Are you paying attention to the business news lately? A friend of mine told me he’s been investing for more than a year in mutual funds and still he is in loss. He asked me whether he should stop investing and start preparing for recession. Also I’ve been getting a lot of forwarded messages on WhatsApp lately claiming that the recession is looming across the globe.
Hence I had to do some research in this topic. Based on my research, I personally think recession is going to hit very soon, I may be wrong though, it’s a matter of time that will tell us the truth. However, these tips are evergreen and will be helpful in any situation.
I’m going to share my viewpoint on why I think there is a recession approaching, then I’ll share some tips on how to prepare for a recession in India.
Internal Factors:-
Decline in Growth Rate
India has seen the lowest growth rate since the last recession of 2008. Expected growth rate for Q1-2019 was 7.1% but it was just 5%. In fact, the former BJP chief adviser claimed that the data is manipulated by 2.5%. So in real terms, the growth is only about 2.5%.
Highest Unemployment in Last 45 years
There is a report from IndiaTimes and many other news which mention the unemployment rate in India has been highest in the last 45 years.
Biggest Loss during the 2019 Budget Release
A good budget is the one which is said to be consumer and business friendly. When it’s launched, people expect it to bring some positive reforms in the economy. However, ever since the budget was released, the market is only going down. Rs.475 Crore was pulled off by foreign investors just after the budget was released. What does this indicate?
Resignation of Experts
All the experts with high intellect and experience are resigning one by one. First, Raghuram Rajan: Former RBI Governor, then Urjit Patel: Former RBI Governor, then Viral Acharya: Former Deputy Governor, Arvind Subramaniam: Former Chief Economic Adviser-Govt. of India. All these people have resigned abruptly with no strong reason & before their term.
Incidents like these have never happened in the past and these are clear indicators that these people are not given enough power and freedom to work on their own. The decisions are now taken by the parliament and ministers who clearly have less knowledge about finance and economy then these experts who have left.
Market Condition
Indian market is in a bear run from the past 1 year as you can see clearly and the market does not have any reason to recover.
Consumer Confidence
Finally, the most important factor which plays a role in the later part is what the general consumer thinks about the economy. If consumers stop spending fearing the recession then the growth rate will further decline and will push the economy in the middle of depression.
External Factors:-
US-China trade war
We all know there is an intense trade war going on between top two powers of the world. I don’t think I need to say much about this as conditions like these never settle on its own.
Global Slowdown
Apart from US and China, Germany (most powerful country in Europe) has also seen a decline in their GDP in 2019. Countries like Argentina, Iran, South Africa, Turkey and Venezuela are already in their recession phase currently. When a group of countries suffer, the whole world suffers.
Conclusion: These are enough reasons to conclude that there is a recession approaching. Even if there is no global recession, then there is going to be a crash in Indian economy for sure.
How to Prepare for a Recession in India
Create Emergency Fund
The most important thing you need to do is to have enough money to survive the recession phase. At times, people lose their jobs and even the house due to recession. Almost 9 lakh Americans lost their house during 2008-09 crises because they were unable to pay home loan EMI. Hence it’s important to have enough cash in the bank which is 12 times your monthly expense.
Streamline spending
Track your expenses and identify which are discretionary and not needed in a long run and simply axe them out. Reduce unwanted and luxury spending because you’ll be forced to reduce it later on.
Be a star at work
During recession, when the profits are rare and expenses are high, corporations lay-off employees in bulk and these are usual non-performers. You can see a huge increase in corporations already laying off employees in India in 2019 HERE and HERE
Get a Side Hustle Business
You might want to stick to your company until you find a new job or the best option would be to add a new source of income.
Continue Investing
The most important advice is to continue investing as you get stocks and mutual funds at discounted price when the markets are low.
As quoted by the great investor of our time:
It is wise to be Fearful when others are greedy and greedy when others are fearful
Warren Buffet
Finally, never stop learning as you will see these recessions in almost every decade. Previously, it was in 2008, then 2000, 1990 and so on.
Through various studies & researches, I can confidently say that people from middle class and lower middle class are the ones who suffer the most during a recession. For people who are educated and informed will never have to worry in any condition.
I hope this was a knowledge read, don’t forget to leave your opinion or extra tips in the comment section and do share with your loved ones as much as you can.