Despite global headwinds such as synchronous policy tightening by central banks, high inflation, Russia-Ukraine conflict, the Indian economy is likely to surpass 7 per cent GDP growth in this financial year 2022-23
Economic activity in recent months has shown steady momentum on the back of positive consumer demand, decelerating price escalations and diminishing global economic uncertainties, said Saket Dalmia, President, PHD Chamber of Commerce and Industry on Thursday.
In a press statement, he said that the PHDCCI economy GPS index for December 2022 remains steady at 140.7 as compared to 140.7 in November 2022 and 145.5 in October 2022 due to buoyancy in consumption patterns and softening inflation.
“As the GPS index is in a steady momentum and holds significant correlation with economic growth, we expect FY23 GDP growth to surpass 7 per cent, said Dalmia.
Demand trajectory in the economy remains intact as passenger vehicles, with compact cars and utility vehicles, grew 2,76,000 in December 2022 from 2,53,000 in December 2021 marking a whopping around 9 per cent year-on-year (YoY) growth as compared to December 2021.
Dalmia added that the supply-side indicator, GST, is showing robust performance as the gross GST revenue collected in the month of December 2022 at Rs 1,49,507 crore is 15 per cent higher than the GST revenues in the same month last year.
The policy environment in the country remains attractive as the sequential growth of SENSEX (average of daily close) has shown month-on-month (MoM) growth of 0.2 per cent in December 2022 as compared to its corresponding value in November 2022.
The pace of economic activity showed momentum on the back of strong demand side, supply side and investments supported by the various structural reforms undertaken by the Government during the last 3 years.
Dalmia said, “Despite global headwinds, we are hopeful that economic growth will surpass 7 per cent in the current financial year supported by the resilient demand conditions and improving supply side. RBI recently started slowing the rate hikes with a hike by only 35 basis points to 6.25 per cent in order to control retail inflation and maintain economic growth,” said Dalmia.
Going ahead, continued hand holding by the government is required to mitigate the impact of recent geo-political developments while maintaining a balance between inflation and economic growth, he added.
The EY study found that 72 per cent of tech CEO respondents plan to pursue M&A in the next 12 months, compared with 59 per cent of CEO respondents across all industries
A latest tech sector study revealed on Thursday that the biggest opportunity for tech companies in 2023 is to adopt an active mergers and acquisitions (M&A) strategy. As valuations come down, the appetite for deals is set to return next year, the study said despite high inflation, energy crisis and crumbling consumer confidence. The EY study found that 72 per cent of tech CEO respondents plan to pursue M&A in the next 12 months, compared with 59 per cent of CEO respondents across all industries.
In a statement, Nitin Bhatt, EY India Technology Sector Leader said, “The weakening economy in Europe and an impending slowdown in the US have led many commentators to sound the alarm bell regarding the future of the Indian tech sector. “However, such calls are unwarranted. While the next few quarters might see muted expansion as customers tighten their purse strings, the Indian tech sector is on a multi-year growth cycle. Global companies that have embarked on the path of digital transformation are unlikely to abort critical initiatives, and IT services companies will continue to partner with them on digitalization and IT estate modernization journeys,” he added.
The study says that the improvements in the supply chain over the last few years have been thwarted by a decline in the political, economic and financial climate. In third place on this year’s ranking is the opportunity for tech businesses to reduce their dependency on geopolitically unstable geographies by doubling-down on localisation. And tech executive respondents are on board, with 78 per cent now planning to decouple their supply chain – including nearshoring and reshoring.
On talent, the study found that driven by a re-alignment in work priorities during the COVID-19 pandemic, 56 per cent of employee respondents in the sector indicated they were considering leaving their current role in the pursuit of higher pay, better wellbeing programs and new career opportunities. “Today, the sector is not only dealing with talent shortages to fuel long-term growth, but also with hiring freezes and layoff rounds in response to economic uncertainty,” said the report.
The report further predicted that environmental sustainability (fourth position in the ranking) will impact the tech sector in 2023 more so than in previous years, as companies adapt to comply with incoming regulation on disclosure around emissions and climate change risks. And a new entrant in seventh position is the potential for edge computing to reach maturity in the next 12 months for those businesses that are willing to invest in new IT architectures. “If the macroeconomic scenario worsens, one can expect further downward pressure on discretionary tech budgets and a reprioritization of spends towards cost take-out initiatives,” Bhatt added.
