- External debt, current account deficit and fiscal deficit
- Global economic slowdown
How are the Indian and global economic environments affecting the financial markets?
Three key macroeconomic indicators – total external debt, current account deficit and fiscal deficit – are not boding well for India. They are all high, putting India deeper in the red. This, combined with foreign money raising stock market valuations to highs and lingering troubles in the banking sector, should corporate earnings next month not demonstrate a heathy business sector, could show divergence between market valuations of corporations and real economic performance putting downward pressure on the financial markets and potentially could lead to a downward spiral of the markets and the economy.
The global economy is showing signs of slowing including in the United States which could lead the Reserve Bank of India (RBI) to further lower the repo rate at its next meeting in August. Should tensions in the Middle East flare up, any persistent rise in the oil price could put the RBI in a tight spot not giving the central bank much room to cut given the upward pressure on inflation by oil though the RBI has less to be concerned at the moment about inflation. Should the Middle East be stable, the global economic slowdown could, in fact, put downward pressure on the oil price to avert which the major oil exporting countries including Russia seem to be agreeing on extending production cuts to prop up the oil price.
What to expect from the markets next week?
Foreign Institutional Investment (FII) is continuing to push the financial markets up.