For the record, we’ve been talking about a muted growth recovery in FY19 for a long time now (7% on GDP & GVA). We questioned farm sector realization and consumer sentiment way back in April last year. We believe the ongoing recovery in corporate capex and export recovery would be the key drivers of growth acceleration between FY18 and FY19. But, both have their wall of worry to climb.

We showed this week that the only reason for headline investment rate decline is housing and now stands at a cyclical trough (India in Numbers). A recovery in housing is impending. Of more interest though is the steady improvement in corporate capex over the last few years despite low aggregate capacity utilization. High frequency data suggests that real investment growth would recover to 10% growth as seen in FY17. But, the pre-mature rise in market interest rates, noisy political conditions and trade wars could play spoil sport.

On trade wars, we think that key trade dynamics for India have not changed. Over the last few years, the main drivers of export growth were engineering goods (Iron & Steel), jewelry, textiles, shrimp and oil. The US is unlikely to bother about the last four items. ‘Iron & Steel’ exports have done well due to anti-dumping duty on Chinese steel in the EU. And, the US has exempted its ally from their import tariff, so the dynamic for our engineering exports has not been disturbed for now. The US complaint against India at the WTO can be managed too since our trade balance with the US is expected to worsen in the future as we will be buying more aero-planes and natural gas from them. This is based on orders already placed according to the ministry. The US cant risk irking a large customer that can provide delta growth.

We expect domestic markets to remain volatile and moving sideways since negative sentiments are getting more entrenched. The upcoming earnings season is the real test for this sentiment.