India’s Economic Recovery: DSP Mutual Fund’s Netra Report Highlights Key Trends
According to DSP Mutual Fund’s September 2024 Netra report, India’s strong economic recovery has been largely driven by an increase in fiscal expenditure. The report, which tracks current economic trends and market insights through various charts, emphasises the need for the private corporate sector and households to play a larger role in sustaining the ongoing growth momentum.
Netra also pointed out an unsettling calm in the markets, with the Nifty 50 TRI index maintaining an impressive 53-month streak without a 5 per cent decline and 13 years without a drop greater than 10 per cent. Sahil Kapoor, Head of Products and Market Strategist at DSP Mutual Fund, said, “The calm in the markets, marked by an unnerving lack of volatility, is a double-edged sword. While it provides a sense of stability, it also masks underlying risks that could surface unexpectedly, catching investors off guard. To ensure a sustainable recovery, there is a need for the private sector and households to take the lead, transforming fiscal stimulus into lasting economic growth.”
However, the report notes a shift in market dynamics, with the momentum factor, which has outperformed since the COVID-19 bottom, beginning to lose its dominance. At the same time, the quality factor, which had underperformed over the last four years, is now seeing a resurgence, potentially indicating a change in market leadership that could favour quality-orientated funds, both active and passive.
The report highlights the critical role government spending has played in the recovery, with a focus on capital investments crucial for future growth. However, contributions from the private corporate sector and households have lagged. It also draws attention to a slowdown in India’s per capita consumption, approaching lows seen in previous cycles. Given that consumption accounts for around 60 per cent of GDP, it is vital that this sector grows at a rate exceeding GDP growth to stimulate private capital expenditure.
India’s tax collections have demonstrated robust growth, with gross tax revenue showing a five-year compound annual growth rate (CAGR) of 14 per cent. This growth, largely driven by income tax, indicates a rising dependency on capital gains and stock market performance, introducing new vulnerabilities to the economy.
The banking and financial services sector (BFSI) has emerged as a key driver of market earnings, recording a 12 per cent increase in profit after tax (PAT) growth, significantly outpacing the 4.6 per cent growth observed in non-BFSI Nifty 50 companies. This disparity underscores the sector’s importance in India’s economic story and highlights promising investment opportunities.
Doubts Revealed
DSP Mutual Fund -: DSP Mutual Fund is a company in India that helps people invest their money in different ways to grow it over time.
Netra report -: The Netra report is a special document created by DSP Mutual Fund that gives important information about how India’s economy is doing.
fiscal expenditure -: Fiscal expenditure means the money that the government spends on things like building roads, schools, and hospitals to help the country grow.
private sector -: The private sector includes businesses and companies that are not owned by the government. They play a big role in creating jobs and making products.
household contributions -: Household contributions refer to the money that families and individuals spend and save, which helps the economy grow.
Sahil Kapoor -: Sahil Kapoor is a person who works at DSP Mutual Fund and gives advice about investments and the economy.
market risks -: Market risks are the chances that investments might lose value because of changes in the economy or other factors.
quality-oriented funds -: Quality-oriented funds are special types of investments that focus on buying shares of companies that are known to be strong and reliable.
tax revenue growth -: Tax revenue growth means the increase in the amount of money the government collects from taxes, which can be used for public services and development.
