Economic Roundup, April 19, 2019

Economic Environment

  • Jet Airways, oil price and global economic slowdown

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

  • Banks’ exposure to Jet Airways shutting down operations and the firming of the oil price have pressured the Indian financial markets and the rupee because of potential impact on monetary policy transmission for raising domestic investment and on the current account deficit. The markets are on a high, so any bad news is triggering profit booking and forcing the markets down. Slowdown in Europe and Japan is also souring the market sentiment but the ineffectiveness of monetary policy in Europe and Japan may largely be due to near zero population growth rate and could be chronic though it should not be of concern for Europe and Japan. This should not affect the prognosis for the Indian economy which has a burgeoning, young population and an expanding domestic Indian market which could potentially offset any pressure on exports. India should look to offset dependence on foreign oil and gas by investing domestically in ways to find domestic energy alternatives to foreign oil and gas beginning now and into the long term to alleviate pressure on inflation and the current account deficit.

What to expect from the markets next week?

The financial markets could continue to maintain their upward momentum if foreign institutional investment (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. The true state of the economy would come to relief as corporations continue to report earnings.

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