Slowdown in the fourth quarter (Q4) of fiscal year (FY) 2019
How are the Indian and global economic environments affecting the financial markets?
Data from Q4 of FY 2019 showing economic slowdown due to lower aggregate demand, investment and exports validates the stance of the Reserve Bank of India (RBI) that growth needs to be supported. As we have discussed earlier, the dovish leanings of global central banks are holding up the global economy and the financial markets. It appears that beginning in the United States and other developed economies, due to automation, the world economy is seeing a gradual structural transition to less labor intensive economies, though at the present time it is being reflected as higher worker productivity. As this trend takes hold, it could pose greater challenges to populous countries such as China and India over the next decades given the large size of their workforce and especially India, given its younger labor pool. Creating jobs to form a stable middle class – an impotant election issue in India – would not become less but more of a challenge as years go by. India needs to pay particular attention to not let growth slowdown no matter who is at the helm in politics by committing to long term infrastructure (road, rail, computing and communications, and energy) investment – a creator of jobs and a better economic climate with knock on effects in all three economic sectors: agriculture, manufacturing and services – as China has done consistently over the last three decades. This is a Hobson’s Choice for India if the country is to do well in the future.
What to expect from the markets next week?
The financial markets could continue to maintain their upward momentum just as they also are in the United States. Foreign institutional investment (FII) could continue to flow into India because of the interest rate differential with the advanced economies.