Economic Roundup, February 01, 2019

Economic Environment

  • US Federal Reserve policy

  • India 2019 interim budget

How are the Indian and global economic environments affecting the financial markets?

  • US Federal Reserve stated in its policy statement at the end of the Federal Open Market Committee (FOMC) meeting on January 30, 2019 that it will be “patient” in future monetary policy actions implicitly recognizing the possibility of a slowdown in the US economy primarily due to external factors in the global economy at large and “muted inflation pressures”. It has assured the markets that it has the tools necessary beyond interest rate policy to stimulate the US economy should it become necessary in the future. This has boosted financial markets which were concerned about slowing global growth in the face of rising US interest rates and the US trade war with China.

  • The Indian interim (not full fledged) budget in the election year is scheduled to be presented on February 01, 2019. Rural and jobs-related spending will be in focus, though the deficit as a percentage of gross domestic product (GDP) is expected to remain under control. The financial markets will be scouring for information that will affect the various sectors and so some volatility can be expected but the market reaction to the budget could be muted because it is only an interim budget before the general election in April – May 2019. The general election outcome will have a bigger impact on the Indian financial markets than this interim budget.

What to expect from the markets next week?

Continued range-bound and flat behavior can be expected in the coming week with some volatility due to the budget. It must be noted that corporate earnings reports will continue to determine whether the major Indian indices will recover from being close to correction territory.

Economic Roundup, January 25, 2019

Economic Environment

  • Reserve Bank of India (RBI) policy in February

  • Global economic growth

How are the Indian and global economic environments affecting the financial markets?

  • The consumer price index (CPI) inflation on a year-on-year basis is low at 2.19 percent in December 2018, far less than what the RBI has to worry about, closer to the lower end of the RBI inflation targeting range of 2-6 percent raising the possibility that the RBI could return its stance to neutral at the February 07, 2019 meeting of the monetary policy committee (MPC) and perhaps could lower the repo rate later in 2019, giving a boost to the financial markets. The Indian financial markets – other than reacting to developments abroad – can be expected to continue to depend on corporate fundamentals given that the macro situation is stable for now.

  • China’s growth slowdown to around 6.5 percent appears to be more on a permanent basis and this could benefit India, particularly, amidst US trade war with China, if “Make in India” picks up. The International Monetary Fund (IMF) has warned of slowdown of global growth in 2019 and 2020 and this has pressured the global financial markets. The affect of global growth on India and local financial markets will depend on the extent to which it will affect India’s exports and the stock prices of export-oriented companies.

What to expect from the markets next week?

Continued range-bound and flat behavior can be expected in the coming week. It must be noted that corporate earnings reports will continue to determine whether the major Indian indices will recover from being close to correction territory.

Economic Roundup, January 18, 2019

Economic Environment

  • Interim budget and macroeconomic indicators

How are the Indian and global economic environments affecting the financial markets?

  • Government of India is scheduled to present the interim budget in this election year on February 01 for the parliament’s approval. The government appears to be keen on expansionary fiscal policy before the general election which is making many observors doubt the government’s commitment to a fiscal deficit target of 3.3 percent of GDP in the year 2018-19. It is also expecting to persuade the Reserve Bank of India (RBI) to transfer an interim dividend of Rs 30,000-40,000 crore to the government by March. All of this is to be able to raise consumer spending and create jobs which have become a drag on the economy. That being said, domestic politics aside, Indian economy is doing well, projected to grow in the range of 7.2 – 7.5 percent in 2018-19 and 2019-20 despite the slowdown in the rest of the global economy. India’s trade balance is less negative and consumer price index (CPI) inflation on a year-on-year basis is low at 2.19 percent in December 2018, far less than what the RBI has to worry about, closer to the lower end of the RBI inflation targeting range of 2-6 percent. Therefore, unless growth forecasts are seriously wrong or inflation rises to be of concern to policy makers at the RBI, the Indian financial markets – other than reacting to developments abroad – can be expected to depend on corporate fundamentals.

What to expect from the markets next week?

Continued range-bound and flat behavior can be expected in the coming week. It must be noted that corporate earnings reports will continue to determine whether the major Indian indices will recover from being close to correction territory last week.

Economic Roundup, January 11, 2019

Economic Environment

  • Global growth and corporate earnings

How are the Indian and global economic environments affecting the financial markets?

  • The markets continue to focus on global growth and corporate earnings. As the 2018 Fourth Quarter corporate earnings releases begin, US earnings are thus far not encouraging potentially signaling a slowdown but there are still many companies that are yet to report. Indian economy, however, has strong fundamentals while the rest of the world economy appears to potentially experience a slowdown in 2019 including the US economy though the United States may not enter a recession. Global economic concerns and political risk in relation to the upcoming parliamentary general elections in India in 2019 will continue to affect the Indian financial markets through the first two quarters of calendar year 2019.

    What to expect from the markets next week?

Continued range-bound and flat behavior can be expected in the coming week. It must be noted that beginning next week corporate earnings reports could determine whether the major Indian indices will formally enter correction territory because both BSE SENSEX and NSE NIFTY 50 are already hovering close to 10 percent decline from their 52-week highs. Tata Consultancy Services (TCS) has reported solid growth in the last quarter of the 2018 calendar year but it is yet to be seen if this is an anomaly or a trend in the technology sector and in earnings as a whole for all the reporting companies. If it is a trend, it is encouraging for the Indian economy because it could bring the major stock indices out of being close to correction territory and also portend solid gross domestic product (GDP) growth.

Economic Roundup, January 04, 2019

Economic Environment

  • Global growth and corporate earnings

How are the Indian and global economic environments affecting the financial markets?

  • Indian financial markets have been skittish taking cues from volatility in the US markets due to political risk and uncertainty about the upcoming 2018 Fourth Quarter corporate earnings releases beginning January. Indian economy, however, has strong fundamentals while the rest of the world economy appears to potentially experience a slowdown in 2019 including the US economy though the United States may not enter a recession. Global economic concerns and political risk in relation to the upcoming parliamentary general elections in India in 2019 will continue to affect the Indian financial markets through the first two quarters of calendar year 2019.

    What to expect from the markets next week?

Indian financial markets will continue to takes cues from global markets on global growth though they may not be as volatile as the US and other major global financial markets. Range-bound and flat behavior can be expected in the coming week. It must be noted that beginning next week corporate earnings reports could determine whether the major Indian indices will formally enter correction territory because both BSE SENSEX and NSE NIFTY 50 are already hovering close to 10 percent decline from their 52-week highs.