Worst is over for economy: PM adviser

India's industrial output growth in April showed signs of recovery and the worst is over for the economy, a senior policy adviser said
on Friday.

"Signs of recovery are there. Worst is over, that is what I have been saying. Worst is over for the economy," said Suresh Tendulkar, the head of Prime Minister's economic advisory council.

Data on Friday showed industrial output rose by 1.4 per cent in April from a year earlier, rebounding after declining three times in the previous four months.

How major factors influence each other on the way to economic recovery

Economists raise growth forecasts after elections

Prospects of a stable government at the Centre have prompted at least six economic forecasters to raise their growth estimates for the current fiscal, citing lower-than-expected political risk after the recent general elections.

With the Congress-led United Progressive Alliance coming to power with less than half the number of allies than it had before and the four Left parties out of the picture, the average economists' forecast for GDP growth in 2009-10 has increased over half a percentage point to 6.35 per cent after the election results were announced.

Before the elections, growth was projected at 5.61 per cent, according to data collected from eight economic forecasters. Two forecasts were not revised (see table).

Looking up (Economists' forecasts for India's GDP)
Time period	Before Elections	After Elections
Average	5.61	6.35
Morgan Stanley	5.80	6.20
Nomura	5.30	6.30
Kotak	5.50	6.00
Barclays	5.50	7.00
HSBC	6.20	6.20
Goldman Sachs	5.80	5.80
Bank of America- Merrill Lynch	5.30	6.30
Macquarie Securities	5.50	7.00
Source: Respective research reports

"The political risk has been mitigated with a stable government at the Centre," said Subir Gokarn, chief economist with Standard & Poor's, a rating agency. "A stable government will speed up certain investment decisions so people would be more positive about the future."

Although S&P - which downgraded India's sovereign rating outlook on account of the rising fiscal deficit in January 2009 - has not revised its growth estimate, others like Morgan Stanley, Nomura and Kotak Mahindra had all done so.

The prospect of higher political risk from a widely expected hung Parliament had prompted GDP projections for 2009-10 to be revised downwards.

"The election results will have a positive impact," said Saumitra Chaudhuri, an economist with rating agency ICRA Ltd [Get Quote] and member of the Prime Minister's Economic Advisory Council. He said the negative bias to growth will go out his earlier prediction of 7 per cent, with a range of half a percentage point.

These upward revisions are expected to have an impact on corporate investments, which were the main driver when the Indian economy grew at 9 per cent and above for three years till March 2008, contributing nearly 50 per cent of the expansion in output.

"Given that the UPA no longer needs outside support of the Left, it would now be able to continue with the reform process unhindered," wrote Citigroup analysts in a recent research note.

The four Left parties had voted with the government in the Lok Sabha the last time and had been instrumental in blocking a significant amount of economic reform.

"While trends in consumption are likely to sustain, given that the government had already implemented fiscal stimulus measures over the past year, the UPA's clear majority would now spur investment growth as well," the Citigroup analysis added.

There is now a heavy weight of expectation that the government, free of Left, will push economic reforms in areas like banking, insurance and capital markets that will enable greater capital flow into the economy.

Worst is over; economic recovery likely by year end: Infosys

Software major Infosys today said the economy will recover by the end of the year or early next year going by clients' feedback suggesting that the worst is behind them.

"When we talk to clients, they say that it looked like the worst for them is behind and they might have hit the bottom," Infosys Technologies Limited CEO and MD Kris Gopalakrishnan told reporters here today on the sidelines of a function here.

After hitting the bottom, "Recovery probably will happen by the end of the year or early next year," he said.

However, he cautioned that the effects of recovery would not be immediately felt by the IT industry.

" (The) IT industry was lagging behind. We saw the downturn hit us slightly later. Recovery will also see a slight lag. Companies will begin spending only when they are comfortable that recovery has taken place," he said.

The recovery for the IT sector could lag by a quarter behind than overall recovery, he opined.

However, he cautioned that "there is still uncertainty" and the question of certain events impacting could not be ruled out.

Citing the example of General Motors plunging into bankruptcy, he said its possible implications on the automotive sector, manufacturing sector, impact on overall economy should be kept in mind, considering such events could impact recovery.

Which countries best survived the Economic Crisis?

Which countries do you think survived the economic Recession best?

Yes, India is one of the top 3 countries that survived this downturn very well.

Below are the full results from the Servcorp International Business Confidence Survey which was conducted in April 2009 over a period of two weeks.

Australia and China took 1st and 2nd place respectively, while India came in at 3rd along with Singapore.

Surprisingly, Except Canada none of of the western countries made it to top 10!

Most of the developing nations emerged favourites among international businessmen for their ability to withstand the recession. Out of 36 countries listed by Servcorp International, 21 countries are emerging market economies.

