Overview of Economic Indicators and Market Returns

From the Covid-19 pandemic to the Russia-Ukraine war, we have witnessed turbulent times. The world’s economy is wedged between rising Inflation, declining GDP, climate change and geopolitical tension, the status quo is erratic.

Here\’s everything you need to know about it:

Inflation:

Inflation is the rate of increase in prices of goods & services over a given period of time. In India, inflation is calculated using the Consumer Price Index (CPI), which consists of 299 essential commodities. The collective average price changes of each of these commodities constitute Inflation in the country.

The major causes of Inflation in India are

• Increase in money supply
• Increase in government expenditure
• The Demand-Supply gap
• Rise in import prices
• Deficit financing
• Rise in wages
• Devaluation of Rupee
• Government Policies and regulations

Apart from the aforementioned, Climate Change has now become a major contributor to the rise in Inflation as it has a negative impact on the agricultural produce of a country. Also, in the past 5-10 years, there has been a significant increase in natural catastrophes due to Climate Change.

Taking a look at India’s inflation rate for the past 5 years, it has been constantly increasing and has only dipped once in the year ending 2021. In the year 2017, the inflation rate in India was 3.43%, whereas it jumped and more than doubled to 6.95%, in the year ending 2022.

If we look at the average FD rate in India, it is currently below 6% in most of the banks for general citizens. The inflation rate in India crossed 6% in the year 2020 and has been floating around the range of 5.5% to 7%.

2. GDP Growth Rate:

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period

Real GDP tracks the total value of goods and services calculating the quantities but using constant prices that are adjusted for inflation. As opposed to nominal GDP that does not account for inflation.

The factors affecting GDP in India are-

• The pandemic
• Inflation
• Consumer Demand
• Fiscal Deficit
• Investment

India is a developing country and has a higher GDP growth rate as compared to developed countries like the USA, the UK, France, Germany, etc. If we look at the past 5 years\’ figures, the GDP growth rate in India has been positive, excluding the year 2020 in which the GDP of India contracted by 7.3% and it took the biggest hit in the country’s history due to the Covid-19 pandemic. According to economists, India’s GDP growth rate does not match its full potential.

The World Bank has forecasted India’s GDP Growth rate at 8% for the fiscal year 2022-23.

3. Government Bonds:

A government bond or a sovereign bond is a debt obligation issued by a national government to support government spending. It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date.

The government bond interest rate is basically a risk-free return rate that an investor gets on his/her investment.

If we look at India’s government bond rate over the past 5 years, it has fallen from 7.4% in 2018 to 6.14% in 2020 and then it rose to 6.84% in the year ending 2022.

4. Sectoral Performance:

Looking at the 1 Year CAGR of BSE Indices, we can see that the best performing sector was metal which gave 55.9% returns to its investors followed by Telecom (41.9%) and IT (37.2%)

The CAGR of Sensex was 18.3%. There were 9 sectors that outperformed Sensex in terms of CAGR, and there were 5 sectors that gave considerably lower annual returns as compared to Sensex.

The worst performing sector was FMCG which gave a marginal annual return of 3.6% followed by Finance (8.1%) and automobile (8.1%)

5. 5 year CAGR:

Looking at the 5 Year CAGR of BSE Indices, we can see that the best performing sector was Consumer Durables which gave 20.8% annual returns to its investors followed by IT (19.6%) and Small Cap (15.6%).

The 5 Year CAGR of Sensex was 12.9%. There were 7 sectors that outperformed Sensex in terms of 5 Year CAGR, and there were 7 sectors that gave considerably lower annual returns as compared to Sensex.

The worst performing sector in terms of 5 Year CAGR was Telecom which gave a marginal annual return of 4.8% followed by Metal (7%) and Oil and Gas (8.8%).

6. 10 Year CAGR:

Looking at the 10 Year CAGR of BSE Indices, we can see that the best performing sector was IT which gave 28.6% annual returns to its investors followed by Consumer Durable (22.6%) and Sensex (14.6%).

The 10 Year CAGR of Sensex was 14.6%. There were only 2 sectors that outperformed Sensex in terms of 10 Year CAGR, and there were 12 sectors that gave considerably lower annual returns as compared to Sensex.

The worst performing sector in terms of 10 Year CAGR was Automobile which gave a marginal annual return of (1.8%) followed by Finance (1.8%) and Oil and Gas (6.7%).

As we can see, the market is volatile and the Indian economy is sensitive. We are amidst an unpredictable present and a nebulous future. The leaders are facing a dilemma about the imminent policies that should be created for a secure future.

The road ahead is bumpy and India has a long way to go to unravel itself from the current economic chaos.