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Dear Reader,
(So start to run! Oh, skid and daddle…
Skip jump hop and try to skaddle!…
~Roald Dahl, Charlie and the Great Glass Elevator)
Central bankers around the world are debating the merits of skipping. Shaktikanta Das skipped for the second time, and while Jerome Powell may follow suit next week, it’s still hard to say, because he has been wriggling like an eel. But Bank of Canada governor Tiff Macklem preferred to hop this week, a small 25 basis point one. The Reserve Bank of Australia’s chief Philip Lowe too hasn’t skipped, but he executed a neat couple of small jumps of 25 basis points each, leaving the markets, which expected a skip, gasping in wonder. Given these little hops, skips and jumps, the governor of the South African central bank’s 50 basis point raise last month can perhaps be described as a leap. But it pales into insignificance besides the Argentine central bank’s 10 percentage point hike in April this year, which was a pole-vault.
Central banks not only bob up and down — they also pause or pivot. While the consensus emanating from this week’s monetary policy decision was of an extended pause, the RBI governor cannily said the pause was only for this meeting. We, on the other hand, and more colourfully, said it was a pivot-killer. IndusInd Bank chief economist Gaurav Kapur made the point that “the upshot of a prolonged pause and tightest liquidity conditions since 2019, despite the surplus, in the backdrop of still strong credit demand, would be that pressure on market rates is likely to re-intensify”. Barclays’ Rahul Bajoria told us in this interview that with growth strong, the RBI is not going to cut rates anytime soon. Everybody agrees, though, that Das’s hiking days are over.
As for the Fed’s meet next week, the last word on its hiking, skipping, pausing and pivoting has been said by our columnist and market maven Ajay Bagga, in this in-depth piece on Will the Fed skip, pause, pivot or skip, hike, pause, pivot? The markets, of course, will dance to its tune.
In case you think stories of central banks hopping and skipping are not enough, you could look at this delightful piece from the Financial Times, free to read for MC Pro subscribers, about how Robert Lucas, the late Nobel Laureate in Economics, compared central banks to ticket counters at amusement parks.
Be that as it may, the Indian economy seems to be in fine shape, as seen from the PMI data, and some of the moving parts of our Pro Economic Tracker confirm that assessment. Indeed, the RBI has revised upwards its forecast of year-on-year real GDP growth for the current quarter from 7.8 percent to 8 percent. The World Bank said India’s contribution to global growth this year and the next will match that of the US.
Drilling down to stocks, the bounce in the travel and hotels sectors is reflected in our weekly tactical pick and in this recommendation for VIP Industries.
But even without looking skywards anxiously for the monsoons, the fact remains that real sales growth for India Inc has been falling for several quarters. And as this chart tellingly shows, discretionary spending is still not back to pre-pandemic levels. Firms exposed to the external economy have already been affected, as seen from this piece on Info Edge and in this story on the impact of the funding winter on startups.
We debated whether the recent market rally is in sync with the economy and asked investors to mind the gap between economic growth and index returns. And this chart asks whether the Indian equity market is overvalued.
But aren’t we ignoring something? This perceptive piece by Gillian Tett tells us about five important issues not captured by the numbers — tech change, the environment, war, health and the political economy of business. We have been banging on here about the overwhelming importance of geopolitics on economies, businesses and markets in these troubled times, albeit not so lyrically as Gillian. We pointed out that the US economic war against China has a Japanese precedent, our Eastern Window wrote about the rising opposition within US business to Biden’s China policy, this FT article talks of how the world’s centre of gravity is shifting east and this one examines what the IPEF supply chain deal means for India.
What does all this mean for the investor? Some of it is already built into market expectations—for example, we cautioned it’s time to be selective on defence shipbuilders.
It’s important to recognise that the move towards self-reliance, making India a global manufacturing hub and the China+1 opportunity are all long-term trends, calling out for investors to ride them. We have, therefore, developed an index based on a portfolio of 14 stocks that are a play on these themes — the MC Pro ‘Make in India’ Index. Do take a look.
Cheers,
Manas Chakravarty
Here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:
Stocks
Balarampur Chini, Federal Bank, Paradeep Phosphate, Aavas Financiers, Metro Brands, Sirca Paints, IKIO Lighting IPO, Ami Organics, Sona BLW, 360 ONE Wealth
Markets
In The Money—Theta: time giveth and time taketh away
MFs—the losers and gainers in the new regime
OPEC meeting—the untold story
Saudi crude oil output cut could tilt oil market balance
Financial Times
Why the AI boom is not a dotcom redux
FOMO drives retail investors to ride AI wave
Investors pull support for green and social measures amid political pressure
Companies and industry
Airbus vs Boeing sign of coming battles for the Indian market
Suzlon
The Green Economy
FAME II subsidy cuts untimely, may deter transition to EVs
How to recharge solar investment in India
India’s to-do list to address climate change
India’s recycling policy needs revamp
India’s transition from coal is going to be complex, messy and politically difficult
Why Indian fund houses need a better SIP for EVs
Economy
Good tidings on global food inflation
Policy
PLI 2.0 for textiles
Recognising the farmer as creditor
SEBI seeks to tether wild west of finfluencers
ONDC: Disruptor or enabler
Others
Startup Street: How startups can increase the odds of getting Series-A funding
Odisha Train Tragedy signals railways is going downhill
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