India's markets are under a cloud of uncertainty

  • Hindustan Times, New Delhi
  • Updated: May 14, 2015 23:13 IST

Around this time last year, the mood in Dalal Street was one of expectations.

A string of exit polls had predicted that the Narendra Modi-led BJP was likely form the government at the Centre, India’s markets were scaling a new high every day.

With billions of dollars at stake the outcome of the high-octane elections were critical to decide on investment decisions. For an economy hit by a toxic mix of rising prices, sliding economic growth and sagging political stock, the latest rally in equity markets should ideally provide an occasion to rejoice in these strained times.

Today the mood in Dalal Street is one of introspection. India’s currency and equity markets have fallen sharply amid looming worries that two crucial proposed laws related to new land acquisition rules and a nationwide goods and services tax (GST) could get delayed further.

The Sensex is hovering below the 27,500 mark, a relative slump considering that it had touched 30,000 only two months ago. After a period of relative stability, the rupee too has fallen past the 64 mark to a dollar — its lowest level since September 2013.

The real economy’s recent record, however, has been anything but spectacular. For example, India’s factory output measured by the index of industrial production (IIP) grew by a slower 2.1% in March from 5% in February — mirroring a wobbly industrial recovery.

The good news, however, was that retail inflation in April eased to a four-month low of 4.87% from 5.25% in the previous month on moderate rise in prices of food items, vegetables and fruits. This will give the Reserve Bank of India (RBI) more elbow room to cut interest raising hopes of lower loan rates for millions of home buyers.

The RBI, which kept key rates unchanged in its monetary policy review last month, had indicated it will closely observe the trends in food inflation, particularly in the context of unseasonal hailstorms that have devastated ripening winter-sown crops and delayed harvests. Also, the RBI will likely keep one eye on the monsoon with the spectre of a failed monsoon rain because of a probable El Nino looming large over the economy, which could make push up food prices in the coming months.

This year, it has so far cut the repo rate by 0.5 percentage points in two tranches. A repeat action may well be in order for that extra push to revive industry and create more jobs.

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