India's poised to grow like it did in 2003-10, says Jefferies

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The Indian economy is poised for a repeat performance of growth last seen between 2003 and 2010 led by corporate deleveraging and profitability, lower bad assets and demand for housing, Jefferies said.

India's economic growth averaged 8.5% to 9% between 2003 and 2010, up from the 5.5%-to-6% average before that.

The US brokerage analysed six key components of the economic cycle: Demand for housing, drop in bank NPAs, corporate profitability, interest rates, corporate leverage and capex revival.

It said the risk appetite of banks is set to increase as bad loans have fallen - just as they did in 2003-04.

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"Between 1997 and 2004, bank gross NPA ratio moved down from 16% to 8%. Similarly, the Indian banking system's gross NPA has moved down from 12% in March 2018 to 7% now and alongside a provisioning jump, the net NPAs are down 59%," Jefferies said. "Provision costs are off drastically. While banks are still risk-averse, we believe that the stage is now set for an increase in risk appetite. Strong capability and seven-year high RoEs further support lending growth."

Although the broader capital expenditure cycle has not turned yet, it is likely to follow the housing cycle with a lag.

"The housing cycle improvement is visible. A historical analysis since 1996/97 suggests that Indian housing up-cycles and down-cycles typically last for 6-8 years," Jeffries said.

"The period between 2012/13 and 2020 was a prolonged down-cycle and 2021 is the first year of an upcycle, with a visible uptick in volumes and pricing. Housing construction is a large job creator and has multiple economic linkages capable of driving an economic upturn."

This along with robust expansion in corporate profitability will push up growth. Annual corporate profit growth was a poor 0.4% between FY11 and FY20, but has increased to 51% between FY20 and FY22.

Jefferies expects profit growth to increase further to 15% between FY22 and FY24, led by the financials and other cyclical sectors.

Companies have also used the slowdown in the last six years to deleverage as a result of which the debt to equity ratio for 600-plus non-financial companies has come off from 1 times to 0.7 times, creating space for the next economic upcycle.

Although interest rates are set to rise from current record lows, it is unlikely to hit the economic recovery despite a rise in yields - as it did in the 2003-2010 economic upcycle. "Corporate investment is still sluggish as capacity utilisation and risk appetite is low. Property uptick should help reduce risk averseness. Overall, the broader capex upturn should follow over the next 4-6 quarters," the US brokerage said.
 

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The Indian economy is poised for a repeat performance of growth last seen between 2003 and 2010 led by corporate deleveraging and profitability, lower bad assets and demand for housing, Jefferies said.

India's economic growth averaged 8.5% to 9% between 2003 and 2010, up from the 5.5%-to-6% average before that.

The US brokerage analysed six key components of the economic cycle: Demand for housing, drop in bank NPAs, corporate profitability, interest rates, corporate leverage and capex revival.

It said the risk appetite of banks is set to increase as bad loans have fallen - just as they did in 2003-04.

View attachment 33756


"Between 1997 and 2004, bank gross NPA ratio moved down from 16% to 8%. Similarly, the Indian banking system's gross NPA has moved down from 12% in March 2018 to 7% now and alongside a provisioning jump, the net NPAs are down 59%," Jefferies said. "Provision costs are off drastically. While banks are still risk-averse, we believe that the stage is now set for an increase in risk appetite. Strong capability and seven-year high RoEs further support lending growth."

Although the broader capital expenditure cycle has not turned yet, it is likely to follow the housing cycle with a lag.

"The housing cycle improvement is visible. A historical analysis since 1996/97 suggests that Indian housing up-cycles and down-cycles typically last for 6-8 years," Jeffries said.

"The period between 2012/13 and 2020 was a prolonged down-cycle and 2021 is the first year of an upcycle, with a visible uptick in volumes and pricing. Housing construction is a large job creator and has multiple economic linkages capable of driving an economic upturn."

This along with robust expansion in corporate profitability will push up growth. Annual corporate profit growth was a poor 0.4% between FY11 and FY20, but has increased to 51% between FY20 and FY22.

Jefferies expects profit growth to increase further to 15% between FY22 and FY24, led by the financials and other cyclical sectors.

Companies have also used the slowdown in the last six years to deleverage as a result of which the debt to equity ratio for 600-plus non-financial companies has come off from 1 times to 0.7 times, creating space for the next economic upcycle.

Although interest rates are set to rise from current record lows, it is unlikely to hit the economic recovery despite a rise in yields - as it did in the 2003-2010 economic upcycle. "Corporate investment is still sluggish as capacity utilisation and risk appetite is low. Property uptick should help reduce risk averseness. Overall, the broader capex upturn should follow over the next 4-6 quarters," the US brokerage said.

Realestate micromarkets within Bombay are razor hot at the moment. A large role has been played by the discounts offered by the Government.
 

Nilgiri

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Realestate micromarkets within Bombay are razor hot at the moment. A large role has been played by the discounts offered by the Government.

Federal or state govt?
 

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Federal or state govt?
In MH, it's the state Govt offering fsi to developers at discounted rate and cutting stamp duty and registration charges.

 

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In MH, it's the state Govt offering fsi to developers at discounted rate and cutting stamp duty and registration charges.

