Economic Roundup, December 06, 2019
Economic Environment:India growth forecast
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..
Economic Roundup, October 25, 2019
Economic Environment: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.
Economic Roundup, October 18, 2019
Economic Environment:Global growth slowdown
How are the Indian and global economic environments affecting the financial markets?
The slowdown of economic growth in India is becoming a cause of concern for the financial markets though foreign exchange reserves are at an all time high. Economic policy in India is being hampered by tight fiscal policy because of the fear that budget deficit could increase above target. Such a fear is misplaced. To grow, India must borrow to build infrastructure (road and rail both between and within cities, air, electricity, and telecommunications) and sanitation..
Economic Roundup, September 20, 2019
Economic Environment:Corporate tax cut
How are the Indian and global economic environments affecting the financial markets?
The financial markets rose for the week following the finance minister’s announcement of a 5% corporate tax cut. This tax expenditure could increase the budget deficit unless it helps trigger economic recovery and accelerates growth to raise the tax revenue.On the global front, both the US Federal Reserve and the European Central Bank cut interest rates to support economic growth in the United States and to revive the economy in Europe. This is a boost to the markets...
Economic Roundup, September 13, 2019
Economic Environment:Index of Industrial Production(IIP) and inflation
How are the Indian and global economic environments affecting the financial markets?
IIP has grown but at a slower rate indicating slowdown in the manufacturing sector. Inflation is lower than the Reserve Bank of India target of 4%. But developments over the weekend in Saudi Arabia suggest that until the issue of attacks on Saudi oil facilities is resolved, global oil prices could see a spike and any upside price persistence could transmit to inflation and pressure on India’s foreign exchange...
Economic Roundup, September 06, 2019
Economic Environment:Reserve Bank of India (RBI) monetary policy
How are the Indian and global economic environments affecting the financial markets?
India’s gross domestic product growth is slowing further, in pace with economic slowdown around the world. RBI policy is expected to stay on the path of easing on October 4th, when the Monetary Policy Committee (MPC) meets next, along the lines of monetary expansion by major global central banks. Though fiscal expansion will cut into the government’s target for budget deficit, it may be necessary to boost the economy.
Economic Roundup, August 09, 2019
Economic Environment:Index of Industrial Production (IIP)
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....
Economic Roundup, August 02, 2019
Economic Environment:US Federal Reserve Rate Cut
How are the Indian and global economic environments affecting the financial markets?
The US Federal Reserve, as we expected, cut its benchmark federal funds rate by 25 basis points and put off normalization of its balance sheet until September to ease monetary policy in response to the global slowdown. US economy also slowed down but from a higher than potential growth rate to the rate of expansion before the Trump administration’s fiscal easing. The global slowdown, including in India, is causing the oil price to fall. While corporate earnings in the US are doing well...
Economic Roundup, July 19, 2019
Economic Environment:Iran situation
How are the Indian and global economic environments affecting the financial markets?
The geopolitical tensions in the Strait of Hormuz, as we had expected would happen for quite some time, are ratcheting up the oil price. However, the slowing global economy is putting a lid on oil demand and we do not expect concerns in India about fuel prices and any attendant inflation until oil rises secularly and hits $80/barrel. At the moment, slowing Indian GDP can become a concern especially for foreign portfolio investors and if they continue to take money out of equities it could pressure the markets.
Economic Roundup, July 12, 2019
Economic Environment:Industrial Production, Consumer Confidence, Inflation
How are the Indian and global economic environments affecting the financial markets?
India’s industrial production,compared to a year ago, slipped, consumer confidence is lower, and inflation – albeit below Reserve Bank of India (RBI) target – is edging higher closer to the 4% target (the mid-point of the 2-6% inflation targeting range). While these indicators suggest that the RBI could lower the repo rate in August, it brings into doubt how much room the RBI has to cut before it returns to worrying about inflation. Moreover, the effectiveness of RBI rate cuts...
Economic Roundup, July 05, 2019
Economic Environment:Budget
How are the Indian and global economic environments affecting the financial markets?
The salient implication of the budget is the need for the development of a bond market in India to fund road, rail, water, power, and gas infrastructure through public-private partnerships. Agriculture should continue to remain in focus because nearly 50% of workers are employed in the sector and climate change requires particular attention to the sector as a critical part of India’s economic development.The budget gave mixed signals to the financial markets...
