Turmoil in markets
Equity markets collapsed last week as rightly forecast in our previous issue. The Sensex tumbled 1,249.04 points to settle at 36,841.6 while the Nifty closed at 11143.10 losing 372.1 points for the week that ended on Friday, 21 September 2018.
On the inflation front, wholesale price inflation (WPI) stood at 4.53% in August 2018. WPI inflation in primary articles eased to 0.1% from 1.73% in the previous month. Inflation in manufactured products stood at 0.3%. Retail inflation fell below RBI’s medium-term target in August 2018. Consumer prices rose 3.69% from a year earlier but down from July’s 4.17%.
The Indian rupee depreciated against the US dollar this month to breach the 73 mark. The tumble has sparked discontent in a country that relies heavily on imports for its fuel needs.
The International Monetary Fund (IMF) in its annual report on India released in August 2018 warned that average inflation was likely to rise to 5.2% in FY19 from a 17-year low of 3.6% in FY18.
PM Modi said that the size of the Indian economy will double to $5 trillion by 2022 with manufacturing and agriculture contributing $1 trillion each. He said that
India will grow at over 8% rate with massive employment generation being seen in IT and retail sectors. Macroeconomic fundamentals of the economy are strong. The government’s push for ‘Make in India’ has led to 80% of mobile phones currently in use being manufactured within the country helping save Rs.3 lakh crore in foreign exchange. Moreover, Fitch ratings has raised India’s
Gross Domestic Product (GDP) growth forecast by 40 bps to 7.8% on the back of better-than-expected outturn in the second quarter.
FY19 started with a bang when it posted
8.2% growth in Q1FY19, however, with the apprehension that the high growth was against the low base of Q1FY18. The government received a lot of flak when the GDP fell to a three-year low of 5.7% in Q1FY19 due to disruptions caused by demonetisation and GST.
In its Global Economic Outlook report in September 2018, Fitch said that the Investment-GDP ratio has stopped trending down, helped by ramped-up public infrastructure outlays in particular by state-owned enterprises (SOEs).
“Fiscal policy should remain quite supportive of growth in the run-up to elections likely to be held in early 2019.
The government has also rolled out measures to support low-income earners and rural demand,” the agency said in the report. “While FY19 is likely to perform better than estimated earlier in terms of GDP growth, the same is not the case with upcoming fiscal years for which Fitch has shaved 0.2% point to 7.3%.
The economic outlook is subject to several headwinds including tightening of financial conditions, a rising oil bill and weak bank balance sheets,” Fitch said.
“The INR has been the worst-performing major Asian currency so far this year. Despite the central bank’s greater tolerance for currency depreciation, interest rates have been raised by more than anticipated. Tighter financial
conditions come against a backdrop of strained banking sector health with NPLs (non-performing loans/bad loans) at 10% of loans,” the agency added.
Key indices cooled-off on Monday, 17 September 2018, on a strong sell-off of equities by FIIs. The Sensex declined 505.13 points to close at 37585.51 while the Nifty closed 137.45 points lower at 11377.75. Key indices fell on Tuesday, 18 September 2018, on selling by market participants. The Sensex tanked 294.84 points to close at 37290.67 while the Nifty closed 98.85 points lower at 11278.9.
Key indices plunged on Wednesday, 19 September 2018, on negative market sentiments. The Sensex fell 169.45 points to close at 37121.22 while the Nifty closed 44.55 points lower at 11234.35.
The Indian stock markets remained closed on Thursday, 20 September 2018, on account of Muharram. Key indices declined further on Friday, 21 September 2018, as the markets witnessed a broad-based sell-off. The Sensex corrected 279.62 points to close at 36841.6 while the Nifty closed 91.25 points lower at 11143.1. National and global macro-economic figures and events will dictate the movement of the markets and influence investor sentiment in the near future. Market participants will closely watch the fluctuations in global crude oil prices along with developments in Iran and Turkey and their impact in the forex market, where the INR breached the 73 mark against the USD last week.
On the global front, USA and other Euro-nations macro-economic data for August 2018 will be released this week. Also, the US Federal’s FOMC meeting for two-days is scheduled for 25-26 September 2018. China’s macro-economic data for August 2018 will also be released this week.