HSBC report on investment growth: Pace of revival to be gradual for few yrs

After a six-year wait, private investment growth rates seems to have bottomed out in 2016 but the pace of its revival is expected to be gradual over the next few years, says a report.

According to global brokerage HSBC, the pace of investment growth, especially over 2017, "may not be rapid" and would only "cross the 7 per cent ballpark, which is when the investment rate is expected to stabilise, around 2020."

"We find that things were beginning to get somewhat supportive of a recovery in mid-2016. But, alas, the economy was hit by the unexpected demonetisation shock in November 2016," HSBC said.

"Policy uncertainty rose and alongside, the twin balance sheet problem worsened. Hopes of a strong investment revival in 2017-18 are likely to be disappointed," it added.

Estimating the timeline for investment recovery as demonetisation shock has now waned out, HSBC said investment growth may have bottomed out in 2016.

"This claim seems to have some support from the housing sector, which has become a policy focus in recent months and, if done right, can be an effective driver, given its linkages with the rest of the economy," it said.

"However, our model also suggests that pace of investment growth, especially over 2017, may not be rapid," it added.

HSBC's investment model is based on four variables- policy uncertainty, expectations of future returns, the twin balance sheet problem, and world growth - do a rather good job in explaining the ups and downs in investment.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel