Moneycontrol Pro Panorama | Does your pot brim over?

crops, agriculture,

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Today marks the end of winter in many parts of India where harvest festivals, from Pongal to Sankranti to Lohri, are being celebrated. The central point of a harvest festival is the farm bounty, loosely represented by a brimming “Pongal pot” in the South to high-flying kites in the West, and bonfires in the East, North and Northeast.

The winter harvest is an important event, not just for cultural and political heft, but for policymaking. India’s central bank is betting on a robust rabi output for food prices to cool off in the coming months. If the Reserve Bank of India’s expectations of farm output are met, that would clear the biggest hurdle for it to cut policy rates next month. Early signs have been encouraging towards this. The December retail inflation print of 5.22 percent was less intimidating and was marked by an easing in food prices. Core inflation, the measure that is directly related to demand and hence monetary policy, is anyway remarkably low for a long time now. Manas Chakravarty explains the odds of a rate cut in his piece here.  It is clear that the pot of agriculture will brim over this year, something that would please policymakers in both Mint Street and North Block.

If only rate cuts could determine the happiness of investors, then Dalal Street should be doing a harvest jig right now. Central banks at major economies have already begun chopping rates and some in emerging markets will follow, including India. Far from that, equities are getting hammered with benchmark indices far away from the peak they hit in September last year. The stock market’s pot brimmeth over, but only with troubles.

Trouble number one is the sharp depreciation of the Indian rupee. Every time the currency loses its value a bit more, it adds to the import bill since we are a net oil importer. As if on cue for Murphy’s law which states if something has to go wrong it will, crude oil prices have begun their climb up. What hurts more is that the RBI, though having a formidable forex reserve stockpile, cannot indulge in a rampant and heavy intervention on a continuous basis since that would only incentivize foreign investors to exit faster. As such, dollars are fleeing our markets everyday as the US economy looks more promising. America’s job market is still tight, inflation unlikely to follow expectations and President-elect Donald Trump’s tariff plans could jeopardize prices further. All these are ingredients for the Federal Reserve pot to brim with reasons not to cut rates.

Trouble number two is the ongoing earnings season which instils considerable uncertainty. That said, the few firms that have detailed their quarterly performance have not sprung any nasty surprise. Finally, trouble number three is pockets of overpriced valuations. Notwithstanding the sharp fall in markets recently, some analysts still think valuations are overstated. “The lack of fear and the focus on greed (of returns) among retail investors have pushed valuations to absurd levels in several cases,” wrote analysts at Kotak Institutional Equities in a report. They believe there is still a long way down for the equity indices to go.

Long story short, investors are in for a tough time ahead both globally and domestically. Here is sound advice from Vijay Bhambwani through his column: “This is a time when my readers should prioritise capital preservation over capital appreciation.” Simply put, keep quiet and sit tight. Bond investors though can indulge in some risks. Even if the RBI disappoints on rate cuts, the fiscal position is conducive for yields to be soft. The Union Budget is expected to target the fiscal deficit for FY26 at 4.5 percent of gross domestic product which would mean that the centre need not borrow more than this year. In fact, net bond supply could fall.

Of course, the waning interest of foreign investors bites but India’s bond market is a contrast in an otherwise unfriendly bond market globally. US treasury yields are on a climb and Japan’s 40-year bond yield rose to its highest since the tenure was introduced in 2007 because policy rates there are expected to go up. Either way, for fixed income the pot brimmeth over with returns in 2025.
Investing insights from our research team

HCL Tech Q3 FY25: Steady quarter with a strong commentary on demand revival

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PCBL: Demand softness, inventory de-stocking weigh on the stock

Tracker

Pro Economic Tracker: Auto registration, labour participation fall; consumer sentiment, power consumption rise

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INDIA Bloc's journey may end with Delhi assembly elections

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TikTok ban could create a valuable prize: users’ brain space (republished from the FT)

India must engage with the Taliban, for regional stability

Grey areas in draft data protection rules need a relook

Why affordable housing remains a bright spot in India’s housing sector

US reliance on Saudi Oil is nearing its endgame

J&K’s Omar Abdullah finds his hands are tied

Tech and Startups

DPDP Rules: Global industry calls for more clarity on data transfer restrictions

Technical Picks: MARUTI, HINDALCO, JSWSTEEL, INFY

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Aparna Iyer
Moneycontrol Pro