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Investment Outlook – The Debt Market and Its Growth as Per September 2019

 10 Oct 2019

Debt securities seem the best possible method of investment. Not only because they are associated with fewer risks but these instruments allow new investors to begin their investment career the right way. According to the current debt market reports, the growth in this sector has slowed down. In fact, the GDP (Gross Domestic Product) growth was as low as 5%. This recession period was not due to government expenditure on the agricultural realm. One of the most crucial elements of GDP is private consumption, however, the same drop. Not only imports but the growth of exports witnessed a downfall as well.

The Declining GDP

This year, the nominal GDP growth had fallen to its lowest i.e. 8 percent. This downfall in the nominal GDP rate affected the economy as a whole. From having a negative impact on corporate profitability to weakening tax income; the weak nominal GDP has indeed put more stress in the debit and credit sector of our country. Apart from public and electricity organizations, the actual GVA plunged to its lowest at 4.9 percent. The only sectors where growth was witnessed and that performed pretty good were agricultural and service areas. However, the industrial growth of our country witnessed a major downfall by growing at a rate of 2.7 percent. Apart from the water, electricity, and gas supply industries that witnessed growth at 8.6 percent, all the industrial sectors failed.

The Downfall in Industrial Sector

If the current high-frequency indicators are taken into consideration, the industrial and other sectors of the Indian economy have undergone a recession period. In fact, auto sales still suffer poorly with only 8 amongst the 23 manufacturing companies witnessed growth. Composite PMI had also witnessed a downfall to 53.9 percent from 52.6 percent. Other than the industrial sector, the financial sector in India has not performed well. The credit growth of financial institutions plunged. Not only the debt industry but overall equity markets have also witnessed challenges in 2019. According to the experts, the escalating war between the United States and China is the primary reason for the weak global economy. The global markets are getting weaker day by day, and this has also resulted in slow down growth of the equity and debt markets.

Regardless of the rate cuts, the standard lending rate hasn't seen any major downfall.  The good news is the government is introducing effective policies and measures that could improve the financial and industrial sectors of our country. However, these policies announced by the Reserve Bank of India and the government proved ineffective. According to the sources, 6% of the growth in the financial year 2020 is expected, which is lower than the RBI's estimation of 6.90 percent.

The Import and Export Status

As private consumption is getting weaker, the exports and imports and negatively affected. In July, imports and exports reflected a weak national and international market. As gold and oil import rates had declined, the trade deficit in July had dropped to the lowest level. If yearly growth is concerned, then the growth of exports in the segments including agriculture, petroleum, jewellery, gems, and leather is negative. On the positive side, the machinery, chemicals, and electronics export rate had gone up. 

On the other hand, import growth declined to -10.4 percent. One of the main reasons that declined the import rate is the weaken gold and oil import rates. According to the sources, BoP is expected to stay on the good side in the financial year 2020 with proper surplus backed by less CAD as well as good in foreign capital inflows.

Inflation Status

The inflation in July appeared to be in accordance with the estimations i.e. 3.15 percent. As far as monthly growth is concerned, the CPI growth was reported to be the lowest in the past three years. The declining in food inflation had proved quite good for the overall economy. Regardless of the poor base, vegetable inflation was declined (mainly because the agricultural sector performed pretty well this year). While the inflation figures in the rural sector stayed the same, the same in urban sectors came down.  Currently, the liquidity has shifted to the surplus stage. Overall, the inflation rates were in line with the estimations. The Reserve Bank of India had an estimated 3.1 percent in 2Q; however, the adverse base might lead to some insignificant issues.

In short, inflation is neutral with the government and RBIs appraisal, so it should not be causing further monetary easing.

There's no doubt that risks associated with the fiscal growth of the economy are increasing by leaps and bounds. But the declining global growth outlook as well as poor local growth conditions, the financial policies are the only way to improve the growth of the industrial and financial sectors of the economy.

Also Read: What Refers to the Systematic Investment Plan (SIP) in Mutual Funds? Why are they Important?

 

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