Despite concerted efforts of the Governments and central banks of various nations, achieving faster economic growth still seems to be a tough task for many. Surveys conducted by Markit Economics across the world, indicated that the manufacturing growth in April 2015 has weakened in some major economies. A slowdown in China has left many market participants and investors sceptical. As global demand slowed down, manufacturing activities eased off in the Euro- Zone as so has it in the U.S.

Falling Manufacturing Growth All Around...

Note: An index reading above 50 indicates expansion while below 50 reflects contraction.
(Source: Markit Purchasing Managers' Index™, PersonalFN Research)
The chart above also points out that for India too growth in manufacturing has been waning with a muted growth registered this April. These are not good signs for India while it endeavours to boost manufacturing growth. Prime Minister Mr. Narendra Modi is hard-selling the 'Make in India' initiative abroad, but ground realities have hardly changed over last 1 year.

So, where is 'Make in India' heading?

Modi-led-NDA Government has a vision to make India a manufacturing hub for businesses. This can help reduce imports, Current Account Deficit (CAD)...and even provide a fillip to economic growth as it aims to raise the share of manufacturing in GDP to 25% from present 13-14%.

But PersonaFN is of the view that, for Make in India initiative to achieve desired success, following is imperative:

• The Government has to make its tax policy predictable;
• Co-ordinated efforts of the central and state Governments is the key;
• The Government has to focus on reforms, ensure passage of vital legislature and should not be polarising issues which can keep foreign investors away
• Availability of affordable financial resources to big infra projects; and
• Skill development programs have to gather pace
  
  

It remains to be seen how Indian Government takes these bottlenecks out and increase share of manufacturing in GDP.

Impact on Markets...

Weakening global growth and fragile condition of job market may affect monetary policy decisions of central banks. Till recently, it was believed that the Federal Reserve (Fed) may go in for policy rate hikes in the U.S. but now nothing can be said with certitude. If at all Fed still hikes rates, the pace of hikes may be very slow.

The RBI may take a note of falling manufacturing growth. Although there is a case for another rate cut given that inflation has also been falling, RBI may not go for it right away. It would take into consideration a whole host of factors that affect the retail inflation before deciding upon rates.

At present, Indian equity market has been going through a phase of correction owing to high valuations and dismal performance of India Inc. in the 4th quarter of the Financial Year (FY) 2014-15. Also, issues such as taxation disputes of Foreign Institutional Investors (FIIs) are further dragging equity markets.

What investors should do?

PersonalFN is of the view that, while news flows would be guiding the market direction, you shouldn't be worried until long term fundamentals are damaged. If your asset allocation charts calls for you to be investing you should go ahead and invest in equity. But while you do so it would be wise to stagger your investments and be selective in your approach whether you are buying stocks or mutual funds. You should be investing based on thorough research and not go by tips shared by family and friends. Also assess your risk profile while you invest in the endeavour to meet your long term financial goals.

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