to sustain in near term enabling the economy to grow fairly well.

Real estate is showing signs of coming out of its recession after many years and that can be seen in the housing finance company numbers.   If real estate and housing does well, it has a big multiplier effect in the economy because then you have the entire home improvement and a lot of other industries which tag along will continue to do well.


Pandemic effect:  Although we have been witnessing once again a spike in Covid cases recently.  However, we are also seeing favorable news floating around regarding vaccine.  Central government agencies as well as state bodies and many others have been working on war footage for successfully implementing the vaccination program in the country.  If every thing goes well, the pandemic effect is likely to be phased out gradually by first quarter of next fiscal. As such, we are expecting a good come back of beaten down sectors now in near term.

Looking at the above factors, trade & industry is likely to see a tremendous growth in next fiscal.  Therefore, investment in several sectors will definitely give generous return in next fiscal year.

 Sectors to Watch:    

  • Real Estate
  • Housing Finance
  • Hotels & Tourism
  • Airlines
  • Pharma & Specialty Chemicals
  • IT
  • Retail & FMCG
  • PSUs like: Coal India, NMDC, GAIL & ONGC

 -Rajendra Jhanwar

 

 

 

 

 

 

 

 

 

 

 

 

 







 

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