InvestNow News – 1st May – India Avenue – Survive to thrive in India
India has had several economic booms in the past and the driver has usually been a US recession followed by lower interest rates and increased liquidity resulting in improving sentiment.
We have put together a detailed note on this (see below) that discusses:
- A history of India’s economic boom periods
- Catalysts for economic growth such as falling Oil price and lower interest rates
- What are India’s current market valuations and how they compare to history
- India’s strength in Pharmaceuticals and its comparative advantage during the current pandemic
An economic boom may be defined as a period where GDP growth is high on an absolute basis (above 5%) and higher than the period preceding it. India has experienced several such economic booms in the past. The catalyst for an economic boom in India is usually a preceding US recession or weak period of growth. Usually these periods are accompanied by a lower cost of capital, liquidity injections / stimulus and rising demand for foreign investment seeking growth capital.
CORRELATION OF US AND INDIAN GDP
The correlation of India’s GDP to the US is -0.18. In this report we do not look for a direct link between the economies, but rather consider the resulting impact on India post a US recession or weak economy. We examine periods of weakness in the US since WWII, identifying 1970-1975, 1980-1982, 1991, 2001-2002 and 2008-2009.
INDIA’S ECONOMIC BOOM PERIODS
We can study India’s GDP growth in the context of US recessions and identify subsequent periods where India’s economic growth goes through a boom period. We study why that relationship might exist in this report.
Typically, recessions are categorised by falling interest rates as the US Federal Reserve responds by improving liquidity and encouraging increasing demand through greater lending and risk taking in the corporate world and for investors. This typically transpires into rising economic growth, corporate earnings and thus rising stock markets.