Index of Industrial Production (IIP)
How are the Indian and global economic environments affecting the financial markets?
While the financial markets are buoyant because of foreign portfolio and institutional investment, Indian economy appears to be slowing along with the rest of the global economy as indicated by the depressed January IIP reading. Also agriculture, which constitutes a majority of the rural population, has been under duress for sometime and this state of affairs seems to be continuing. The slowing global economy appears to be impacting Indian exports and the state of the banking sector has still not relaxed the credit constraints which are impeding the transmission of lower interest rates into the economy. Election results in May 2019 could be a mixed bag because it is unlikely that the incumbent government could secure a majority in the parliament similar to the election in 2014 which could further add to the pressures on the economy though continuity of reforms is much needed to improve the banking and jobs situation in the country. Cleaning up the banking sector to enable investment to create jobs and increasing reliance on the vast domestic market vis-a-vis dependence on exports should hold up the economy and continue to keep macro indicators stable.
What to expect from the markets next week?
The financial markets could continue to maintain their upward momentum if FII continues to flow into India though this also poses a risk should the economy slowdown because of the rising probability of the reversal of hot money flows which would pressure the current account deficit (CAD), potentially leading to a financial crisis. More would be known beginning next week as corporations begin to report earnings.