Risk of eventual correction in global stock markets may have spillover effects: FinMin

The Finance Ministry has raised concerns over the risk of a potential correction in global stock markets, cautioning that the spillover effects could be felt worldwide. In its monthly economic review for August, the ministry highlighted that while stock markets are currently booming due to recent policy announcements in some countries, the likelihood of an eventual correction has risen. "If the risk materialises, the spillover effect may be felt globally as well," stated the report.

This comes against a backdrop of fears surrounding potential recession in advanced economies, ongoing geopolitical conflicts, and the anticipation of a global cycle of policy rate cuts. The ministry also pointed out challenges within the domestic economy, citing concerns about the spatial distribution of rain and its potential impact on farm output in certain regions. However, it reassured that, barring any major climate shocks, rural incomes and demand are expected to strengthen, leading to milder food inflation.

The report further observed early signs of strain in certain sectors, with moderating passenger vehicle sales and inventory build-up highlighted by the Federation of Automobile Dealers Associations (FADA). Additionally, NielsenIQ data revealed a slowdown in urban fast-moving consumer goods (FMCG) sales growth in Q1FY25. “While these may turn out to be transient with the onset of the festival season, they warrant monitoring,” the ministry stated.

Despite these concerns, the Finance Ministry noted some positives for the Indian economy, particularly the low oil prices. Furthermore, the capital spending by Indian states has decreased in the current financial year, the monthly economic review said.