Stagflation refers to environment of both high unemployment and increasing inflation or a condition of slow economic growth with a rise in prices and low demand. Now the question arise that “IS INDIA IS GOING THROUGH STAGFALTION”.
If we can see the data India’s GDP growth which has come down from its peak of 11.4 in 2010 to 4.6 in 2014 and the inflation rate of India in 2012-2014 was in between 11.4% to 8.4% which is on the higher side compared previous years. So going by the above data we believe that India is going through stagflation.
The key reasons for stagflation is Lower GDP, High Inflation, High fiscal deficit, High CAD, High Unemployment, Low capex etc. We believe that if there is stagflation one should increase investment related to commodities in anticipation of higher commodity prices.
But we are more confident that India would come out of Stagflation on the back of positive election results and also positive macroeconomic data like Increase in IIP numbers and higher HSBC Manufacturing PMI at 53 almost 17 month high. So we believe that one should buy nifty on every dip.