MyWay Wealth Weekly Update (Issue #33): TsuNaMo 2.0, the road ahead, your game plan & more
TsuNaMo 2.0 swept the elections clean with BJP securing 298 seats to become the single largest party with a complete majority. The nation seems to have caught on the saffron rage over the years – the below exhibit reflects the NDA wave expanding over the years.
But, as quoted by the kid-Avenger Spiderman, “With great power comes great responsibility”. While the nation has conferred power upon the chosen one, it’s time to discuss responsibilities.
Modi II has inherited quite a slew of pressing issues along with the right to steer the largest democracy in the world. Key issues that need attention include slowing economic growth, low private investment, low employment, slumped consumption, NPA-ridden banking system, and an overall adolescent economy.
It is imperative that Modi II reciprocates the peoples’ faith by taking key measures to resolve pertinent issues like the ones above and introduce reforms that will take India a step closer to be the super-economy it desires & has the potential to be.
Tying shoelaces as India preps for the race to growth
A tried-and-tested economic formula to reinvigorate growth in any economy is by propelling public expenditure into CapEx-heavy industries & core sub-economies which translates to infrastructure & agriculture in India. A spurt in infrastructure is key in creating demand in direct & employment-heavy sectors like steel, cement and a multitude of allied services which include logistics, chemicals and similar. A spurt in employment can be considered as a starting point for consequent enhancements in disposable income levels, private savings, private expenditure, retail investments and everything else that trails to a high-growth economy.
Quite in line, the BJP manifesto has these sectors at the heart of their agenda.
But, it’s a hurdle track and not a sprint
While public expenditure seems to be a quite obvious catalyst, it is not as simple as swiping a credit card.
India is faced with a twin deficit and the dicey oil situation is only an insult to injury. At the same time, the NPA-ridden banking system is not helping either – the government’s coffers also may not be adequate to fill the INR 12 lakh crore hole left by NPAs.
Hurdle 1 – Fractured Banking System:
The new government will first have to build upon its very successful Insolvency & Bankruptcy Code and add incremental reforms like recapitalization & consolidation to clean the banking system and make it healthy enough to complement the government’s efforts to infuse capital in the economy & spur growth.
Hurdle 2 – Inefficient Power & Energy Sectors:
Alongside, inefficiencies in key sectors of power & energy also take center-stage given its importance in driving infrastructural growth in the country. Uncertainty around crude oil prices & coal supply along with the slow pace of renewable energy development makes power-transformation quite a daunting task.
Hurdle 3 – Dismal Tax Revenue & Dismayed Taxpayers:
While the government introduced GST as perhaps the largest tax-reform in India with an intent to simplify taxation, increase the tax net coverage & consequently contribute to higher tax revenues, situations seem to be developing in the exact opposite direction. An improved mechanism, implementation & tracking is imperative to make GST a success.
While there are more, these make it to the top three issues that the NDA-led government must fix to get the Indian economy on track for superior development & growth.
What’s your game plan?
Considering “your time in the market is more important than timing the market” as an axiom for all investors, we would like to go a step ahead and say that we are particularly optimistic on infrastructure, banking, and manufacturing as sectors & industries related to household consumption. We believe that the political continuity augurs well for policies and reforms which were initiated but have not yet reached the stage where it starts paying outgrowth dividends & now is a good chance to participate in the continued growth story.
Also, we expect the current financial year to serve up to two 25-bps rate cuts. The probability of the first 25-bps cut materializing in the upcoming June’19 Monetary Policy meet itself is pretty high.