The economic slowdown in India became worse in the 2nd quarter of 2019 and the GDP growth rate fell to 4.5%—the lowest in the last 26 quarters. With more bad news following, the expected economic recovery seems to be getting pushed further. Most economic indicators like industrial production, merchandise exports, bank credit, freight movement, electricity production, among others, are pointing to weak growth in the initial part of the third quarter. Economists are busy cutting their growth projection for the third quarter as well as for the FY19-20. Despite various rates cuts and efforts taken by the finance ministry in the recent past, growth could weaken further to around 4% in the third quarter of 2019-20. We believe that GDP growth plummeting to 4% should mark as the trough.
If we go by the trends of stock market performance for 4-5 years post GDP growth rate of India declining to ~4% mark in the recent past, the investors have made significant returns. During 2002-03, when GDP growth fell to 3.9%, the next 5 years (April 2003-March 2008) were probably the best time for the Indian stock markets when BSE Sensex, Midcap and Smallcap indices gave 408%, 615% and 840% return respectively.
GDP growth declined to 3.1% during 2008-09, the BSE Sensex, Midcap and smallcap witnessed a growth of 126%, 135% and 112% respectively over the next 5 years. The trend repeated for another term when the markets incentivized investors by returning 75%, 157% and 186% on sensex, midcap and smallcap level respectively during April 2013-Mar2018 post GDP growth declining to 4.5% in 2012-13.