Indian Indices Continue Momentum; Realty Sector Up 4%

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After opening the day marginally higher, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector and metal sector witnessing maximum buying interest.

The BSE Sensex is trading up 224 points (up 0.7%) and the NSE Nifty is trading up 79 points (up 0.8%). The BSE Mid Cap index is trading up by 1.8%, while the BSE Small Cap index is trading up by 2.1%. The rupee is trading at 64.02 to the US$.

In the news from global financial markets, economic growth in China showed signs of fading in July. This came as data showed rise in lending costs and industrial output, investment, retail sales and trade grew less than expected in July.

Factory output rose 6.4% YoY in July. This, however, was the slowest pace since January this year and was far lower than 7.6% seen in June.

Growth in property investment eased to 4.8% in July from a year earlier, versus 7.9% in June. Private investments also ebbed to 6.9% in the first seven months of the year. This suggested that small and medium-sized firms still face challenges in accessing financing.

Retail sales also witnessed a pull back and expanded 10.4% in July, down from 11% seen in June.

That said, respite was sought as China's steel output rose to a monthly record in July. Power generation also came in at the highest level since May 2014.

Economic growth in China has been better-than-expected during the first half of this year. However, there's no surety that this would continue ahead. This we say is because most of the economic growth seen was backed by heavy government spending, rise in housing markets, and higher bank lending last year.

The Chinese government is aiming for annual GDP growth this year at around 6.5%. This is lower than the 6.7% pace recorded in 2016. It would also be the slowest growth in 26 years.

Note that, while the Fed's balance sheet expanded rapidly during the financial crisis, from less than US$900 billion before 2007 to US$4.5 trillion in 2014, the PBOC's balance sheet less than doubled in size during that period.

China is staring at rapid domestic credit growth. Also, as per ratings agency Moody's, China's structural reforms are not enough to arrest its rising debt.

Moody's Investors Service has downgraded China's sovereign ratings by one notch to A1. The agency expects the financial strength of the world's second-largest economy to erode in coming years as growth falters and debt continues to rise.

Many economists are also of the view that central bank stimulus measures are masking the deeper problems of industrial overcapacity and high levels of corporate debt in China.

So there remain many concerns for China.

A recent issue of Vivek Kaul's Inner Circle (requires subscription) takes a closer look at the Chinese economy and explores how America and China are on the verge of swapping their economic ideologies.

In other news, India's industrial production (IIP) fell to -0.1% in June. This was seen as manufacturers reduced inventories ahead of the GST rollout.

The fall in IIP was mainly seen due to decline in manufacturing and capital goods sector. Also, segments like mining, power generation, construction goods and consumer durables recorded poor performance.

One shall note that manufacturing in India is witnessing a slowdown lately. The output of eight core industries slowed down in June as the total output moved up marginally by 0.4% as against an increase of 4.1% in May 2017, as can be seen from the chart below:

Slowdown in Manufacturing

The above data clearly indicates a subdued picture of industrial growth in June 2017. PMI data also highlighted a slowdown in growth across India's manufacturing sector during June 2017.

As per the survey report, challenging economic conditions, water shortages and the implementation of the GST reportedly hampered growth.

Nevertheless, growth recovery is expected to accelerate in the second half of 2017. This will be on the back of a resumption of production after GST, normal monsoons and lower lending rates.

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