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Markets at odds with ground reality | BNP Paribas Mutual Fund

Markets at odds with ground reality

Stock markets in India were fairly range bound during the week with sentiment slightly skewed to the positive despite disappointing macro-economic updates. While the government continue to announce measures designed to stoke economic growth in the country, numbers on the ground indicate that they are falling short of making any real impact. Additionally, rising inflation is likely to be a hurdle for the Central Bank’s rate action. Moody's Investors Service cut India's economic growth forecast for the current year to 5.6% from 5.8% estimated earlier, saying that GDP slowdown is lasting longer than previously expected.

Macro-economic developments

On the macro-economic front, retail prices in India, as measured by Consumer Price Inflation (CPI) surged to a 16-month high in October 2019. CPI grew at 4.62%, exceeding RBI’s benchmark of 4%. Food inflation came in at 6.9% y-o-y vs. 4.7% previously. The large weight of food articles in the index translates to about 100bps increase in headline CPI. However, fuel prices and core inflation eased off due to which the increase in headline inflation was contained at 60bps. The prolonged monsoon in states like Maharashtra, Karnataka, Gujarat, parts of Madhya Pradesh and West Bengal (major producers of vegetables in the country) pushed food inflation up significantly.

On the other hand, Wholesale Price Index (WPI) eased marginally for the month of October 2019 with a reading of 0.16 % compared to 0.33% in September 2019. Again, it was the higher food prices that contributed to the positive WPI number and prevented the index from falling into negative territory. The fuel & power and manufacturing index continued to contract while core inflation weakened further.

In the wake of a sharp fall in the core sector growth, India’s industrial output in September 2019 contracted 4.3% for the second consecutive month. It grew 4.5% in September 2018 and contracted 1.1% in August 2019. The contraction was led by a decline in mining followed by manufacturing and electricity.

In an attempt to boost the flailing real estate sector, the Union Cabinet approved a special window for funding of stalled affordable and middle-income housing projects. The Union Cabinet chaired by Prime Minister Narendra Modi on 6 November, 2019 approved the establishment of a 'special window' fund to provide priority debt financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector.

Institutional Activity

Indian equity markets continued to attract foreign investor flows. So far this month, foreign portfolio investors (FPIs) have been net buyers of Indian equities and have net bought equities worth INR 4425 crore. For the period 8th November, 2019 to 14th November, 2019, FPIs have bought Indian equities worth INR 1619 crore. Domestic institutional investors, on the other hand, have been offloading Indian equities and have net sold equities worth INR 1636 crore, in the same time period.


Disclaimers: The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The Trustee, Asset Management Company, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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