Equity markets rally
The Sensex advanced 356.59 points to settle at 34733.58 while the Nifty advanced 156.05 points to close at 10472.5 for the week that ended on Friday, 12 October 2018.
The Reserve Bank of India (RBI) in its fourth bi-monthly monetary policy statement for 2018-19 kept the policy repo rate unchanged at 6.5%.
Rashesh Shah, President of FICCI, welcomed RBI’s decision to keep the repo rate unchanged. According to him, this move sends positive signal to the industry and will maintain the momentum in investments seen lately. “Investment revival is very important at this juncture especially when the IBC process shows that the credit culture in India is changing for the better which will help not only in handling the existing NPAs (non-performing assets) but will also curb the creation of fresh NPAs,” Shah added.
He further said that while there is an upside risk to inflation due to oil prices, the recent measures taken by the government including reduction in excise duties and VAT on fuel will mitigate the inflationary pressure to some extent. “We are confident that the government and the RBI will keep a vigil on the volatile global conditions and take appropriate actions to ensure macro-economic stability and enable the country to traverse a firm growth path of over 8% starting with the current financial year,” he added. Moreover, the RBI announced to inject Rs.120 billion liquidity into the system on 11 October 2018. The RBI will purchase government bonds worth the amount with maturity ranging between 2020 and 2030 to meet the festival season demand for funds. The RBI will conduct purchase of Government Securities under Open Market Operations (OMOs). It will purchase Government Securities for an aggregate amount of Rs.360 billion in October 2018. The auctions will be conducted in the 2nd, 3rd and 4th week of October. India’s service sector continued to expand in the previous month. The Nikkei India Services Business Activity Index was at 50.9 in September 2018, down from 51.5 in August 2018 due to higher fuel costs, rising crude oil prices and a stronger US dollar, which raised the prices of imported goods. The seasonally adjusted Nikkei India Composite PMI Output Index was at 51.6 in September 2018, down from 51.9 in August and at its lowest level in four months. Paul Smith, Economics Director at IHS Markit, said that growth of India’s services economy spluttered during September 2018 amid reports of faltering demand for services. Despite a slight pick-up in manufacturing output growth during the month, overall private sector activity rose at the weakest rate since May 2018. “Whilst companies were not completely discouraged to hire additional workers, the rate of employment growth was slower across the private sector as a whole and therefore pointed to a little more caution amongst firms heading into the final quarter of the year,” he added.
The International Monetary Fund (IMF) has cut its global growth forecasts as trade tensions between USA and trading partners have started to hit economic activity worldwide.
The IMF’s latest World Economic Outlook report stated that the global economy is now expected to grow at 3.7% this year and next year, down 0.2 percentage points from its earlier forecast. Maurice Obstfeld, IMF Chief Economist, said that earlier projections now appear to be over-optimistic given that risks from further disruptions in trade policies have become more prominent.