Fiscal, monetary and regulatory measures fuel RBI optimism on private investments

The RBI bulletin said India's macroeconomic picture looks robust.

Fiscal, monetary and regulatory measures taken so far this year will pave the way for a virtuous cycle of higher private investment, productivity, and growth, leading to long-term economic resilience, noted the RBI bulletin.

The month of October saw a further pick up in demand conditions along with retail inflation falling to historic lows on the back of improved supply side factors, the bulletin said. The external sector resilience has also strengthened on the back of healthy forex reserves providing a buffer against any external shocks.

"The fall in inflation was driven by a decline in food prices and the GST rate cut on goods and services prices, besides favourable base effects. The deepening of deflation in CPI food in October took it to its lowest point in the current series," the bulletin stated.

The RBI showed optimism on the macroeconomic front with high-frequency indicators showing robust signs of an economy that's growing.

"Available high-frequency indicators for October suggest a robust expansion in both manufacturing and services activities, supported by festive season demand and the ongoing positive impact of the GST reforms," it said.

On the equity market front, the bulletin observed that there was a healthy interest in the primary market both by the domestic as well as foreign investors. Both FPIs
and DIIs recorded positive cumulative flows in the primary market, the bulletin noted.

However, that exuberance faded in the secondary markets as FPIs remained net sellers while DIIs continued to register strong net purchases in the fiscal year so far.

The RBI bulletin noted the expansion in merchandise trade deficit for the month of October on the back of imports surging driven by gold and silver as well as a fall in exports after expanding for three months.

However, robust remittances, subdued oil prices and strong services exports provide a strong support to India's external balance sheet.

"Foreign exchange reserves remain adequate to cushion adverse external shocks. External debt as a proportion of GDP remains low and stable. Further, the share of short-term debt in total external debt remains low."

On the anxiety gripping global investors regarding the lofty AI valuations, the bulletin said that the stretched valuations have been a cause of concern leading to a resurgence of volatility on global equity markets.

It also raised questions over the financial stability concerns of any sharp correction.