India Economy: Sub 4% Growth, Any takers?

The lame response by the Congress-led UPA administration to the global financial crisis has now sealed a downward spiral in India’s growth prospects.

Economic Prospects

The Indian economy has suffered a rather extreme external shock with a negative impact that is likely to be felt for months.

According to this model, which takes into account the external shock by calibrating it on the basis of earlier shocks suffered by the economy, GDP growth in 2009-10 will be about 4%. The first half (April to September) will achieve only 3.8% growth with a weak recovery starting in the second half and raising the annual growth to above 4%.

GDP growth 4%

Barclays Capital economist Sailesh K. Jha doesn’t think so. He has revised his India GDP (gross domestic product) forecast for fiscal 2010 from 5.2% to 4%.

RBI may allow the REER (real effective exchange rate) to depreciate further in order to limit downside risks to growth” and this could lead the rupee to fall to Rs56 to the dollar within the next three months.

…the current downturn is likely to be worse than the ones in the 1990s and in the fact that the lower dependence of rural India on agriculture could actually be a weakness during a downturn.

I expect this technical rally to continue…2800+ target…but the seeds of the downleg are being sown…I continue to buy March and April 2500 puts on Nifty but have not taken profit on my 2800 and 3000 calls as yet.

There is still a perception that the downtrend can be halted or atleast ameliorated…this is not to be…India missed the boat with its weak response to the crisis…the external shock is cascading through the economy… be prepared to exit the markets…

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