As expected by most economists and market experts the Indian economy too has suffered considerably in the wake of the pandemic and the results are officially out as metrics and reports. India has entered into a phase called technical recession which is quite a scary term but not much of symbolising anything of a dark age. Technical recession is said to occur when the GDP contracts for two consecutive quarters. As the situation remains we can only analyse and not go too far on why this has occurred and what is left for the future. Although there is not much to fret about at this juncture the second contraction is quite a calculative prediction by the RBI on its first nowcast after a long break.
Followers of general economy is quite informed about the fact that an economy always completes alternate cycles of recession and expansion.This is evident if you are an ardent fan of the stock markets-where the bulls and the bears compete. A simple look at the graph of the oldest index Sensex would reveal a quite wavy pattern consisting of ups and downs over a period of years. Also one more point to be noted is how the overall trend is always up under any circumstance.
Not Taking into context any global cues we are sure to get panicked about the current state of the economy. Unemployment is rising, Manufacturing is almost stagnant and pacing up at a very slow rate,supply chains are disrupted and livelihoods lost.But there is always light at the end of the tunnel.
Some data to ponder.
Going with data and looking beyond borders we can easily shed some light to those pessimistic few who feel things are bad.As per data only china and uk have a positive growth rate with 4.9% and 15.5% in the July sep quarter of FY2021 other than that only saudi arabia saw a positive growth of 1.2 percent. The much hailed economic superpowers like us France Germany the uk japan and Russia are all moving in the negative region. Gdp for US stands at -2.9% while France at -3.9%. Germany despite a recovery saw a contraction of 4 percent. For Russia and Japan the GDP contracted by 3.2% and 5.8%. India's GDP shrinking about 24% in the April- June quarter is quite a big number. Although official sources say of no major hit taken by the economy the seriousness of the issue gets much deep when you take into account the impact it had on the informal sector.
Dalal Street-“We don’t do that here”
As depressing as it seems the government must intervene immediately with proper funds to allow a gradual yet successful revival of the economy. But there is one part of the economy where green shoots are visible “The Stock Markets”. Lockdown has witnessed a surge of online stock trading in a population where out of the 121 crore people a mere 3.23 crore registered stock market participants are there(as per BSE 2017) of which Maharashtra and Gujarat account for more than one fifth of India’s stock market investors. Looking at SENSEX data for past 10 years which shows the percentage of days the index moved more than +/-1% 2020 is an exception. The following graph is plotted with data till July 22,2020 and as you read this article the numbers are surely going to increase. Till now on 13 occasions the index had fallen 2.5% or more in 2020. India VIX which has hovered around 80-85 range during March-April signifying considerable amount of volatility has settled to its previous range of 16-18 indicating normalcy to the market. The good news related to the vaccines have gained investor confidence and increased FII compared to previous quarter and easing of lockdown has successfully driven the markets in the positive direction. This is evident from the rally that is currently witnessed in the Indices. The Sensex has comfortably hit an all time high of 46,164 recently with a promising uptrend. The PMs address and promise on vaccine availability is taken quite positively by the market participants and is thus expected to fill investor pockets by the next few quarters. Historically data for dec month during the last 10 years has seen a positive shoot in 6 out of the 10 occasions. The current rally might be a culmination of all these effects.
Thus the pandemic has not completely wiped off hope from few section of the economy but the Markets are ultimately influenced by how healthy an economy really is. Thus even though we can expect an overall uptrend the extend to which it supports national growth completely depends on the steps taken by the government for a successful revival. The government must be cautious enough to not take any hard decisions regarding trade and commerce which can affect Foreign fund inflow so that vulnerabilities are not exposed but rather is resolved.
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