Indian Economic Sitiation - Good, Great, Bad or Ugly?

Hello All,

I am new to stock market and have started investing only recently. I have invested in few individual stocks and some through MFs and SmallCase. As Sensex has hit all time highs there is a feeling that it may correct but as a long term investor I know that I should not try to time the market. However, while I hear good things about what Govt is doing in various sectors, I do come across information which is contrary to this narrative.

One such example is this document sent to me by a friend. Here one Mr.Vivek Kaul goes on to tell that we are staring at 2008 like situation in India for various reasons and we need to be prepared to protect ourselves. His ultimate aim is to get us to buy his new book (and educate ourselves).

His biggest reasons for his current negative outlook is:

  1. Public Sector has Grown in number and size and these are generally loss making. He gives examples of BSNL, MTNL and Air India.

  2. Unemployment is growing every year and this is going to affect a lot of people. It also says how Make In India, Right to Education and other initiatives have failed to get the employment up. How highly educated people are applying for low paying jobs like Poens, Sweeper in large numbers. This will lead to national disaster and while this may not affect a profit making company or its investors directly, it will certainly dent India’s growth story.

  3. How Govt schemes like MNREGA is leading to corruption

  4. How NPAs of big Govt banks could hurt us.

I have attached the document below.

The Vivek Kaul Letter.pdf (1.5 MB)

Now, I want to know if any of you have read the book and have a view which is either supportive or to counter his claims. Even if you have not read, please go through the document and let me know your view on the same.

Appreciate your time and valuable thoughts.

I have read the book; his views are backed by facts, which are verifiable. his macro story revoles around big government and unemployment.

Good read if you enjoy macroecomomics


I am aware of this book though I have not read it in detail.
I have been generally reading his thoughts through various mediums.

Even if we all look around, we can realize that situation is not at all rosy or for that matter good/very good. Who ever I am talking to from various sectors, things have become difficult for most of us during past 5-6 years.

The way I look at these things is as below (I am not an expert in Finance or Economics, so my thoughts are from layman investor perspective):

  1. Job situation : Net jobs created in last 4-5 years is in negative or at most hardly in thousands. People in IT, Online Retail, Telecom have lost jobs at faster rate compared to Auto, Engineering and other core sectors. The stress is already visible to a large extent.

  2. Travel Costs : I have not seen that when petrol prices were down to Rs. 60-65 or below for some time as compared to Rs. 80+ prior to 2014, translating into any meaningful reduction in auto/taxi/cab fares so that economy could have benefited by the savings which would have translated into investments.

  3. Pharma sector - It was growing at +20% and above till 2015, and things have completely turned into de-growth. This is not a good sign though things may change slowly after US FDA clearances are obtained by large pharma exporters but this time it may take longer time.

  4. Non Performing Assets : We can see that they are going up day by day and some prudent measures are still missing to revert the situation and bring things back on track.

  5. Rising costs of education : Ideally cost of education should have stabilized after implementation of RTE since it was supposed to ensure education for all at reasonable / affordable costs. There is no visible signs of education costs going down or stabilizing as in some of the developed nations.

  6. Earnings growth : It is not picking up due to various reasons except few pockets (NBFC, HFC, Banking, Specialty Chemicals, and few other consumption sectors). What does this indicate? Some deeper analysis is required over here.

Overall, things are looking tough with no. of unemployed people going up every year. This is already affecting people on ground.

Please do not consider this as negative views about economy. Economy is not dependent on only above factors but it is a consolidated picture of lot more moving parts. I am optimistic about Indian growth story and equity as an investor, but government with assistance from private sector and strong political will need to move at rapid pace to keep this positive outlook intact.


Some data to chew. Indian Economy - Trend Indicators.

Source: (page 31 & 32)


The fact about big and intrusive State is true, and it is definitely a negative. However, there are counterbalancing positive developments too which are happening simultaneously. Broad economic situation and stock market performance is not immediately and directly correlated, except during extremes. Stock market direction is influenced by many factors. Also, if you are a direct stock picker, broad market performance and your own stock performance will differ, based on the fundamentals of the company invested. So if you are new, my advice is to maintain your asset allocation, avoid leveraging and do your own research before investing. Do not invest based on tips given by others. Do read a lot of books.

Basically the gist of this article(which is like a synopsis for his book) is India is looking at a economic catastrophe and buy this book to know about it and to protect youself(not sure how you can use it )

While definitely i dont disregard the basic premise and also facts of the book ,we also have to be aware if you look closely the major risks which he points are actually known to every one who are regular watchers of Indian economy.

Major risks he outlines are

1.India’s inability to generate Jobs catering to india’s upcoming massive young workforce
The government recognizes this as the major risk and you can hear a lot of talk on it.Also this one is not something new to India but we have also faced this in 70s and 80s .Whether the government is able to manage it this time via economic reforms like in 90s will be an interesting watch for the next few years but impact on the stock markets is actually not linear. Actually the correlation between economic state of a country and stock markets performance have been differing in recent years.EVen Mr.Goel in one of his newsletters acknowledged it.

2.India’s loss making public sector companies
From Air India to BSNL,every one in India knows about the shape of our public sector companies and this govt (support it or oppose it) is taking it head on by trying to privatize the public sector or restructure them as much as possible and i believe this risk is being the one which is being most mitigated

3.Corruption in Govt Schemes like MNREGA

Saying corruption is a problem for India’s growth must be one of the clique statements ever used .While it holds good,its not that is going to make India suddenly face a economic disaster.Present Govt through DBT is actively addressing it and if it is to be believed ,in the implemented sectors and locations,leakage has come down by 30%.

While we can definitely not dismiss the facts mentioned in the article,i feel everything written here need not be taken as on face value as the immediate threats for our impeding economic disaste or our markets.

Stock markets in recent times have been driven to crazy valuations because of global liquidty supply and India’s domestic inflow.

While one thing is out of India’s control ,the other phenomena has to be closely watched if its a structural shift or just a momentum based play driven by positive investor sentiment.If second thing is a structural shift,we might be in for some unwitnessed surprises in Indian market.

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Thanks everyone for your valuable thoughts. It is good to know most of you have confidence in India’s growth story. I take all your advice into account when investing. Appreicate your time again.

must read article on india-japan relations

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Last two market crashes of 2001 and 2008 were driven by global issues, primarily US. Next one may well have the same reasons.

I guess this is the best thread to discuss Indian Macros.

How was the bottom made in 2008?

Reports of ongoing weakness in the financial sector and economy continued to pile up. On Sunday March 1, news broke that AIG planned to report a $62 billion 4th quarter loss (the largest quarterly loss in US corporate history), and that the Treasury and Fed had agreed to provide AIG with an additional $30 billion in capital and loosen the terms of its earlier loan to the insurer. Markets plunged on Monday as fear of knock-on effects were triggered and the first economic stat releases from February showed the economy contracting at an accelerating rate. Monthly auto sales fell 5.8 percent to the weakest level since the early 1980s and the economy shed 651,000 jobs. The next week opened with more of the same. On Monday, March 9, the World Bank came out with a very pessimistic report and Warren Buffett said that the economy had “fallen off a cliff.” The stock market fell by 1 percent. Investor sentiment was extremely bearish and selling was exhausted. That was the day the bottom in the US stock market and the top in the dollar were made, though it was impossible to know that at the time.

Comparing this to current state of Indian economy, two points are already satisfied. Large losses for finance companies and declining auto sales.