By Kaushik Mitra, Senior Director, Cloud ERP/ EPM Sales, Oracle India
A stifled demand and inefficient monetary policy in the global economy of 2022 have created confounding statistics altogether. New records were constantly being set in almost every category of economic data, including the corporate bond market, IPO volume, stock market, housing market, and M&A activity. Now, the macroeconomic wind is beginning to swing in the opposite direction.
Consumer goods and workers are in short supply all across the globe, but there is uncertainty at large. Additionally, the increased inflation rate is also tightening the profit margins (and stock prices) of companies across industries. Whereas, strict monetary policies, in an attempt of banks to reign in high inflation is making it highly expensive for companies to access capital markets, either through IPOs or new debt issuances. As a result, 2022 is enroute to becoming the weakest IPO market in two decades. The volume of Mergers and acquisitions (M&A) has also witnessed a significant decline.
On the other side, the skyrocketing interest rates make it more challenging for highly leveraged, businesses, consumers, and governments to service their debt, which is leading economists to predict a recession in 2023.
We also saw business challenges emerging more frequently without any warning. Fragile stability and volatility are never more than a crisis away and these last few years have been a reminder of that. In this landscape, scenario planning has become critical for CFOs to navigate through uncertainty. Following are three areas that scenario planning must focus on:
In order to optimize and assess financial health, liquidity is a significant aspect, to begin with. Businesses often need to answer the most critical questions including the capital requirements for the next 1 or half year, the present cash position, the expected cash status in the next 2-3 months, the way to short the cash conversion cycle, the way to optimize the inventory levels as well as the efficient allocation of excess cash generated.
These are arguably the most significant financial questions to be answered and optimized in the near term. Liquidity brings excess cash which can be used for strategic projects, capital expenditures, or perhaps to capitalize on the next mergers and acquisitions opportunity.
2. Finance Structure
Another crucial area is the money structure that has long-term consequences for the performance of the company. In this aspect the significant questions to answer are the weighted-average maturity on outstanding debt, weighted-average cost of capital (WACC), and how is it likely to change in the future. Along with that, evaluating whether the percentage of corporate bonds are fixed or variable-rate, how will rising interest rates affect future cost of capital, whether should businesses raise debt or equity financing, when and how should our leverage ratios compare to other businesses in our industry as well as how to adjust the dividend payout ratio as the business grows.
The capital structure should be refined and adjusted all the time to evaluate economic shifts and external risks. The adjusting of capital structure has certain profound implications for future financial performance and is a decision that must be treaded carefully as its effective application can augment earnings, but it can also amplify losses. Businesses may want to de-leverage to minimize risk and maximize financial strength in a time of high-interest rates and high inflation.
3. Ensuring Profitability
To identify any potential underlying weaknesses, the business model should be re-examined. The critical points to consider are identifying the products and product lines that are most profitable and also the ones which are not, revenue scenarios and its impact on profitability, the impact of an acquisition on the baseline, susceptibility of the business model to changing economic conditions and product pricing adjustment to protect gross margins
When considering changes to the business model, it is crucial to ensure employee wage compensation, product pricing, and running profitability scenarios. Assessing financial impact before acquisitions, mergers and divestitures are equally vital allowing CFOs to analyze potential funding options for the deal, as well as how that might affect cash flow, capital structure, profitability, working capital, and leverage.
Futureproofing the businesses
Businesses can predict future financial health with greater accuracy by constantly analyzing the business model and growth plans. CFOs can make better decisions—faster by modeling the impact of strategic scenarios across the income statement, balance sheet, and cash flow statement.
In a nutshell, scenario planning prepares your business with the tools it needs to be successful, no matter what challenges your business will face in the days ahead.
India will soon surpass Japan and Germany and will have the world’s third largest economy by 2027, end of this decade the Outlook Market 2023 report said
India will soon surpass Japan and Germany and will have the world’s third-largest economy by 2027, said Kotak Mahindra Bank in its report titled Outlook Market 2023.
Amid the geopolitical tension, India is already the fastest-growing economy in the world with average 5.5 per cent growth in the gross domestic product over the past decade, it said.
As per the report, the estimated GDP of India could more than double from USD 3.5 trillion today to surpass USD 7.5 trillion by 2031.
