Crisis

I have been reading for the past few days, listening to the noise out there on different media, getting some hilarious forwards on WhatsApp and other social media platforms on the way India is not heading towards a financial crisis but has already entered it.

Let me start with some facts:

Nifty closing

 

The Indian economy has grown by over 8.5% CAGR for over 25 long years and over 7% in the past 10 years.

The US economy during the same period has grown by just about 4% and an even slower 3.6% in the past decade.

Let me now take your attention to the GDP growth line in the above chart. Over the past 25 odd years, the Indian economy has seen a growth rate of less than 6% for 6 of these 25 years. In fact, it has touched 4% mark on 5 out of those 6 occasions. But still, the 25-year growth rate is over 8.5% CAGR.

There’s more to this story, please look at the phase from 2000 up to 2002. The growth in the Indian economy during that phase was extremely slow.

But we don’t need to see the line in the graph for what we’ve seen for 5 years after that.

The question in your mind I am sure is, what if we see slow growth for 2-3 years now?

The Indian economy has undergone a reform process over the past 3-4 years, and it would be a bit natural for the economy to take some time for recovery from the initial resilience to change.

But, once the economy starts to reap the rewards of the reforms carried out, the growth would be stable and sustainable.

Also, there’s a bit more I can gauge from the above chart, and this is something I always highlight very strongly. Every time we’ve seen a dip in the Indian economy, in terms of GDP growth rate, or the stock markets or the auto sales numbers or the growth in cement sales, we’ve always seen a bounce back in the immediate future.

And if the target of achieving a $5 trillion economy, which seems completely achievable, is to be achieved, a growth of 8.5-9% is a must for the coming 5-6 years. 

For a long term investor, these are not the times to be scared. Or rather, these are times to make merry as there are quality businesses available for a discount.