The recent spate of scams and scandals may have tarnished India's image. But on the GDP front forecasts show India to have done well during the September quarter. According to Reuters, India's growth during the September quarter has been pegged at 8.3%. This is decent considering that the economy had recorded 8% plus growth in the previous two quarters as well. Good monsoons this season coupled with healthy manufacturing activity appear to have fuelled this growth.
The main worrying factor for the RBI, however, is inflation especially on the food front. Overall inflation has still been hovering in high single digits. This is beyond the central bank's comfort level of within 6%. That said, the central bank maintains that it expects inflation to cool down to those levels by the end of the fiscal. Recent data on this front has also been a tad bit encouraging. Because of good monsoons, agricultural output has witnessed an increase. As a result, annual food inflation eased for the sixth consecutive week in mid-November. Also, at 8.58%, the annual headline inflation in October was at its lowest in 10 months.
The central bank is most likely to continue with its monetary tightening measures. This is till inflation reaches acceptable levels. The positive takeaway is that India has managed to grow its GDP at a decent pace despite the hike in interest rates. That said, many Indian companies which have enjoyed the benefits of lower interest rates and input costs are not likely to witness the same going forward. And so there could be some pressure on margins and profitability. But India is certainly doing much better than either the US or Europe. The economies of these are still grappling with recession, bloated debt and high unemployment.
However, while the India growth story holds true, stock market valuations are a different matter altogether. These have zoomed in recent times. Especially on the back of a flood of money from foreign investors. Only the scandals that have erupted in the past few weeks have taken some steam off this rise. But investors still need to be choosy while making their investments. They will have to ensure that decisions are not based on what a bunch of foreign investors are planning to do.