Global worries and weak macroeconomic numbers at home weighed on Indian stock markets during the week. Despite intermittent buying interest, market sentiment remained tilted towards the negative zone. Investors around the world have remained cautious and have been following developments in the coronavirus outbreak closely following Thursday’s surge in the number of reported cases after authorities in Hubei introduced a new method of tabulating the total number of cases .
The macroeconomic environment continues to be constrained, as plummeting growth figures amid rising inflation limit the central bank’s ability to make big moves. Following the announcements made in the 2020 Union budget, the RBI said that a special loan window with exemption from the CRR will be opened from February 14, 2020 and that additional loans from banks, disbursed under from this facility, will benefit from an exemption from the cash reserve ratio (CRR) for the next five years. This means that banks will not be required to make an additional CRR against any additional loans disbursed to targeted segments, thus encouraging them to extend more credit.
The numbers on the ground continued to disappoint. Retail price inflation in India for the month of January 2020 reached its highest level since May 2014. The Consumer Price Index (CPI) reached 7.59% in January 2020 from 7.35% in December 2019. The rise in inflation was largely fueled. by rising food prices, with food and beverage inflation reaching 11.8 percent. In addition to domestic difficulties, growth remained subdued, with the Industrial Production Index (IIP) contracting 0.3% year-on-year in December 2019. Cumulative industrial growth over the period d April to December 2019 was 0.5%. of the corresponding period one year ago. Mining increased 5.4%, manufacturing fell 11.2% while electricity contracted slightly in December 2019.
However, the long-term outlook continues to be positive, with the International Monetary Fund (IMF) and various rating agencies saying so. According to the IMF, India’s GDP growth is expected to reach 5.8% in 2020. Additionally, the S&P rating agency has confirmed India’s sovereign ratings at “BBB- / A-3” with a stable outlook, with GDP growth expectations to recover to longer-term trend rates over the next 2-3 years. According to the agency, the ratings reflect India’s above-average real GDP growth, its strong external profile and changes in monetary parameters.
Global markets continue to trade on a volatile note as investors around the world closely monitor the economic impact of the health situation in China.
With the budget now over and the earnings season for the most part behind us, investors will be looking for macro numbers to gauge the economy’s future outlook.