Wednesday, March 12, 2008

India : from a slowdown to a recession - and what it might imply

Key economic factors playing out in the economy over next 6-18 mths.

1. Growth slowdown - GDP growth for 08-09 likely to be in 5% range. IIP might go negative at 12 mths. Not so preposterous. That's how recessions start. Next 3 months will decide if its only going to be slowdown or a full blown recession in India.

2. Oil price hike - India buying at $100 now compared to $ 60 range not too long in past. Will suck big part of disposable incomes with the population

3. Election uncertainty will hamper sentiment

4. US recession (yup its in recession , though its yet to be 'officially declared' whatever that means) - its impact on our economy is yet to sink in. Seems to be a clear lag of 6 months. We are now in a stage where US was 6 mhts back.


1. 12000 levels for Sensex very likely in 6 months. If recession, then 10,000 mark likely to be breached in 12 mths.

2. Next twelve months all resources will get repriced :-

a) Interest rates will come down across board. Housing loan likely to go down to 7%, personal loans to 10%, Auto
at 9%.Those were the levels just a few years back.

b) Increments / bonuses / job change increments will come down. labour market will get more fairly priced.

c) Real estate prices likely to correct more than 30% from current levels.

All this is difficult to digest. But did not the story play out in a similar way 5 years back. Cycles simply repeat and play out as they are supposed to.

And what about 5 years from now. That's a much happier story. but even more difficult to digest. Just like a 20,000 levels sounded ridiculous in 2004.

Hope turns to denial. Denial to despair. Before hope regains.

Amar Harolikar