‘GDP growth may continue to struggle at 2.8% in 2021’ | Daily News


 

‘GDP growth may continue to struggle at 2.8% in 2021’

GDP takes  a grind in 2020 to an all-time low
GDP takes a grind in 2020 to an all-time low

First Capital Research in their mid-year outlook report says that the GDP growth would record the steepest contraction at -5.8% for 2020 while the growth may continue to be a struggle at 2.8% in 2021.

“GDP growth may continue to be a struggle though at 2.8% in 2021,” the report said.

Higher budget deficits may continue through 2020 to 2021 as well. Potentially high budget deficits are likely to push the rupee debt borrowing requirement higher for 2020 and 2021.

Trade deficit may also grow wider towards 1H2021 amid the possible rise in consumer demand possibly leading to a high level of consumer imports pressuring the foreign reserves and the rupee.

First Capital Research expects the Government to raise about USD 5 billion for 2020 compared to USD 6 billion Foreign Currency Repayments. It is estimated that out of the USD 5 billion likely to be raised for 2020, the Government has already raised or secured USD 2.4Bn during the first 7 months of 2020.

With an extended period of low interest rates and the attractive valuations amidst the significant decline in the market, has made equity investments a viable alternative investment product which is capable of providing healthy returns. As a result we have observed a steep inflow of fresh funds into the market from retail and high net worth individuals.

“With business activity expected to gradually pick up and accelerate towards next year, investors are likely to be positive on the recovery of profitability towards 2021end. We believe that bulk of the earnings dip is already factored into the market and thereby assessing the earnings recovery for 2021 and evaluating businesses on forward earnings makes more sense as an investor. In line with the thinking, we expect stronger market returns during 2020, maintaining our upgraded market fair value range at 5,200-5,600 (as per Jul’20 update).

Below the range investors could continue to accumulate. However, in case of the index being above the range, investors need to consider the expected duration of investment or return before considering reducing exposure.

With possible interest rate and currency shocks on the cards, despite the acceleration in recovery of business activity, we expect 2021 market returns to be limited to 10%, as we target the ASPI to have a fair value of 5,800-6,200.

 


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