Economic Roundup, June 28, 2019
Economic Environment:External debt, current account deficit and fiscal deficit
How are the Indian and global economic environments affecting the financial markets?
Three key macroeconomic indicators – total external debt, current account deficit and fiscal deficit – are not boding well for India. They are all high, putting India deeper in the red. This, combined with foreign money raising stock market valuations to highs and lingering troubles in the banking sector, should corporate earnings next month not demonstrate a heathy business sector, could show divergence between market valuations...
Economic Roundup, June 07, 2019
Economic Environment:Consumer Confidence and Future Expectations, Reserve Bank of India (RBI) policy
How are the Indian and global economic environments affecting the financial markets?
The jobs situation in the country appears to be impacting confidence and future expectations of consumers. Both indices have turned downward. This has been a chronic issue and should be dealt with by the government. All eyes, therefore, would be on the government budget. The RBI has cut the benchmark repo rate by 25 basis points to 5.75 percent from 6 percent.
Economic Roundup, May 31, 2019
Economic Environment:Growth, Foreign Institutional Investment (FII), and Imports
How are the Indian and global economic environments affecting the financial markets?
As we feared all along, India’s prime minister Modi’s second term has begun on a difficult note for the Indian economy. India’s growth has decreased to 5.8% in the first quarter (January – March 2019) of the year, slower than China’s and thereby losing its status as the world’s fastest growing major economy. This combined with slowing exports will pressure the foreign reserves position of India this year. India, at the moment, has about 8 months of dollar reserves to pay for its imports...
Economic Roundup, May 24,2019
Economic Environment:Election results
How are the Indian and global economic environments affecting the financial markets?
Elections gave a resounding victory to prime minister Modi, surprisingly a bigger win than in 2014 amid farmer distress, youth unemployment, high income inequality, a stressed and corrupt financial system inherited from his Congress predecessor’s years, and the promise of a basic income for 50 million of the country’s poorest families by the Congress. This shows the lack of leadership depth in Indian politics, a big political risk, as the people flocked to Modi and picked the devil they know no matter the promises of the discredited Sonia..
Economic Roundup, May 17,2019
Economic Environment:Exit polls, Oil price, Exports and Trade Deficit
How are the Indian and global economic environments affecting the financial markets?
Exit polls across the board, though doubtful in their accuracy, predict a second term for the incumbent NDA government. This should be encouraging for the markets because of expectations of continuity of reforms and market-friendly policies. Oil price is firming up because of the tense US-Iran standoff.This is pressuring India’s trade deficit especially when exports are uncertain to grow due to the tentative global economy.What to expect from the markets next week?
Economic Roundup, May 10,2019
Economic Environment:Manufacturing, US-China Trade War, Iran and Oil Price
How are the Indian and global economic environments affecting the financial markets?
As an indication that the Indian economy is slowing, India’s industrial production contracted by 0.1 per cent in March, the lowest in 21 months due to a slowdown in manufacturing. As a knock-on effect of the US-China trade war, India may be expecting some parts of the global US supply chain to move to the country but that may not be so. India will have to rely on the domestic market because of changes in the structure of the world economy to increasingly locate the supply chain on home...
Economic Roundup, May 03,2019
Economic Environment: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..
Economic Roundup, April 26,2019
Economic Environment:US economy and India economy
How are the Indian and global economic environments affecting the financial markets?
US economy has performed well above expectations in the first quarter of 2019. As we have said earlier, this can largely be attributed to Federal Reserve continuing to signal (as also expected next week) that it will pause on any further rate increases because of slowdown in the rest of the world economy. Also, the Federal Reserve has slowed down its process of balance sheet normalization...
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..
Economic Roundup, April 12,2019
Economic Environment:March Consumer Price Index (CPI) Inflation and February Index of Industrial Production (IIP)
How are the Indian and global economic environments affecting the financial markets?
The March CPI is low at 2.86% but the February IIP came in very low at 0.1%. Low inflation is conducive to monetary policy expansion, however, as we analyzed in the two previous editions of the Economic Roundup, the Reserve Bank of India (RBI), while lowering the repo rate by 25 basis points to 6%, has emphazised the monetary policy transmission mechanism for accommodative monetary policy...
Economic Roundup, April 05, 2019
Economic Environment:Reserve Bank of India (RBI) policy
How are the Indian and global economic environments affecting the financial markets?