Actually as per some policy expert , it's work done in fadnavis era and his policy which have put Maharashtra in auto growth mode , that's why even after pandemic Maharashtra is growing like hell
 

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Actually as per some policy expert , it's work done in fadnavis era and his policy which have put Maharashtra in auto growth mode , that's why even after pandemic Maharashtra is growing like hell
Fadnavis was good. No riots, minimal corruption. Corruption has increased under MVA - but with NCP in power that was a given. Thackeray is also very hands on and good. Under him, things were pretty much in control during the height of the pandemic.
 

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Fadnavis was good. No riots, minimal corruption. Corruption has increased under MVA - but with NCP in power that was a given. Thackeray is also very hands on and good. Under him, things were pretty much in control during the height of the pandemic.
Thackrey is doing all this out of ego , otherwise he was quite okayish ,but now shiv Sainik are turning another gang of suckers , sucking on a family (congress 2.0)
 

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Thackrey is doing all this out of ego , otherwise he was quite okayish ,but now shiv Sainik are turning another gang of suckers , sucking on a family (congress 2.0)
That's the narrative spun by the BJP. Same BJP was happy to join hands with Ajit Pawar to form a 3 day Govt. which didn't survive.
 

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That's the narrative spun by the BJP. Same BJP was happy to join hands with Ajit Pawar to form a 3 day Govt. which didn't survive.
Nope that's what public is thinking . Politics is a dirty game ,bjp is a political party so they will do politics too , so will shiv sena .
 

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Nope that's what public is thinking . Politics is a dirty game ,bjp is a political party so they will do politics too , so will shiv sena .
:) Depends on which public and their own political affiliations and biases.
 

Nilgiri

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In MH, it's the state Govt offering fsi to developers at discounted rate and cutting stamp duty and registration charges.


I welcome such efforts to reduce govt extraction from sectors that can employ labour well.

India needs to change more of its farm labour to construction labour still. Govt overhead needs to be reduced as close to zero here.
 

Lonewolf

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I welcome such efforts to reduce govt extraction from sectors that can employ labour well.

India needs to change more of its farm labour to construction labour still. Govt overhead needs to be reduced as close to zero here.
Construction can't employ such large population,and if does then a issue will be created when most infra work is complete , we need to make our supply chain reliable
 

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Construction can't employ such large population,and if does then a issue will be created when most infra work is complete , we need to make our supply chain reliable

Of course it cannot employ all of the labour....but it can certainly employ lot more than currently for India to transition to next tiers of economy better....and without huge amount of education investment.

There are simply too many people stuck in agro still, and not enough building stuff that India needs.

It is a real chokepoint....supply really needs to expand here....it is part of reason such labour gets exported too much to gulf anyway (instead of retained in India).

Agro will then also transition to higher productivity just like in TN and parts of south....when this kind of thing happens at large in hindi belt for example.

TN is only major state with 60% urbanisation I believe. More states need to look at what happened there for it....construction sector is one avenue.

Then over time with lot more human resource improvement and education imparted....India can sustainably mass-industrialise and catch the bus for good then.

In interim construction and such allied activities are very key stepping stone to provide value added with timeXpop India has right now to generate wealth to save.
 

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Of course it cannot employ all of the labour....but it can certainly employ lot more than currently for India to transition to next tiers of economy better....and without huge amount of education investment.

There are simply too many people stuck in agro still, and not enough building stuff that India needs.

It is a real chokepoint....supply really needs to expand here....it is part of reason such labour gets exported too much to gulf anyway (instead of retained in India).

Agro will then also transition to higher productivity just like in TN and parts of south....when this kind of thing happens at large in hindi belt for example.

TN is only major state with 60% urbanisation I believe. More states need to look at what happened there for it....construction sector is one avenue.

Then over time with lot more human resource improvement and education imparted....India can sustainably mass-industrialise and catch the bus for good then.

In interim construction and such allied activities are very key stepping stone to provide value added with timeXpop India has right now to generate wealth to save.
Does this mean another period of growth like in Manmohan times where our economy skyrocketed
 

Nilgiri

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Does this mean another period of growth like in Manmohan times where our economy skyrocketed

We shall see. A number of fundamentals are looking better than they have in the last decade.
 

Iceream

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We shall see. A number of fundamentals are looking better than they have in the last decade.
What is your prediction of growth for the next let's say 5 -10 years what will be the avg growth rate above 5 5-8 percent ect
When will we become 5 trillion in gdp ?
When do you think we will be the 3rd largest by gdp?
 

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What is your prediction of growth for the next let's say 5 -10 years what will be the avg growth rate above 5 5-8 percent ect

5 - 10 year prediction needs 3 years to look solid/stable in the current time frame. So have to wait till 2023 at least to see how India (proven) investment especially shapes up....and how its industries and sectors transition, grow and mature.

When will we become 5 trillion in gdp ?
Judging by even USD inflation going on now, I would not be surprised around 2026 at earliest.....and maybe 2028 at the latest. (This should also help you answer overall my prediction for 1st question...i.e maybe around 10% total growth yearly and about 6-7% yearly real growth)

This GDP number is not that important in grand scheme of things tbh....until maybe we get to lot larger dbl digit trillion....i.e a whole new class of GDP size relative to our population.

GDP is mostly a media gossip/drama exercise.

When do you think we will be the 3rd largest by gdp?

Sometime after 2030.
 

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@Iceream manmohan era saw growth due to policy of vajpayee era , upa 2.0 saw economy worsening due to upa 1.0era
 
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