Indian Indices Extend Losses; Telecom Stocks Witness Selling

Tue, 12 Dec 01:30 pm

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Stock markets in India are presently trading on a negative note. Sectoral indices are trading on a negative note with stocks in the telecom sector and realty sector witnessing maximum selling pressure.

The BSE Sensex is trading down 170 points (down 0.5%) and the NSE Nifty is trading down 57 points (down 0.6%). The BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 64.44 to the US dollar.

In the news from global financial markets, the two-day US Federal Reserve's Federal Open Market Committee (FOMC) is set to begin today.

The meeting will decide if Fed will raise interest rates for the third time this year.

Note that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

Yet, so far, the cost of lending has been slow to respond to the interest rate increases. But as the Fed continues with this policy, consumers who borrow to buy houses, cars, refrigerators, and other items will have to pay more for those goods.

US Federal Reserve rate hikes generally have a negative impact on emerging economies. But currently, India is seen as better equipped than other emerging markets to ride the impact of higher US interest rates on the back of stronger economic growth.

How this pans out and what impact it would have on the global financial markets remains to be seen. We'll keep you updated on the developments in this space.

In another news, the World Economic Situation and Prospects 2018 report unveiled by United Nations Department of Economic and Social Affairs stated that India's economy is likely to expand by 7.2% in 2018 and go up further to 7.4% in the following year.

The report states that the above growth will come on the back of strong private consumption, public investment and the ongoing structural reforms.

Note that the Reserve Bank of India (RBI) in its last policy statement kept its projections for FY18 real Gross Value Added (GVA) growth at 6.7%, citing that the risks are evenly balanced.

Also, GVA, which excludes product taxes and subsidies, has recovered from 5.6% in June 2017 quarter to 6.1% in September 2017 quarter, as can be seen from the chart below:

Economy on Path to Recovery

What does this trend indicate? Here's what we wrote in a recent edition of The 5 Minute WrapUp...

• The uptick is a sign of a pick-up in economic growth engine. But it may still be early days, as the economy continues to grapple with several headwinds. Firstly, a part of the recovery during the September quarter is a one-off effect due to restocking by channel trade with the notebandi impact waning. Although GST is likely to usher in greater transparency and efficiency in the supply-chain network, the initial teething problems are likely to delay the recovery process.
  
  Secondly, with registered growth of a mere 1.2% in the September quarter, exports continue to plateau. This may be due to falling comparative advantage enjoyed by some labour intensive industries in the global markets. Therefore, until these structural issues are resolved, the competitiveness of India's export cannot be fully utilised.

Apart from the above, even private sector investment have remained poor of late. And with government finances already stretched due to farm loan waivers and infrastructure expenditure budgets, there's less fiscal room for further public spending to spur growth.

So, a sustainable recovery will be possible only after the disruptive impact of GST stabilises and other structural issues get resolved.

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