After The RBI, It's Govt's Turn To Reboot The Economy!
The Indian stock markets have been on a rollercoaster ride of late, with big swings in the sentiments, causing big losses to investors one day and giving big gains another day. For instance, in the initial part of the week, market participants were on pins and needles on the back of announcement that the US President Donald Trump will impose fresh round of tariffs on China, thus throwing cold water on the hopes of trade deal with China. The trade war between the two largest economies turned ugly as Beijing allowed its currency to weaken and the yuan slid to its lowest level in more than a decade. This move taken by the Chinese officials was aimed to checkmate the Donald Trump admiration. A weaker currency will make exports cheaper. This would offset the additional tariffs imposed the by Donald Trump administration and also harm the US exporters that are trying to compete with China. However, the bulls made a strong comeback the very next day, as the Nifty posted its biggest percentage gains in about four weeks and ended above the previous session’s high for the first time in the last 13 sessions. Meanwhile, the global markets, especially the US markets which were performing better than the Indian markets in the recent past, had of late witnessed one of the most volatile week of the year. Monday (Aug. 5) marked its worst day of the calendar year 2019. The recent volatility in the stock markets has been a big cause of worry for investors, forcing them to press the sell button on the stock and seek safe havens elsewhere. As they say: ‘One man’s loss is another man’s gain’, this applies to financial instruments as well and the major beneficiary was the yellow metal as frazzled investors were seen rushing to buy gold and the gold future jumped to a six-year high above $ 1500 an ounce. Gold is up by about 4 per cent this week and 6 per cent so far in August. It is up by 18 per cent year to date and has outdone equities and mutual funds so far this year.
The Reserve Bank of India, thinking out of the box, slashed repo rates by 35 bps, while maintaining its accommodative stance. The rate cut, which was above the street expectations, clearly demonstrates the RBI’s concern about growth and the outlook of the Indian economy, which was evident as it shaved off its GDP expectation from 7 per cent earlier to 6.9 per cent now. The RBI did the best it can to revive growth, but the markets were not too impressed. Now the ball is back in the court of the government to make the right moves to promote growth and revive the economy, though it has very little flexibility on the expenditure front. But the FM is already on this task as she has lined up series of meetings with the captains of various industries and investors' groups, which may continue into the next week. The idea behind these meetings is to understand challenges faced by sectors and chalk out prudent measures which will help the sectors to prosper. Any concessions announced after her dialogue with the groups have the potential to turn things around for the sectors that are currently reeling under pressure.
Despite the gloomy environment in the stock markets, we believe the markets may be in a mood to bounce back with some evidence of silver linings. The Nifty has made higher lows on Tuesday and Wednesday after the Monday’s low. The bulls have not yielded the important support level of 10,800, which is 61.8 per cent retracement of the October-June rally. The recent correction in the crude oil price suggests its entry into the bear territory as it has dropped 20 per cent from its April highs. Some sector-specific concessions may be soon announced by the FM to tackle the slump in the economy. Also, India’s overall monsoon deficit has narrowed down to 7 per cent.
