- Banking reforms for restarting growth
How are the Indian and global economic environments affecting the financial markets?
The Fitch rating agency has downgraded India’s growth in Fiscal Year 2020 to 5.5% while the International Monetary Fund (IMF) sees it at 7%. A mixed signal for the financial markets. India’s problem, besides tight fiscal policy, is a crisis in the banking sector. The Modi government must:
1. Restructure the banking sector through mergers to reduce the Non-Performing Assets (NPA) as a percentage of all assets.
2. Provide liquidity to the restructured banks.
3. Reform the lending process to ensure checks and balances for the NPA problem not to recur.
Then monetary policy will be effective to jump start growth and also boost the financial markets.
What to expect from the markets next week?
Selling pressure will remain on the financial markets especially given the global economic situation. Still, despite slowing growth, on a relative basis, India continues to be the destination for foreign institutional investors as it is remains among the world’s fastest growing major economies.