Tough Time For Investors In A Subdued Market

The Indian government may have a tough time meeting its fiscal deficit target due to the muted tax collection during the current fiscal year. Budgeted fiscal deficit target for FY20 is 3.3 per cent of GDP. The gross Goods and Services Tax (GST) collection for the month of August, 2019 has dropped to Rs.98, 202 crore against the estimate value Rs.1 lakh crore. The lower GST collection is set to strain government finances and make it difficult to meet the fiscal target.

India has lost its spot as the world’s fastest growing major economy after it grew slower than expected during the first quarter of FY20. GDP grew at 5 per cent in April-June 2019, on account of subdued economic activity in various sectors. The nominal GDP growth, which is without any adjustment for inflation, declined to 8 per cent against estimated growth of 11 per cent in the first quarter of FY20, its lowest since 2002-03. The main cause of slowdown is a slackening domestic demand, global uncertainty weakening demand for export and low levels of investment.

It is a challenging and difficult time for the government to generate revenues in a slowing economy. Low consumer demand has negatively affected production in the automobile and allied sectors. Various sectors including automobiles and FMCG are going through the worst phase due to subdued consumption. Consumption growth hampers drastically due to demand and supply mismatch, which reflects in slowing the production. On the other hand, the presence of large number goods under 28 per cent GST slab too is contributing to the consumption slowdown. The murmurs of a global recession are getting louder due to trade war between the US and China. If it happens, the $5 trillion economy dreams of India may fade away as the impact of slower GDP growth as well as revenue will persist in the forthcoming years.

Persistent economic slowdown is a cause of concern for the capital market. Mid and small –cap stocks are tumbling 18-25 per cent on year to date amid domestic slowdown, weak earnings, FII outflow and fear of global slowdown due to the US-China trade war. You cannot stop the volatility of the market, but you can protect your investments. Greed and fear are two emotions, which drives the capital market. Opportunities will always there in equity markets and you have to judge it and make a meaningful and sensible right decision in order to pick up the right stock, at the right price and at the right time. Create a balanced portfolio with proper homework and it will benefit you time and again in the long-run.

--By R K Mohapatra

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