The GDP data has been getting worse for a while. The latest Q1 data which came on Friday beat all expectations hollow on the downside. Clearly, it was a howler. The interesting point to note is the setting and drama that surrounded this release.
The minister addressed a presser on bank reorganisation. The details related to the GDP were released almost in sync. The government simply went about its work promising more in the days to come. Clearly, the situation is grave and everybody knows it.
Without enough growth, we can expect a sharp dip in the economy as we saw in the early part of this decade. But, there is an eerie silence just now.
This brings us to the two most important questions. Does the government have an aggressive Plan B it will push through without much warning? Or is this recovery going to be a slow grind?
The markets are clearly clueless about what to expect. Being clueless is doing no good to investor confidence. So, both government and markets need to gradually rebuild confidence. While how long this phase will take can’t be easily predicted, history tells us that this is the most luring phase for equity investing. Before data gets better in the economy, a sentiment most likely will.
That’s the lesson from past market cycles. This time will be no different.