The report mentioned that there is a commendable strength in the Indian economy despite four consecutive equity market shocks, Covid-19, high inflation, geo-political conflict and high-interest rates.
It added that cyclical upturn, capex recovery and manufacturing tailwinds aided the Indian economy.
The future of the Indian economy depends on the favourable environmental policy, change in global supply, the impact of PLI schemes and government’s infrastructure expenditure,” according to the report.
“With a post-strong earnings growth of 40 per cent in FY 2022, the net profit of the Nifty, 50 Index is expected to grow by 10.8 per cent in FY 2023, 16.3 per cent in FY 2024 and 15.5 per cent in FY 2025,” as per the report.
Despite the geopolitics and surging inflation, the Indian rupee gained appreciation against a wide basket of currencies. It signified that depreciation in the rupee has been less than the relative inflation differential.
The report claimed a bumpy ride to gold in 2022 eventually dragging silver into the league, like most other commodities, these precious metals hit an all-time high at the onset of the Russia- Ukraine war.
Gold in the international market is expected to trade in a range of USD 1670-2000/oz with a positive bias in 2023.
Silver hit a high of nearly USD 27.5/oz in early March and the demand outlook for silver remains solid amid the global green energy push and boost in industrial demand.
Meanwhile, 2022 was all about high inflation, the report suggests 2023 may provide investment opportunities on equity and other assets such as debt, real estate, or gold with an expected decent return in the coming two to three years.
The report mentioned that moderate global growth in 2022 was due to high inflation, slow trade and tight financial conditions.
It reported the global equity market completely sidelined the relevant variables and focused on one trick variable, reopening in China, growth in India and US federal funds terminal rate.
These variables are expected to not swamp the current market narratives, the report stated.
Notably, the CPI has dropped below the central bank’s upper margin of 6 per cent for the first time this calendar year
India’s consumer price index inflation for November decreased to an 11-month low of 5.88 per cent from 6.77 per cent in October, according to the data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday. Amid the monetary tightening by the Reserve Bank of India (RBI), retail inflation in India has hit its lowest level since December 2021.
Notably, the CPI has dropped below the central bank’s upper margin of 6 per cent for the first time this calendar year. In October, CPI eased to 6.77 per cent from 7.41 per cent last month. Inflation in the food industry for October was 7.01 per cent, down from 8.6 percent in September.
Also, the Modi government has mandated the RBI to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side till March 2026. On CPI numbers, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, “November CPI inflation, much lower than expected, dipped to 5.9 per cent, with food prices momentum softening sharply compared to the last few months. Food inflation softened to 6.2 per cent. However, core inflation remained sticky at slightly above 6 per cent.”
Rakshit added that Kotak continue to see CPI inflation around 6 per cent till February 2023 before dipping sharply to 5% in March and to around 4.5 per cent in 1QFY24. The inflation trajectory is likely to be slightly below the RBI’s latest estimate. The case for a pause in the February policy itself will get stronger, especially as the next few CPI inflation prints possibly remain below 6 per cent.
“However, with the focus increasing on sticky core inflation, the February policy will be a tough choice between further tightening and a prolonged pause, especially if global and domestic growth impulses start softening. The skew, for now, remains towards a last 25 bps hike followed by a prolonged pause,” he added. Meanwhile, the data from the ministry revealed that the country’s factory output, measured through the Index of Industrial Production (IIP) contracted by (-)4.0 per cent in October.
India is affected by spillovers from the United States (US), Euro area and China, according to the World Bank’s India Development Update
Amid the fear of a global recession and economic growth slowdown, World Bank on Tuesday revised its gross domestic product (GDP) growth estimate for India to 6.9 per cent for 2022-23 from 6.5 per cent earlier.
India is affected by spillovers from the United States (US), Euro area and China, according to the World Bank’s India Development Update.
The global body, however, saw the government meeting the fiscal deficit target of 6.4 per cent of the GDP in 2022-23.
World Bank estimated inflation at 7.1 per cent in the current fiscal year.
Meanwhile, Chief Economic Advisor (CEA), V Anantha Nageswaran said that the Indian economy is on track to achieve 6.8 to 7 per cent GDP growth in FY23.
“Q2 GDP (growth) was in line with most market participants’ expectations. In 2022-23, the economy is on track to achieve 6.8-7 per cent growth,” Nageswaran said.