As we analyzed in the previous Economic Roundup, the RBI, while lowering the repo rate by 25 basis points to 6%, has emphazised the monetary policy transmission mechanism for accomodative monetary policy to be able to effectively invigorate the economy by spurring investment. All our prior analyses continue to hold. It is unclear at the moment, given the upcoming elections,...
Economic Roundup, March 29, 2019
Economic Environment:Index of Industrial Production (IIP)
How are the Indian and global economic environments affecting the financial markets?
While the financial markets are buoyant because of foreign portfolio and institutional investment, Indian economy appears to be slowing along with the rest of the global economy as indicated by the depressed January IIP reading. Also agriculture, which constitutes a majority of the rural population, has been under duress for sometime and this state of affairs seems to be continuing.
Economic Roundup, March 22, 2019
Economic Environment:US Federal Reserve policy
How are the Indian and global economic environments affecting the financial markets?
Global financial markets, including India’s, fearing a global economic slowdown have dropped in the aftermath of the US Federal Reserve’s signals at its most recent meeting to hold interest rate increases and slow down its process of balance sheet normalization. This appears to be a reaction rather than a considered move on the part of the markets because ex ante central bank support worldwide in response to the slowing global economy should, in fact, be encouraging:
Economic Roundup, March 15, 2019
Economic Environment:India macro indicators
How are the Indian and global economic environments affecting the financial markets?
India’s macro indicators such as trade deficit and inflation in February were indicative of a stable macro environment. The trade deficit narrowed due to growth in exports and lower imports of oil, gold and electronics. The lower imports, however, could imply a weakening economy as seen by low growth in industrial production in January. Inflation was higher in February than in January but continues to stay well below than the Reserve Bank of India’s (RBI) medium term inflation target of 4 percent.
Economic Roundup, March 08, 2019
Economic Environment:Foreign Portfolio Investment (FPI) inflows into India
How are the Indian and global economic environments affecting the financial markets?
The services sector in India is performing strongly while growth is dampening in manufacturing and agriculture. The global economic environment has resulted in lower growth forecasts of the Indian economy in 2019 and 2020 because of slowing international trade. However, globally, on a relative basis, India continues to be the fastest growing major economy despite signs of slowing growth among the large economies including the US in 2019
Economic Roundup, March 01, 2019
Economic Environment:2018-19 Third Quarter Gross Domestic Product (GDP) growth rate
How are the Indian and global economic environments affecting the financial markets?
Indian growth rate in the 3rd quarter of 2018-19 compared to a year ago has come in at 6.6 percent, below median economist expectations. This slower growth has been attributed to liquidity issues and lackluster growth in the agriculture sector despite pre-election government spending. The financial markets, however, could be fickle affected by geopolitical tensions between India and Pakistan until elections in India even though they...
Economic Roundup, February 22, 2019
Economic Environment:Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) flows
How are the Indian and global economic environments affecting the financial markets?
Amid net outflows of FII in the last 12 months and slowing of FDI, there could be pressure building up on India’s foreign exchange reserves and the rupee especially should India’s trade deficit widen in the coming months. Other than this risk, the rest of India’s macroeconomic indicators – primarily growth, inflation, interest rates, and the exchange rate vis-a-vis the US dollar and other major currencies – are relatively stable.
Economic Roundup, February 15, 2019
This week’s economic roundup is essentially unchanged from our February 08, 2019 edition. A notable piece of data is that consumer price index (CPI) inflation is 2.05 percent in January 2019. It continues to stay close to the lower end of the Reserve Bank of India’s (RBI’s) inflation targeting range of 2 – 6 percent justifying RBI’s monetary policy stance to favor growth. Moreover, there continues to be macroeconomic stability on the front of India’s budget and trade deficits though the government must be wary of fiscal slippage (indicating higher fiscal deficit – the government’s fiscal deficit target for both 2018-19 and 2019-20 has increased 0.1 percent to 3.4 percent...
Economic Roundup, February 08, 2019
Economic Environment:Reserve Bank of India (RBI) monetary policy
How are the Indian and global economic environments affecting the financial markets?
The new RBI governor Shaktikanta Das, given the low consumer price index (CPI) inflation reading – closer to the RBI’s lower end of the 2 – 6 percent range – in December 2018, has declared victory on achieving price stability and reoriented monetary policy to be pro-growth by changing the policy stance to “neutral” (as we expected 2 weeks ago) and at the same time also cut the repo rate by 25 basis points to 6.25 percent while staying...
