Samvat 2079 started with significant uncertainty. The Nifty has eased by a nominal 2 per cent since last Diwali. The rupee has dropped almost 9 per cent against the dollar while gaining against the pound, the euro, and the yen. On the positive side, most corporations are now declaring revenues exceeding respective pre-Covid levels of 2019-20, alongside higher profits buttressed by cost-cutting measures implemented during the pandemic. Higher corporate sales gel with strong traffic movements on railways and ports, healthy goods and services tax collection, and record power consumption. All these indicate the domestic economy is pulling out of the trough triggered by the 2020 lockdowns. There’s also been a lot of de-leveraging and balance sheets are now stronger.
In addition, a host of start-ups (new-age tech companies) have taken advantage of a vibrant primary market to raise money and list on the stock exchange. However, most of them have seen big sell-offs subsequent to listing, causing losses for investors. The primary market has cooled off and might cool further, given the Securities and Exchange Board of India’s decision to demand “justification” for initial public offering pricing. At a broader level, it is still a K-shaped, uneven recovery. Expensive high-end real estate has takers; high-end cars have buyers; two-wheelers are not doing well; lower-income real estate isn’t seeing much demand. Unemployment is still high and high inflation is affecting sentiment. The Russia-Ukraine war has caused a massive disruption of global supply chains across industrial metals, chemicals and food grains, quite apart from Russia’s key role in energy markets. In addition, repeated lockdowns in China have caused a slowdown in global manufacturing.
Apart from the significant risks of escalation around the Ukraine flashpoint, there are political complications affecting other economies as well. The UK’s politics is in turmoil. A Republican resurgence in the US mid-term elections could hobble the Joe Biden administration’s attempts to push through policy. Xi Jinping has been confirmed for a third term, which means China will continue its aggressive foreign policy posture. Brazil has a presidential run-off with implications for climate change, given the diametrically opposite attitudes of the candidates. All this would affect global growth and lead to a tough environment for exporters. There is a lot of pressure on the current account because of higher crude oil prices. The Organisation of the Petroleum Exporting Countries has decided to cut production to ensure that prices remain high. The rupee’s performance with its strength against several currencies could affect external competitiveness.
How well the Reserve Bank of India (RBI) handles inflation, interest rates, and currency will, to an extent, determine stock market valuations and shape consumer sentiment through Samvat 2079. The stock market went up from late 2020-21, fuelled by high liquidity, loan moratoriums, tax cuts, and negative real interest rates. The RBI started increasing interest rates and reducing liquidity only after inflation became difficult to ignore. It will have to take steps deftly in future to control inflation with a minimal impact on consumption. Most corporations are still complaining about margin pressures and soft demand. Foreign portfolio investment has been net negative, with over Rs 1.8 trillion in sales in Samvat 2078. Thus, markets would hope for a broadening of recovery across sectors, which would drive consumption and investment in Samvat 2079. Happy investing.
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