Economic Environment

  • Index of Industrial Production (IIP)
  • Reserve Bank of India (RBI) monetary policy
  • Consumer confidence

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

The IIP has slowed in June confirming the slowdown of the Indian economy. The RBI cut the repo rate by an unconventional 35 basis points perhaps with the expectation that a surprise rate cut which is not a multiple of 25 basis points can stimulate the economy (the markets expected either a 25 basis point cut or a 50 basis point cut). Consumer confidence is also down and the purpose of the RBI rate cut was two-fold: encourage consumer borrowing and private investment. It is unclear how effectively lower interest rates from the RBI can be passed on to consumer and corporate borrowers and increase bank lending given the bad loan crisis the banks are facing. The financial markets reacted ambivalently to the RBI rate cut, still down from their all time highs.

What to expect from the markets next week?

Financial markets will continue to react to the remaining corporate earnings reports for the April-June quarter which are weak and any new information on China, Iran and the global economic front.

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