INDmoney Macro insight!

Last updated: 30 Sep, 2020 | 09:43 pm

As the debate between President Trump and Democratic rival Joe Biden added to the confusion about how the November 3rd elections will pan out, Global markets fell and buyers looked towards safer assets such as the US Dollar and Japanese Yen.
The debate yielded no clear winner and signals towards a bumpy market ahead in this final phase before polling day.

The US economy contracted by an annualized 31.4% in the Apr-June 20 period. This is slightly better than the 31.7% annualised fall estimated earlier. Further, it is expected that the US economy will rebound this quarter as businesses start re-opening and millions of people go back to work.

While USD remains relatively stable during uncertainty with respect to presidential elections, Pound Sterling (GBP) clawed higher on the back of upcoming stimulus expectations and depiction of goodwill by EU in its Brexit negotiations.

Uncertainty looms over the future course of interest rates and inflation, as the monetary policy meet is delayed. October’s monetary policy meet is crucial, as it will set the tone of the second half of the year, with regards to the interest rate, inflation and liquidity, all a driving factor to strengthen lending and tackle increasing NPA’s.
In its previous policy in August, the RBI had kept the repo rate unchanged at 4%. The reverse repo rate too stood unchanged at 3.35%. This policy decision by the RBI to keep rates unchanged remains in line with our assessment that we are nearing the bottom of a rate cut cycle although policy will remain dovish (low rates) in the medium-term.

The eight-core industrial output contracted by 8.5% YoY in Aug-20 slightly higher than the 8% contraction seen in the previous month of July-20, mainly due to a decline in Steel, Refinery Products, and Cement. The eight sectors constituting the Index of Eight core industries include coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity.
A full-blown recovery in Core Sector output seems to be at least a few months away, as demand remains subdued, and lockdowns continue in various parts of the country.

The whole idea behind the Covid-19 induced stimulus of Rs. 20.97 Lakh was to enhance government expenditure to overcome a contraction of private expenditure resulting from the crisis. The Stimulus announced in April-20 was targeted at the vulnerable sections and industries, and aimed at getting the ailing agri-focused economy back on track. The next round of stimulus should provide an impetus to industries which have been reeling under the impact of the pandemic, and are in dire need, keeping focus on public investment.

India’s GDP growth has been negative since the lockdown (-23.7% in Q1FY21), and adding to our numbers from the last advisory, as per the latest data, the contraction is amongst the highest for countries affected by Covid-19.
The continued economic uncertainty along with social distancing norms, will make us witness the travel and tourism industry recovering with a lag and underperforming the rest of the sectors.