'World economy slipping into recession again'

Birla Sun Life says it is likely to happen within three years

The world economy has a high probability of slipping into recession once again within the next three years itself, according to Birla Sun Life Asset Management Company (BSLAMC). “We are assigning a high probability of recession in the next two-and-a-half to three years,” BSLAMC co-chief investment officer Maneesh Dangi said. “We have already surpassed the previous business cycle expansion by expanding for 76 months. All investors need to keep that in mind and realise that there is a cliff ahead of you,” Dangi added.

According to the IMF, there have been four global recessions since World War II, beginning in 1975, 1982, 1991 and 2009, respectively, the last one being the deepest and widest of them all.

According to IMF and BSLAMC data, the expected average growth for the next two years for world GDP is likely to be three per cent, as against 3.3 per cent in 2014, and 3.3 per cent in 2013.

Rate cut by RBI
Expected average growth for the next two years for the US is likely to be 1.75 per cent as against 2.4 per cent in 2014, and 2.2 per cent in 2013. As far as the domestic markets are concerned, BSLAMC believes that there is scope for rate cuts by the Reserve Bank of India in 2016.

“We expect further rate cuts of 25-50 basis points in 2016 by the RBI. As far as base rates are concerned, there is a possibility of 50-75 bps cut in 2016, as the base rate has been cut only by 70 bps, as against a cut of 125 bps by RBI on repo rate,” BSLAMC co-chief investment officer Mahesh Patil said.

Earning growth revival
The asset management company also sees a revival in earnings growth in the next fiscal. “Earnings have been elusive for the last six years but this year could see a revival with earnings growth estimates for sectors and Nifty for FY17 expected to be 17 per cent,” Patil said.

BSLAMC also believes that Indian markets have the potential to create long-term wealth. “With reasonable growth in valuations and earnings, Indian markets provide an opportunity for sustainable and long-term wealth creation. Though there could be bouts of volatility, we believe a patient association with equity will be highly rewarding,” Patil said. “The key themes that we expect to play out next year are consumer discretionary, private banks, NBFCs, pharmaceuticals and construction,” Patil added.