International Perspective:
The countries perceived to be surviving the economic crisis the best, as voted by international businesspeople are:

Rank	Country
1st	Australia
2nd	China
3rd equal	India, Singapore
5th	Hong Kong
6th	Canada
7th equal	Japan, Qatar
9th	New Zealand
10th equal	Malaysia, Sweden, Vietnam
13th equal	Netherlands, United States of America
15th	Indonesia
16th	South America
17th	France
18th equal	Belgium, England, Korea, South Africa
22nd equal	Austria, Taiwan
24th equal	Czech Republic, Germany, Ireland, Lebanon, Russia, United Arab Emirates
30th equal	Brazil, Morocco, Philippines, Scotland, Sri Lanka, Syria, Thailand

The survey was commissioned to understand the current mood, business morale and impact the economic downturn has had on businesses around the world. As part of the survey, Servcorp asked 7,500 international businesspeople from more than 24 nations to identify which countries they believe are surviving the crisis the best.

Survey: most economists see recession end in '09

More than 90 percent of economists predict the US recession will end this year, although the recovery is likely to be bumpy.

That assessment came from leading forecasters in a survey by the National Association for Business Economics to be released Wednesday. It is generally in line with the outlook from Federal Reserve Chairman Ben Bernanke and his colleagues.

About 74 percent of the forecasters expect the recession - which started in December 2007 and is the longest since World War II - to end in the third quarter. Another 19 percent predict the turning point will come in the final three months of this year, and the remaining 7 percent believe the recession will end in the first quarter of 2010.

``While the overall tone remains soft, there are emerging signs that the economy is stabilizing,'' said NABE president Chris Varvares, head of Macroeconomic Advisers. ``The economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.''

One of the major forces that plunged the economy into a recession was the financial crisis that struck with force last fall and was the worst since the 1930s. Economists say recoveries after financial crises tend to be slower.
Against that backdrop, unemployment will climb this year even if the economy is rebounding, the NABE forecasters predict. Companies won't be in a rush to hire until they feel certain any recovery is firmly rooted.

For all of this year, the forecasters said the unemployment rate should average 9.1 percent, a big jump from 5.8 percent last year and up from its current quarter-century peak of 8.9 percent. If NABE forecasters are right, it would be the highest since a 9.6 percent rate in 1983, when the country was struggling to recover from a severe recession.

Some forecasters thought the unemployment rate could rise as high as 10.7 percent in the second quarter of next year. The NABE outlook from 45 economists was conducted April 27 through May 11. General Motors Corp., chemical company DuPont and Clear Channel Communications Inc. were among the companies announcing mass layoffs during the survey period.

With joblessness rising, consumers - major shapers of overall economic activity - likely will stay cautious, making for a tepid turnaround. And given the big bite the recession has taken out of household wealth, notably the values of homes and investment portfolios, consumers probably will stay subdued for some time.

The worst is over, say analysts

Last week, the domestic stock markets set many new records. After the election results, the markets hit the upper circuit filter on Monday, for

the first time in the history of the domestic stock markets . On Tuesday, the markets set a record in terms of volume. The stocks in most beaten-down sectors such as banking, real estate, infrastructure , oil marketing and capital goods remained the favourites in the market.

Large-cap stocks ruled the markets during the initial part of the week while the mid-cap and small-cap stocks remained in the limelight during the later part of the week. Profit booking and consolidation was seen in the markets towards the end of the week.

On the macroeconomic front, the inflation rate, based on the wholesale price index (WPI), reported a slight rise and went to 0.61 percent. The rise was mainly due to the higher prices of food articles.
On the commodity front, the price of crude oil remained firm as it traded around USD 60 per barrel. Gold prices firmed up in the international markets due to the weakness in the US dollar against major world currencies.


Here are some significant developments that happened last week. Investors should track these factors to get a sense of market direction in the coming days:

Budget expectations

After the election results, the market's expectations of the full fledged budget to be presented by the newlyelected government are mounting. The budget is expected to come in the next couple of months, and many analysts are expecting some reforms and measures. The reforms on the top of the list include freedom to oil marketing companies to set the fuel prices here in line with those in the international markets, reforms in the insurance and pension sectors , and divestment in some public sector undertakings .

However, some analysts advocate realistic expectations from the budget as some reforms need a longterm roadmap, and will take a few years. Yet, it will be interesting to see the first step towards them during the next few months.

Global developments

Many analysts believe the worst is over in the global economic slowdown. The rate of negative GDP growth seems to be slowing down in many developed countries. But there are some countries which are yet to see signs of stabilisation . For example, the first quarter of 2009's numbers reported by Germany, Japan and Mexico shows that the worst is still not over there. Their GDP numbers contracted during the first quarter of this year.

Increased confidence

After the decisive mandate , it seems like the confidence levels of both the domestic and global institutional investors has gone up in the India Inc story. Many global rating agencies have upgraded the investment ratings and recommended the domestic markets as an investment destination. The foreign money started flowing in again, as there are early signs of a recovery even in many global markets as well. Many large projects here have been successful in attracting funds over the last few days. Many large companies in infrastructure , power and telecom could get funding by way of private equity placements or floating debt instruments.

Rupee appreciation

The rupee appreciated against the US dollar last week and breached its fourmonth high of Rs 48 per dollar . The sharp rupee appreciation was attributed to expectations that there will be an increase in the foreign funds inflows after the formation of a stable government . The weakness in the US dollar against all major world currencies is also responsible to some extent. Some analysts feel the Reserve Bank of India (RBI) should intervene and prevent sharp currency movements as such movements in either direction are not good for the economy, especially businesses that involve exports or imports.

