Markets and economy in 2020: Nifty may be nifty even if consumers are thrifty

The Nifty-50 is up 12.5% in the past three months and 12% CYTD19 with the returns having all come after the corporate tax cuts in September.

A quick recovery in the economy is ruled out for the present but the markets could nonetheless do well into 2020. The Nifty-50 is up 12.5% in the past three months and 12% CYTD19 with the returns having all come after the corporate tax cuts in September. The cuts are driving earnings growth — with a +10% impact. But the broader market continues to perform poorly, mirroring the decelerating trend in GDP growth. Investors are hoping for cuts in PIT rates, removal of DDT and a rationalisation of LTCG in the FY21 Union Budget.

These measures would help boost consumption which has slumped as seen in sales of cars and two-wheelers. Spends by households have slowed in the absence of meaningful job creation. Also, the declining household savings rate is a sign increases in income aren’t keeping up with the rise in consumption.