 "India's fundamentals best among BRICS nations")
Finally, Reserve Bank of India governor Dr Raghuram Rajan has reduced interest rates by 25 basis points bringing repo rates to 7.75%. Easing inflationary pressure prompted the governor to cut rates. Equity markets responded strongly to the news by moving almost 2.5% higher.
There is little doubt that lower interest rates will push up consumer demand and revive the economy. But since Indian equity markets along with other emerging markets are all fighting to attract the same foreign funds, it is worthwhile to compare the fundamentals of these countries to get an idea of where India stands within the emerging market space. On broad economic parameters, we take a look at BRICS nations.
Brazil: Brazil is barely growing. The country’s central bank expects the country to grow by 0.2% lower than its earlier estimate of 0.7%. The country’s newly elected government has its job cut out in controlling inflation which is at the upper end of its comfort zone. Brazil has posted an inflation of 6.41%, against an upper limit ceiling set by its central bank of 6.5%. In order to control inflation, its central bank for the first time since 2003 raised its base rate to 11.75%. Industrial growth rate is in the negative territory. Dependence on commodities, all of which are in a down cycle, has led to a sluggish growth in the country.
Russia: World Bank has downgraded Russia’s economy on account of a sharp fall in oil prices. Russia’s GDP is expected to contract by 2.9% against the earlier forecast of 0.7% contraction. Furthermore, the country is barely expected to touch a positive figure in 2016 with a GDP growth of 0.1%. Russian government in order to prevent outflow of foreign currency sharply increase interest rates to 17%, increasing it by 6.5%, this highest since its crisis in 1998. Russian Ministry of Economic Development said that its inflation rate, which is at 11.4%, is expected to shoot up to 15-17 by March end.
India: Indian economy is back on track with the World Bank expecting the country to post a 6.4% growth in 2015. In fact World Bank has said that India will catch up with China’s growth rate over the next two years. Retail inflation rate is below the 6% comfort level mark of the central bank with the latest print coming out as five%. This has prompted the RBI to cut interest rate to 7.75%.
China: China is going through, what the World Bank defines as ‘managed slowing’. After growing at more than 10% for a decade and contributing significantly to global growth, China’s growth has slowed down to 7%. The declining slope is expected to continue with the country expected to grow at 6.5% this year according to UBS. According to Jeffrey Kleintop, chief global investment strategist at Charles Schwab, China’s growth will go down to 5% and below over the coming decade. Lack of demand is also visible in China’s inflation which is at a five year low of 1.5%. The People’s Bank of China had cut interest rates in November by 40 basis points to 5.6%.
South Africa: Inflation in South Africa is on a downward path but slump in commodity markets has affected growth rates in the country. South Africa’s inflation has come down from 6.6% in mid of 2014 to 5.8% towards the end. The country has marginally escaped recession after posting a positive growth in the March quarter. Morgan Stanley has downgraded the country’s growth forecast to 1.3% from 1.8% earlier. In 2016 the country is expected to grow at 2.5% as per the research outfit. In order to curb inflation South Africa’s central bank increased interest rates to 5.75% from 5.5% in mid of 2014.
Among the BRICS nations India is the only country with the strongest fundamentals and a positive growth outlook from World Bank.