Most vexed, complex, uncertain question. No one has clear answer.
We always look backward and connect the dots. No one knew in 2013 that Stock Market would start rising. No one knew in 2008 that economic crisis is looming. No one knew in 2006 that Real Estate Market is about to explode. It is always said that most defining moments in life are known to us, six month after, we passed thru that moment. So is it a futile exercise to forecast future? As it is proven that forecasting is a bad science, and all so called expert are no better than monkey who is assigned to randomly pick up the consequences of an event.
I hold a view that no matter what we assume, we must continue to explore upon the facts, data points, experience, trends, information available with us instead of becoming a turkey, waiting for fate. We may eventually be wrong, but in the process, it would be great fun, thinking about these diverse, seemingly uncertain events.
Being an Armchair Economist, I am trying to figure out, the state of Indian Economy and Direction it might take. Let us first reflect on available information. The information is not complete, authentic, riddled with bias, but at least it gives some indication. So beware, do not take advice of Armchair Economist. Read it for Fun.
@ Stock Market : Its a barometer of economy. In absolute terms, market has not moved in last 1 years. What it indicates? The stock market is prized properly, forward PE seems to be much less than historic high, Euphoria of last year is gone. Considering it to be any indicator, if at all, It is not giving a confident signal about near term say, 1-2 years, outlook.
@ Real Estate : Market is in decline mode. Today’s Mint states that after more than 5 years, the domestic investment into equity has overtaken the Real Estate. This reflects bearishness in one asset class. i.e. Real Estate.
Both this indicators are supposed to reflect the undercurrent, but if we read it jointly, it suggest, people have more trust in Stock Market, thus, Indian Economy and not in Real Estate, major Contributor to Economy in GDP terms.
At Macro Level : Fiscal Deficit is under control, Current Account Deficit (CAD) is in positive zone. Forex Reserves are Swelling. Rupee is under control. No Sign of any turbulence. Even Inflation is in Negative.
Investment Cycle – Export – Both have not picked up. Export and IIP is in negative Zone.
Finance Sector – Everyone is bullish. Going strongly to build books. More new companies are coming up in NBFC space. I afraid, old days of 2006-2008 rack less lending are back. But that indicates general euphoria.
Consumption & Demographic Story is still intact.
When we read all the above, it gives a very conflicting views, Macro Economic Fundamentals are very Positive, but Micro Economic indicator are not giving comfortable outlook. There seems to be a pause, as if economy is making some adjustment, before it moves into next territory. A sign of inconsistency and indecisiveness.
So, two question:
What is state of Economy : It is taking a pause.
What will happen next.
For that, we must also look at World Economy:
@ China – Its a mystery riddle with puzzle. No one knows, what will happen. Thats scary.
@ Geo political instability.
@ US Interest rate hike. End to Cheap Money. Squeezing of global liquidity.
@ Euro Crisis.
Though, we are decoupled from world economy. We can not abstain from major economic shock.
Essentially, near term, there does not seems to be any upward indication for economy ( i.e. growth in Stock Market & Real Estate – its a long cycle and we are certainly in declining). However, any major world event, would see a sharp correction in Equity Market and some uncertainty, observed in 2008. What are the chances of that happening. I have no Idea.
Let us wait and observe, before finally concluding.