Recession 2022 – What Indian Stocks will Do?

A recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. It is not defined as two consecutive quarters of declining real GDP, though that’s a common rule of thumb. Currently the outlook for the global economy has “darkened significantly” in recent months driven by the Federal Reserve’s latest rate hike and hawkish forward guidance as the latest figures showed that inflation in the US rose at a 40-year high of 9.1% in June 2022.

Countries like Canada, New Zealand, Korea & Singapore raised their interest rate which was reduced drastically during the time of pandemic. Meanwhile, the European Union is in energy crisis which will further increase the chance of inflation in future which is due to Russia – Ukraine crisis.

The above are the reasons for the current inflation-driven recession.

But wait…

Unlike in 2000 and 2008 which are Credit-Driven Recessions that take a longer time to recover, the inflation-driven recession which we are going to see shortly will hardly have a 10-12 months effect within which the war may also end boosting the positive sentiments in the market in mid-2023

In a Credit-Driven Recession, the Job market falls drastically making huge job losses but in an inflation-driven recession, the job market doesn’t fall much but doesn’t expand making the job market more stable. Further, this will also make inflation to fall because of the high base effect.

With respect to companies, they as having better Balance sheets than before CoVid and are not willing to expand it making them to get fewer loans and sustaining their strong balance sheet.

The current recession in the US will make the US dollar still stronger as it is “safe heaven” and future rise in interest rates will make the US Dollar even stronger expecting Ruppee to be at 83 / dollar.

A strong dollar is good for us to buy export orientation companies like IT, Pharma and other companies which have major revenue via export.

A strong dollar will make the gold to fall Internationally and make the gold to be stable in India due to the fall in the rupee against the dollar.

We may see nifty just to fall 10% at the maximum to the level of 14500 and not less than that. It’s a good time to invest in large-cap stocks, selective mid-caps and mutual funds.

The recession will not affect India in any manner except for IT professionals who enjoyed it during Covid times. But in a long run, IT professionals in India will have a good decades.