InvestNow News 27th Sep – India Avenue – Explaining current economic weakness in India
Explaining current economic weakness in India
Indian equity markets have lost 11.3% over the past three months in local currency terms. Add a slight weakening of 1.2% of the Rupee against the AUD and you have a fall of approximately 12.5% for unhedged Australian investors.
This has largely been driven but weakening economic growth, which appears to be impacting corporate profit growth. Brokers who had forecast earnings recovery, driven by the Banking Sector turning non-performing loan provisioning losses into profits, are now pulling back their forecasts for a general slowdown, which has been led by sectors like automobiles. Auto’s have been a yardstick for consumption and sentiment.
1QFY20 GDP growth (June 2019 Quarter) printed at 5% year-on-year growth. This is a 6-year low and has been led by weak agriculture and manufacturing output.
However, its not the first time India’s growth has stalled. In fact, we only need to go back to 2012- 2013, where India was part of the Fragile 5 of high inflation, slowing growth, weakening currency economies.
Corporate profits ex-Banks and Oil also reported a decline of more than 6% – a far cry less than expectations as weaker growth has led to an impact on sectors like Automobiles, Infrastructure, Domestic Travel, Consumer Products.