Economic Roundup, December 06, 2019

Economic Environment

  • India growth forecast
  • Consumer confidence

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

India’s real GDP forecast for 2019-20 is being downgraded uniformly to 5%. Further, consumer confidence in India dropped to its lowest since at least 2014. The key point to note is that India’s monetary policy is unable to be effective to jump start growth because (a) inflation is edging up and the Reserve Bank of India (RBI) cannot cut rates risking higher inflation and potential stagflation; and (b) uncertainty in monetary policy transmission because of the drag of non-performing assets and the economic environment in general that are restraining banks from lending. This makes the performance of the stock market indices suspect because the underlying economy is not holding up. Corporate performance when quarterly earnings results would begin to be released in January may give an indication of real economic performance.

What to expect from the markets next week?

Selling pressure will remain on the financial markets especially given the 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.

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