Expert Opinion

Published: Dec 29, 2021
Updated: Dec 29, 2021

Analysts see India growth story

India’s GDP shrank 7.3% to Rs 135.13 trillion in 2020-21 in real terms adjusted for inflation, while it was at Rs 145.69 trillion in 2019-20. For 2021-22, the GDP growth predictions as per Confederation of Indian Industry (CII) are at 9.5%, and as per Moody’s revised estimate at 9.3%. As per S&P, India will be one of the fastest growing economies next fiscal.

On a positive note, India received $ 64 billion in FDI in 2020 – the country is considered the 5th highest destination for FDI. On an average , 1.3 million demat accounts have been added every month since April 2020, while SIP discontinuation dropped in May 2021. Nifty companies are showing a continued trend of cutting debt. Meanwhile, Brent crude has steadied at around $ 75.

Amid the Covid-19 lockdowns in various states, the good news is that the gross GST revenue collected in June 2021 stood at Rs 92,849 crore, of which CGST was Rs 16,424 crore, SGST Rs 20,397 crore and IGST Rs 49,079 crore. GST revenues for June 2021 are 2% higher than the revenues in the same month last year. The GST collection for June 2021 is related to the business transactions made during May 2021. Points to consider seriously are that the index P/E is now 28.33 (as of July 6, 2021), which is high. The dollar exchange rate has inched towards the Rs 75 level. Though gold has recovered a bit, the overall bias is negative. Further, the dollarrupee linkage tends to have an impact on short-term performance of indices. The same could be seen in terms of profit-booking by FIIs to the tune of Rs 3,109. 82 crore in the period from July 1 to 6, 2021. For the same period, DIIs remained net buyers to the tune of Rs 2,997.88 crore. The annual consumer inflation rate in India increased to 6.3 per cent in May 2021, the highest in 6 months, from a downwardly revised 4.23 per cent in April, due to higher global commodity prices, including crude, edible oils and gold. Food inflation also jumped to 5.01 per cent.

NIFTY ON A ROLL

However, if Nifty predictions for 2021 by various analysts is any indication of the market’s mood, the index is headed for a significant gain by the end of 2021. The forecast by ICICI Direct for Nifty stands at 16,500 by the end of 2021, by Geojit at 16,000, by Axis Securities at 16,100, by Goldman Sachs at 16,300, by Reliance Securities at 16,300, and by Prabhudas Lilladher at 16,075 by March 2022. As of July 6, 2021, Nifty is trading at 15,818.25 levels.

The ratio of total market cap over GDP plus total assets of the central bank at recent 10- year maximum is 90.78%, and at recent 10-year minimum is 48.43%. The current ratio is at 90.78%. Based on this, the expected future annual return from markets stands at 2.8%. These numbers are based on the newly introduced ‘total market cap over GDP plus total assets of the central bank’ ratio. This ratio is also called a Buffet Market Indicator, as per which the stock market in India is modestly overvalued.

On a related note, amid the buoyant Nifty predictions and a modest Buffet Market Indicator, there are umpteen predictions of a third wave of Covid-19. While some say a third wave is possible if the virus mutates, others feel that people who have developed natural immunity from Covid-19 have fewer chances of getting infected.

(Dr VVLN Sastry is a post doctorate in Economics and a PhD in Law & Public Policy. He is a passionate economist, financial analyst and law expert.)