The Indian economy is not at risk of experiencing stagflation, a combination of slowing growth and higher inflation. The momentum of economic activity in the country is evidence against the possibility of stagflation. There are good results posted by many of the companies in Jama Wealth’s equity advisory portfolios, as well as increased construction activity, increased spending on vacations and air travel approaching pre-COVID levels, and increased government expenditure, particularly capital expenditure, as indicators of a strong economy.

We recommend that investors navigate the potential ups and downs of the stock market by having an appropriate asset allocation and a proven investment philosophy. In the event of an economic downturn, we recommend focusing on companies with low debt. We also believe that the technology sector, including IT, will continue to do well in the long run due to the essential role of technology in the post-COVID world. However, please note that operating costs may increase in the short term but are expected to stabilise over the medium term.

Regarding the monetary policy of the Reserve Bank of India (RBI), we expect policy rates to remain unchanged, as the RBI can increase rates later if necessary. He cites the attractiveness of India as an investment destination, lower valuations, and continued faith in equities as an asset class among Indian investors as reasons for the relatively small price correction in the market despite heavy selling by foreign institutional investors. However, we acknowledge that there may be turbulence in the market in the short term due to further falls in market indices and rising COVID cases.

The Indian investors continue their SIPs, which are acting as a support level for the market. With rising interest rates resulting in negative returns on debt funds, gold prices not moving up as one would expect during wartime, and real estate requiring huge capital commitment, there is no single asset class that would pull all the money going into equity. Having said that, we will see turbulence, as further falls in market indices can create nervousness among new investors or those without much margin of safety.

India is among the fastest-growing economies in the world. Every day, anecdotally, we see a lot of economic activity around us. There is an increase in construction activity. Big, fat weddings are back. People are spending their vacations. Air travel is going back to pre-Covid levels of 1.1-crore-plus monthly passengers. Government expenditure, particularly capital expenditure, is up and driving growth. This is likely to continue until private investment picks up. We are relatively better placed with respect to various macroparameters. In short, our view is that we are not heading towards stagflation.

In view of the earnings results for the fourth quarter and financial year 2021–2022, we don’t think India is at the beginning of an earnings downgrade cycle. “Many of the companies that we track in our two main equity advisory portfolios have posted good results. Topline growth has been satisfactory, although there has been pressure on margins due to an increase in input costs, largely owing to inflation and the Ukraine-Russia standoff.

Authored by Ram Kalyan Medury, Founder & CEO Jama Wealth. Also published on MoneyControl