Hopes Swell For A Return Of Happy Days In The Country

A family with a child and an income of Rs. 20,000 and staying in a 400 sq.ft house in a far-flung suburb can hardly make two ends meet. Their savings for a rainy day will barely be around Rs. 400 and the child cannot go to school on some days because the parents cannot afford it. On the other side of the spectrum, businesses are reluctant to invest due to sluggishness in private consumption. They do not invest to boost the country’s economic growth. There is no trace of patriotism because they invest purely to make money. As a result, the economic growth has been highly skewed. Lack of growth in private investment has inhibited private sector job creation, forcing more than 90 per cent of the Indian labour force to seek gainful employment in the informal sector.

These workers are largely outside the tax net. In fact, only about four per cent of them pay income taxes, leading to much higher tax burden on those who do. This has led to tax fatigue, tax evasion and capital flight, as overburdened taxpayers do not feel they are getting their money’s worth given the poor quality of public services. It should be noted that FIIs have been a significant driver of the stock market for several years now.

However, in recent weeks, there has been a notable trend of FII outflows from the Indian market. This has raised concerns about the impact on the country’s equities. One of the main reasons for the exit is the potential for higher returns from the Chinese market. Beijing has recently introduced a series of stimulus measures, including easing monetary policies and boosting government spending, aimed at revitalising its slowing economy and attracting global investment back into its markets. Inflation has been high since September. High inflation erodes purchasing power, as a result of which goods and services become dearer.

This can lead to reduced consumer spending, which can impact corporate profits and companies may struggle to maintain profit margins, leading to lower earnings growth. This, in turn, can negatively impact stock prices, as investors may become less optimistic about the future prospects of these companies. Indian companies saw net profit growth of 3.6 per cent during the September quarter, which was the slowest growth in 17 quarters, driven by sluggish revenue growth and rising interest and depreciation costs. Total expenses and other income also edged up only slightly.

The US presidential elections created uncertainty across global markets, as investors await the outcome and its potential impact on global economic policies. While the recent FII outflows have caused some market volatility, experts opine that this is more of a tactical shift than a strategic exodus. Despite facing headwinds such as rising inflation and global economic uncertainty, India's long-term growth story remains compelling. There is every possibility that growth is likely to pick up, driven by increasing consumer spending, especially in rural parts, as inflation subsides and agricultural output improves after favourable monsoon conditions.

A tempered global growth outlook and a delayed synchronized recovery in western economies—compared to what was previously expected—will likely weigh on India’s exports and outlook for the next fiscal year. At the same time, India may benefit from higher capital inflows, translating into long-term investment and job opportunities as MNCs from around the world look to further reduce their operational costs.