One of the very accurate indicators for future of stock market trend is the growth in bank credit. The more consumers and companies borrow from banks, the more will be the economic growth leading to a rise in stock prices. And we have a very good position now, the bank credit growth at near 18 %, more than double last year’s pace.
This is the highest growth in more than nine years.
We are long term bullish on India, we consider it a good time to buy stocks but the global risks are very strong and can cause a recession which will impact India also. Investors need to be extremely cautious about stock selection and should be ready to exit if the situation worsens for India.
India’s Bank Credit Growth %
This is an indicator that economic activity is bouncing back to the pre-pandemic level and even better than that in some of the sectors.
Banks are also seeing an increased demand for funds from retail-focused non-banking financial companies (NBFCs).
An improvement in banks’ overall asset quality and a reduction in the systemic risk aversion is also expected to aid the buoyancy in bank credit growth.
Government’s strong support for economic growth
The government is planning to raise its capital expenditure to ₹10 trillion in the next financial year to support growth, while its plans to launch sovereign green bonds in the second half of the current year could boost efforts to tackle climate change.
Corporates are Expanding Capacity
India’s Gross Fixed Capital Formation (indicates capex)
Capex demand has generally been weak over the past several years but we are likely to see some early signs of capex-related credit growth in H2FY23
There is a pick-up in the economy and we are seeing normalcy coming back in all the sectors post-Covid. The discretionary spending in the retail segment, which were being postponed, are now being bunched up.
The corporate sector was shying away from the fresh investments during the pandemic. Now they are coming out with new projects. They feel more confident about the business environment now. The growth is broad-based and every segment has contributed to it
The working capital demand is also coming back. So corporate growth can be the game changer this year. Last year, it was negative. This year, it’s definitely not going to be negative.
Earlier, when the interest rates were lower, corporates preferred the bond market route to raise funds. However, with the reversal in bond yields, they are now shifting to banks, this is also reading to more corporate loans.
Though inflation still remains a key risk for credit growth.