The Sensex advanced 530.5 points to settle at 31814.22 while the Nifty closed at 9979.7 gaining 191.1 points for the week ending Friday, 6 October 2017.
The RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6% on the basis of an assessment of the current and evolving macroeconomic situation at its meeting on Wednesday, 4 October 2017. Consequently, the reverse repo rate remains at 5.75% and the marginal standing facility (MSF) rate and the bank rate at 6.25%.
The RBI in its key monetary policy statement said that it now expects inflation in the second half of the current fiscal to range between 4.2-4.6%, up from its previous estimate of 4-4.5%. The inflation forecast pushed 10-year bond yields up by 6 bps to close at 6.7%.
The rise in crude oil prices may push up retail inflation. But excluding food and fuel, a broad-based rise in the CPI inflation was also recorded.
Further, the central bank revised its gross value-added (GVA) growth forecast to 6.7% for the current fiscal from 7.3% earlier.
“The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short-term. This may further delay the revival of investment activity, which is already hampered by stressed balance sheets of banks and corporates”, the policy statement said. The RBI hopes that the teething problems linked to the GST and bandwidth constraints may be resolved soon allowing growth to accelerate in the second half of the fiscal year. But input costs have risen faster than expected and companies’ pricing power had fallen, which could affect the growth numbers, it stated.
The MPC (monetary policy committee) was of the view that various structural reforms introduced recently could be growth-augmenting over the medium-to-long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy.
RBI Governor Urjit Patel also said that many of the high-frequency indicators suggested that there was an uptick in growth. The IIP numbers released on Tuesday showed growth at 4.9%. In the second quarter, the services sector had shown a healthy growth rate and there was a possibility that a cyclical upturn would happen in the next two quarters. On the macro-economic data front, the Nikkei-Markit Manufacturing PMI compiled by IHS Markit held steady at 51.2 for September 2017 as it was for last month. Nikkei India Services PMI Business Activity Index returned to a growth of output (50.7 in September 2017 v/s 47.5 in August 2017). According to Morgan Stanley,
India’s digitisation drive could provide a boost of 5075 bps to GDP growth in the coming decade.
“We estimate that digitisation will provide a boost of 50-75 bps to GDP growth and forecast that India will grow to $6 trillion economy and achieve upper-middle income status by 2026-27”, Morgan
Stanley Head India Research and India Equity Strategist
Ridham Desai said.
“We expect India’s real and nominal GDP growth to compound annually by 7.1% and 11.2% respectively over the coming decade”, he added.
In the latest released report
“India's digital leap - The multi-trillion-dollar opportunity”, Desai said that apart from some short-term teething problems including implementation of GST, there is scope for visible shifts in economic activity starting in
2018 which would eventually lead India to be the top five equity markets in the world with a market capitalisation of $6.1 trillion and the thirdlargest listed financial services sector around the
globe with a market cap of $1.8 trillion by 2027.
India’s consumer sector is also likely to add about $1.5 trillion over the next ten years. “We project gross FDI inflows amounting to $120 billion by FY27 almost double the current 12-month trailing run rate of $64 billion”, Desai said. Accordingly, he also noted that stock markets are likely to remain robust as stronger economic growth should drive stronger corporate earnings growth.
“The country is also likely to witness strong domestic participation in equities. We project equity saving of $420 billion$525 billion over the next ten years, v/s the respective $60 billion and $120 billion that households and foreign portfolios invested over the previous ten years”, the agency said. While the report exudes confidence that India's growth story is to continue, it also identified certain risks. It noted that GST is expected to disrupt smaller businesses causing job losses and a general slowdown in economic growth. The Indian Stock market remained closed on Monday, 2 October 2017, on account of Gandhi Jayanti. Key index surged on Tuesday, 3 October 2017, on fresh buying by traders ahead of the RBI’s policy meet. The Sensex was up 213.66 points (+0.68%) to settle at 31497.38.
Key index gained on Wednesday, 4 October 2017, on extended buying. The Sensex was up 174.33 points (+0.55%) to close at 31671.71.
Key index fell on Thursday, 5 October 2017, on marginal profit-booking. The Sensex was down 79.68 points (-0.25%) to close at 31592.03.
Key index advanced on Friday, 6 October 2017, on buying of equities. The Sensex was up 222.19 points (+0.70) to close at 31814.22.
Events like national and global macro-economic figures will dictate the movement of the global markets and influence investor sentiment in the near future.
On the inflation data, the government will release data based on WPI and CPI for September 2017 for urban and rural India by mid-October 2017.
Further, USA’s macro-economic data for September 2017 is scheduled for release in the first week of October 2017. Also, the Federal Open Market Committee (FOMC) will issue minutes of its last meet on Wednesday, 11 October 2017. US markets will remain closed on Monday, 9 October 2017, on account of holiday for Columbus Day.