The BIG Divide – Economists Vs Money Managers

“You don’t know who’s swimming naked until the tide goes out.”

- Warren Buffett

By Haresh Soneji, CNBC-TV18

Every time she is faced with an issue, my colleague at work would ask, “Haresh, I have a question”. She would have probably arrived at the answer all by herself, but would need a second thought on her analysis. I am currently faced with a similar dilemma. Last week when I met a few money managers and heard several on them on our channel, I wondered why there was a BIG divide among them and the economists. I’ve been thinking aloud with the money managers and probably have the answer, but expert opinions do matter. After all, it is them who pump the real cash into the markets.

Here’s the evolving picture. It all started mid-March with traders expecting the economy to pick up momentum with the government led stimulus packages across the world. Reflation trades sent commodity prices rocketing and equity markets followed. A reflation trade is not real demand, but a bet that the economy will rebound. This led to commodity prices surge up to 100% and equity markets across the world surging 35% plus.

Being the biggest pull back rally, the money managers were quick to bounce on the opportunity. Over the previous few weeks, almost all money managers have called this pull back a new Bull market. A ‘V” shaped recovery from the financial mess the world is in seems surprising. But, the money managers believe it to be so. Even the most conservative agencies – IMF feels that the global recession is deepest since the Great Depression and doesn’t seem to recover fast.

Morgan Stanley, in its research report mentioned, EMs continued secular bull market is on. Fidelty feels a new bull market has started which will last several years. Goldman Sachs macro strategy teams feel that the worst is behind us. Citi feels that conditions of global economy look marginally better. The Indian money managers seem to be taking a cue from them talking up the market. But, somewhere they are not confident of ploughing the money they are sitting on, awaiting an opportunity. A small word of advice from the novice – one can rarely time the market.

These are some of the reasons based on which experts vouching for a new bull market. The justifications they give all appear to be weak. Some of them are mentioned hereunder.

• Investors will get frustrated sitting on cash.
• It was an oversold market.
• The world economy has bottomed out.
• The worse is behind us.
• The pace of decline has slowed.
• Month on month numbers are looking better.

Clearly, these justifications look weak to me. The fact of the matter is that many of the fund managers have missed a major part of the pull back. The component of cash in their holdings was high and they have under performed considerably. And investors are forcing them for returns. So, they need to plough the cash and they need a reason to talk up the market. Speculators are buying the argument. But, to my mind, they just appear to be after thoughts.

So far, so good

The economists’ views are radical and worth pondering upon. Here’s a caveat. I am an economist and to that extent my opinions may be biased.

The argument starts from the fact that any government will try to pump prime the economy, when elected to power. A large part of the world economy was running for elections. And a new government will give a fight before calling it quits. This is one of the reasons for the short term build up. Yes, the focus is on jump-starting the economy. That’s fair. But, it will lead to further global imbalances.

The other key reason is to remain in denial of the depth of the financial mess. The IMF now states that the mess would be close to $4 trillion. Wall Street managers refuse to buy this. They refused it, when IMF said it was around $1 trillion in mid-2008. So, denial is an issue with money managers. Former chief economist of IMF says, “Recovery is likely to be slow. We go down and we stay down”.

But, the plan that the US is following in flawed. The world looks upon US as the creator of the problem and now the saviour. But, they don’t seem to be doing any good. Economists the world over seem to be taken a chapter from Keynes asking US to stop throwing good money after bad. Joseph Stiglitz, respected Nobel Prize winner economist, feels the government is aiding the industry and not fixing the system. The other issue is the conflict of interest at the White House as some advisors have close ties with Wall Street. Even Timothy Geithner is a Wall Street guy. So, the focus is on short term measures and not long term issues. The short term strategy will lead to a new bubble. in Stiglitz words, “I give it six months before it becomes undeniable that the current system is hopelessly broken”.

Stephen Roach, chairman, Morgan Stanley Asia, also an economist, writes that depression fixation is the issue with the world leaders. Authorities are failing to address the root cause of the current crises and recession. Roach says, “Depression Foil might end up promoting a false recovery driven by unsustainable rebound in demand. Put it together and it smacks of a dangerous sense of déjà vu”.

The conclusion therefore is to remember the world is in a financial mess where visibility is poor up ahead. New governments across the world will try to jump start economies. But, that needs a lot of commitment. Once the short term measures fail, a black hole situation exists. The probability arises from the fact that the US handling of the situation is flawed and opaque. These are set of constraints that will guarantee failure. On the other hand, consumer confidence is low and consumers are even delaying their spend on necessities. This is evident from the CNBC TV18 Boston Analytics Consumer Confidence Index. Consumer confidence is a lead indicator of any rebound in the economy. There are no positive signals as yet from this front.

Finally remember, the economist have no vested interests in pulling the economy down. On the other hand, the money managers have an inherent interest of talking the market up. The BIG divide question is which side of the argument will you buy?