The Macro Situation: Little Concerning

The inflation has gone up last month despite lower crude oil prices. So, food inflation was mainly responsible. Now, the crude oil prices have started inching up and that will result in a further spike in inflation.

The shortfall of GST is quite high and the Government will also face a big shortage on Corporate Income Tax collection this year. Pending refunds in the Income Tax, GST, etc suggests that the fund situation is not that great. Trade data shows fall in both imports and exports suggesting once again that the economy is not in great shape

RBI’s ability to cut interest rates is now limited or virtually gone. The combined debt of Centre and State is around 68% of the GDP and may go up to around 69.5-70% of the GDP by the end of the fiscal year. This is really very high as compared to various peer countries. Normally for other emerging countries, that figure on an average is 52% of the GDP. So, the Government may have to curtail its spend on the economy.

The private sector has seen a sharp drop in demand and hence are reluctant to go for capex. For Example, Maruti has delayed the opening of its new plant in Gujarat. Actually looking at the situation and number of newer players and models, it may just not start the new plant for a long time.

The commodity sector is not doing well due to a sharp fall in demand and prices. Auto, Textiles, Real Estate, Construction, Infrastructure are on a slow lane. The IT sector is not seeing great growth. Electricity production and consumption has gone down sharply and so has the coal production gone down. Diesel consumption is also down. The telecommunication sector has their own problems and despite tariff hikes and some relief by Government, the sector will take time to generate positive cash flows. So, each and every indicator is indicating that the economic slowdown is deep and across the sectors. The only companies that are not affected at all are Private sector banks, Bajaj Twins and Reliance from their stock market and financial performances. That is actually a paradox.

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