A Bit of Foreign Respite
Stock markets in India started the week on a positive note and continued to trade with strength through the week. Sentiment improved as new developments indicated that there might be a respite to the US-China trade war concerns. Additional boost was given to markets by the International Monetary Fund (IMF). The IMF said that India has maintained its 'world’s fastest-growing economy' tag with a projected 6.1% growth rate for 2019, even as the body cut its growth projection by 1%. IMF pegged 2020 growth at 7%. Cumulative global growth has been projected by IMF at 3% this year and 3.4% next year.
On the macro-economic front, retail inflation in India rose to 3.99% in September 2019 from a revised 3.28% last month driven mainly by an increase in food prices. This is the highest rate that retail inflation has reached in a year. In September 2019, food price inflation was at 5.11% versus 2.99% in August 2019. However, core inflation came in lower at 4.2% compared to 4.3% last month. On the other hand, wholesale prices based inflation eased to 0.33% in September 2019, as against 1.08% in August 2019 due to fall in prices of non-food articles. The annual rate of inflation, based on monthly wholesale price index (WPI), was at 5.22% in September 2018. The rate of price rise for the food articles was at 7.47% during the month, while that for non-food articles stood at 2.18%.
India's exports contracted by 6.57% to $26 billion in September 2019 mainly due to a significant dip in shipments from key sectors such as petroleum, engineering, leather, chemicals, and gems & jewellery. Imports also declined by 13.85% to $36.89 billion, narrowing the trade deficit to $10.86 billion in September 2019.
As part of the phase one deal on Friday, 11th October 2019, the U.S. postponed a planned tariff increase on $250 billion in Chinese imports from 25% to 30%, originally set to take effect this Tuesday, in exchange for Chinese promises to buy $40 to $50 billion in American agricultural products annually though that would be double the $24 billion China bought in 2017. U.S. However, Treasury Secretary Steven Mnuchin reportedly expects the mid-December round of tariffs to take effect if no deal is reached between the countries. Additionally, as details emerged, it seems that China wants another round of talks before signing what the U.S. President Donald Trump last week called a very substantial phase one deal between the two countries. Thus, we are back to a “no clarity” zone.
Sentiment also improved after Britain and the European Union said that they have struck an outline Brexit deal after days of intense see-saw negotiations, though it must still be formally approved by the bloc and ratified by the parliament.
Sentiment in the market also improved after foreign portfolio investors (FPIs) turned net buyers of Indian equities. For the first time this month, FPIs have turned net buyers having bought Indian equities worth INR crore in the period 11th October 2019 – 17th October 2019. Domestic institutional activity has been positive as well. In the same time period, domestic institutional investors (DIIs) have net bought Indian equities worth INR crore.
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