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As crude oil prices decline sharply and global commodity markets reel under pressure, India's macroeconomic fundamentals appear much stronger compared to previous global crises, highlights a report by Motilal Oswal.
The report believed that despite global uncertainties, the impact on India's economic growth could remain limited, thanks to domestic resilience and improved fiscal health. It said, "While there might be 2nd and 3rd order impacts on India in terms of IT slowdown and China dumping amidst probable currency wars, given its domestic resilience, the relative impact on economic growth may not be that pronounced". The report also highlighted that key indicators such as the Balance of Payments (BoP), Current Account Deficit (CAD), and fiscal deficit are showing considerable strength, especially when compared to earlier stress periods like the 2013 Taper Tantrum. Unlike the Global Financial Crisis or the Credit Crisis, the report mentioned that Indian corporates and banks are entering this phase with healthier balance sheets, significantly reduced debts and adequate capital buffers. The report also acknowledged that while global developments such as an IT services slowdown or increased exports from China due to currency depreciation may bring some challenges, India is better positioned to weather them. For the Indian economy the report mentioned that despite slowdown phase overall economic indicators are in favour. "the pendulum has swung the other way for all 3 drivers - fiscal, monetary and regulatory," the report said. On equity markets, the report noted that recent corrections have made large-cap stocks, represented by the Nifty 50, more attractively valued, with prices falling below their 10-year forward averages. However, it cautioned that mid- and small-cap indices still remain expensive, though opportunities are beginning to emerge in select areas. The report advised a neutral stance on equities as an asset class and recommended an active fund management strategy over passive investing. It highlighted that active funds have outperformed passive ones in FY25 across various categories, a trend expected to continue. For investors, the brokerage suggested a lump-sum investment in hybrid funds and a staggered approach for large-cap, flexi-cap, mid- and small-cap funds over the next 2-3 months. In case of a deeper market correction, it recommended faster deployment of capital. On the fixed income side, it observed that recent measures by the Reserve Bank of India--such as rate cuts and liquidity support--have led to a mild steepening of the yield curve. (ANI)
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