"EcoCapsule" Report- Inside Stability : A Look at Domestic growth amid Global Fluctuations by SBI Capital Markets
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Executive Summary
Global markets continue to rally even as economic narrative is slowly changing
Global equity markets maintain significant gains, with a sharp recovery being seen in the Hang Seng index, which rose 10% m/m. Commodity prices are showing steel on expected Chinese demand. In some economies like Japan, this is causing a policy conundrum, as Central Banks balance inflation control and currency depreciation. However, the tide for the macroeconomy may again be changing once again, with the colour of US recovery evolving.
Growth surprising on the downside, core inflation is still sticky: will the US Fed be stuck between a soft landing and hard take-off
Recent US GDP print saw a sharp downward revision, and while CY24 numbers continue to get upgraded by agencies, sharp decline in employment numbers indicate a slowdown may be brewing. Accordingly, the FOMC surprisingly moderated balance sheet tapering even while offering platitudes on inflation. Expectations on US rate cuts keep oscillating, with 1-2 cuts expected in CY24 for now
India’s growth is on domestic moorings, risk could come from external sector and inflation owing to food and oil prices
GDP estimates for India are jubilant, with government led capex expected to buoy the economy for another fiscal. Risks on the horizon mainly appear to be on the external front, as volatile crude prices could hurt CAD. The same could also impact prices, even as the promise of an above-average monsoon may finally breathe life into the agriculture sector, spurring rural consumption and easing cereal prices
With inflation ceasing to be a quandary, RBI devotes its energy to liquidity management and countercyclical measures
A prolonged election season poses an interesting challenge for the Central Bank. In an attempt to increase liquidity, the RBI announced buybacks of Rs. 400 bn to balance outflows seen from FIIs and trimmed government spending. Additionally, it continued its countercyclical blitzkrieg, proposing to sharply increase provisioning for project loans, sensing the buildup of such pressures in banks and key NBFCs
Union G-Sec yields expected to ease
Although FPI outflows and changing US Fed commentary led recently volatility in yields, they are projected to gradually decrease below the 7%, supported by anticipated rate cuts, buybacks, reduced borrowing led by fiscal consolidation, moderating inflation, and inclusion of bonds in global indices. While states have borrowed only 52% of the tentative amount in Apr’24 SGS issuances is expected to pick up pace in the coming months
Above views are of the author and not of the website kindly read disclaimer