The has been an increase in U.S. Federal Reserve’s interest rates by 375 basis points this year, ever since it rolled out its first hike in March. Many banks see a fall in the euro below parity to the dollar during the year, before clawing back by year-to-end
The largest investment banks in the world expects global economic growth to slow ahead in 2023 following a year affected by the RussiatoUkraine conflict and soaring inflation. It triggered one of the fastest monetary policy tightening cycles during recent times.
The has been an increase in U.S. Federal Reserve’s interest rates by 375 basis points this year, ever since it rolled out its first hike in March. Since then, a spark in worries about a recession existed. Even the central bank is expected to temper its pace of hikes.
Real GDP (annual Y/Y) forecasts for 2023 reads as follows:
Bank Global U.S. China Morgan Stanley 2.20 per cent 0.50 per cent 5 per cent Goldman Sachs 1.80 per cent 1 per cent 4.50 per cent Barclays 1.70 per cent to 0.1 per cent 3.80 per cent J.P.Morgan 1.6 per cent 1 per cent 4 per cent BNP Paribas 2.3 per cent to 0.10 per cent 4.50 per cent UBS 2.1 per cent 0.1 per cent 4.5 per cent BofA 2.3 per cent to 0.4 per cent 5.5 per cent Credit 1.6 per cent 0.8 per cent 4.5 per cent Suisse Deutsche Bank 2 per cent 0.8 per cent 4.5 per cent
U.S. inflation forecast for 2023 and Fed terminal rate forecast as follows:
Bank U.S. Inflation Fed Terminal Rate (annual Y/Y for 2023) Morgan Stanley Headline CPI: 3.3 per cent 4.625 per cent Core PCE: 3.8 per cent (by Jan ’23) Goldman Sachs Headline CPI: 3.2 per cent 5 to 5.25 per cent Core CPI: 3.2 per cent (by May ’23) Core PCE: 2.9 per cent Barclays Headline CPI: 3.70 per cent 5 per cent to 5.25 per cent (by March ’23) J.P.Morgan Headline CPI: 4.1 per cent 5 per cent Core CPI: 4.2 per cent (by Jan ’23) BNP Paribas Headline CPI: 4.40 per cent 5 per cent to 5.25 per cent (by Q1 ’23) UBS Headline CPI: 3.6 per cent 5 per cent BofA Headline CPI: 4.4 per cent 5 per cent to 5.25 per cent (by March ’23) Credit Suisse 4.75 per cent to 5 per cent Headline CPI: 3.8 per cent (by March ’23) Deutsche Bank Headline CPI: 4.3 per cent 5.125 per cent.
Morgan Stanley by March ’23 sees the Fed delivering its first rate reduced by December 2023, taking the benchmark rate to 4.375 per cent by the end of that year. Barclays foresees the rate between 4.25 per cent and 4.50 per cent by next year ending, whereas Deutsche Bank sees it at 4.625 per cent after a rate cut.
According to UBS, it expects the U.S. inflation to be “close enough” to the Fed’s 2 per cent target by the end of 2023 for the central bank to consider rate cuts. BofA sees the rate between 2.75 per cent and 3.00 per cent by the end of 2024.
Forecasts for currency pairs, yields on U.S. 10 to year Treasuries, S&P 500 target by the end of 2023: Bank EUR/U USD/C USD/J S&P 500 U.S. SD NY PY Target 10 to year yield Morgan Stanley 1.08 6.8 140 3,900 3.50 per cent Goldman Sachs 1.05 6.9 140 4,000 4.34 per cent Barclays 1.05 7.3 131 3.75 per cent J.P.Morgan 1.0 7.2 133 3.4 per cent BNP Paribas 1.06 6.9 128 3,400 3.50 per cent UBS 1.04 6.9 135 3,700 3 per cent (by June 2023) BofA 1.1 7 137 4,000 3.25 per cent 1.02 7.3 135 4.10 per cent Credit Suisse Deutsche Bank 1.1 6.8 125 4,500 3.65per cent.
Many banks see a fall in the euro below parity to the dollar during the year, before clawing back by year-to-end. As of 1317 GMT on Nov. 28, 2022: EUR/USD: 1.045 USD/CNY: 7.197 USD/JPY: 138.50 U.S. 10 to-year Treasury yield: 3.67per cent S&P 500 level (as of close on 25 November): 4,026.12
According to the economists, considering the high inflation rate, providing a relief on income tax will boost domestic demand. In total, the finance minister has held eight rounds of discussions, beginning with India Inc on 21 November and ending with a round of consultation along with economists on 28 November.
