- By Nikhil Kamath
Indian markets have largely remained volatile this year, with no clear direction on the bullish or bearish side. The global economy has fared better, whereas the domestic scenario has failed to match this global outperformance. A multitude of positive steps taken by the government to aid the economy has helped somewhat but not transpired into a significant change in overall direction our economy seems to be taking. This slowdown seems systemic, with most macroeconomic indicators slowing down, something we haven’t witnessed over the last decade.
Manufacturing, AUTO, and Real estate industries seem to be leading this slowdown.
Passenger and commercial vehicle sales continue to slow down at an alarming pace, the slowdown in CV sales we consider to be a leading indicator of economic activity and to see truck and tractor sales slow down as much as they have is alarming.
A lot is said about this sector, from Millenials not wishing to own cars, etc, as a millennial myself, I can attest to the fact that none of what we are doing is slowing down commercial vehicle sales.
Real Estate in India is influenced by cultural innuendos, buying a home is not a factor of yield on the asset but considered a necessity for a man to settle down, etc, this I believe is changing rapidly, at 3-4 percent rental yields which don’t even protect us against the prevalent inflation rates, renting real estate practically makes a lot more sense than buying at current market valuations.
We have seen a significant slowdown in this sector with considerable inventory piling up, a correction in real estate prices we believe will be beneficial to the economy at large while hurting real estate companies in the short term.
Land prices have largely remained flat over the last few years, and it could only be but a matter of time before the incumbent real estate players have to slash prices to get rid of their inventory to service interest payments.
To summarize, we believe the cut in corporate tax rates and interest rate cycle, which is on its way down are significant positives for the economy, but a lot more needs to be done to drive positive sentiment and increase Capex significantly.
For the next year, I maintain a neutral to slightly bearish outlook, the pain in the real estate sector could be the decisive factor, a significant slowdown here is bound to transcend into many other industries.
(The author is the Co-founder & Chief Investment Officer, Zerodha. The views expressed are the author’s own.)