The government is asked by the Economists to level up capital expenditure, rationalise personal income tax and stick to fiscal discipline in the upcoming Budget, on 28 November.
During the finance minister Nirmala Sitharaman led pre-Budget interaction, they also urged her to increase health care outlay and focus on quality job creation.
According to the economists, considering the high inflation rate, providing a relief on income tax will boost domestic demand. In their suggestion, the Centre should continue with long-term loans to states, meanwhile relaxing some of the spending restrictions and handhold them through fiscal management. Its focus should especially be on those with high borrowings.
The meeting was attended by the economists and experts along with N R Bhanumurthy of Dr BR Ambedkar School of Economics University, Ashwani Mahajan of Swadeshi Jagaran Manch, Poonam Gupta of National Council of Applied Economic Research, Monetary Policy Committee member Ashima Goyal, economist Karthik Muralidharan, Aditi Nayar of Icra, Santanu Sengupta of Goldman Sachs, Rahul Bajoria of Barclays, Madan Sabnavis of Bank of Baroda, and Deepak Mishra of ICRIER.
In total, the finance minister has held eight rounds of discussions, beginning with India Inc on 21 November and ending with a round of consultation along with economists on 28 November.
Expectedly, the Budget 2023-24 is to be tabled in Parliament on 1 February.
The finance Ministry said that with more than 110 invitees representing 7 stakeholder groups participated in all 8 meetings till date.
Also, she gave assurance to them on their suggestions to be considered carefully while preparing the Budget 2023-24.
While addressing a virtual event, Amitabh Kant noted various initiatives promoting circular economy taken by various ministries and states. India’s Presidency for the G20 from 1 December serves an opportunity to the country for a boosted transition for the circular economy, he added
Amitabh Kant representing India at G20 said that the circular economy needs to be promoted to deal with the issues relating to climate change, on 24 November.
While addressing a virtual event, Kant noted various initiatives promoting circular economy taken by various ministries and states.
He said in conference of the parties 27 that India has underlined its long-term low carbon emission strategy.
India’s Presidency for the G20 from 1 December serves an opportunity to the country for a boosted transition for the circular economy, he added.
He highlighted that a business environment for the circular economy needs to be created, and said,” It is to be ensured that regulations do not become burdensome.”
The G20 comprises of 19 countries being Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK, the USA and the European Union (EU).
In total they account for over 80 per cent of the global GDP, 75 per cent of international trade and two-thirds of the world population.
Defending the move, the government has stated that the move formed part of the Centre’s efforts to reduce tax evasion, combat black/fake money and boost digital payment. Around 60 petitions challenging demonetisation, is being considered by the bench
The central government has defended its November 2016 decision where it demonetised Rs 500 and Rs 1,000 currency notes. Demonetisation was a ‘well-considered decision’ and ‘part of a drive to eradicate black money’, said the government in its affidavit addressing the Supreme Court.
Reportedly, affidavit submitted said that it came following the recommendation of the Reserve Bank of India and hence advance preparations were made.
Defending the move, the government has stated that the move formed part of the Centre’s efforts to reduce tax evasion, combat black/fake money and boost digital payment. It was an economic policy decision, the affidavit added.
The overall impact of the move on economic growth was transient along with real growth rate being 8.2 per cent in FY16-17 and 6.8 per cent in FY 17-18. Both reflected more than the decadal growth rate of 6.6 per cent during the pre-pandemic years, said the government further.
The Centre along with the Reserve Bank of India were directed by the Supreme Court on 12 October, to file comprehensive affidavits.
A Constitution bench comprising justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian and BV Nagarathna also asked the Centre to keep ready files relating to the Centre’s letter to RBI dated 7 November 2016, the decision which RBI board took the next day and the immediate announcement of demonetisation.
Around 60 petitions challenging demonetisation, is being considered by the bench. The apex court in October had verbally highlighted that it was its duty to answer the issue one way or the other for “posterity”.
The Supreme Court expressing its displeasure during the last hearing on 9 November over an adjournment sought by the Centre after the Constitution bench had assembled to adjudicate a clutch of pleas challenging demonetisation. The matter is scheduled to be resume hearing on 24 and 25 November.