Moneycontrol Pro Weekender | A resilient but frayed economic tapestry

Markets are a reflection of the economy. Sometimes they are honest mirrors and sometimes they are mirages

Dear Reader,

It is only fitting that we have a long weekend after a week like this. India's equity indices took a beating, its exchange rate wobbled, and bonds held on to gains as much as they could amid a reversal of sentiment towards the worse. Adding insult to injury was an unexpected increase in the trade deficit, domestic inflation data that decimated policy easing hopes and growing disquiet around consumption demand.

Who would have believed that a few weeks ago, Indian markets were at record highs, investors swore that the markets would weather changing geopolitical winds and FII selling impeccably? But as they say, there are decades when nothing happens and there are weeks when decades happen.

In the fortnight gone by, the world’s largest economy elected Donald Trump as its President, someone who triggered a trade war through tariffs in his previous stint at the White House. Trump has, as expected, repeated his ‘America First’ campaign in which he is moving towards imposing steep tariffs on trading partners, reducing corporate taxes, booting out immigrants from the US and pushing climate change aside as a footnote.

America First means the rest of the world must wait for its share of capital and it would be hard to come by. Trump’s return has brought the focus back on the fact that emerging markets are sorely dependent on the US for capital and that India is no different.

But we are not anything if we aren’t optimistic in the face of adversity. After all, the word associated with the Indian economy for the past five years has been ‘resilience’.

Yes, Trump’s tariffs will make things awkward at best and adverse at worst for our markets, our exchange rate, and monetary policy as we noted here and here. Indeed, his cabinet pickings have shown that Trump’s focus is China. In all, a wrecking ball is headed the way of global trade as Alan Beattie noted in his piece for the Financial Times and Vivek Kelkar listed the dilemmas for emerging markets for us here.

That said, at a mega event on November 14 that saw attendance from deep pocketed investors of the market, corporate titans, policymakers and key ministers and policymakers, the sentiment expressed towards India was anything but downbeat. The biggest supporter and believer of Indian economy’s growth story has been the Reserve Bank of India’s Governor Shaktikanta Das. Das didn’t tone down his rhetoric this time around as well. “Without being complacent, let me end by saying that the Indian economy has sailed well through the prolonged period of turbulence and exhibits resilience in the face of constantly emerging new challenges.”

Investors seem to put their own two cents behind Das. Domestic deep-pocketed investors advised patience and holding on during correction periods as the present one. At the same time, the anxiety among investors was apparent. Ramesh Damani warned that America is a big player, and its policies will have deep implications for Indian markets. Samir Arora of Helios Capital brought the focus on dismal corporate earnings. We captured the views here. As Shishir Asthana noted in his piece, domestic investors too have begun to retreat which does not bode well for equities.

But there are some old investing nuggets given by them as well. The underlying theme was that investors must understand compounding, stay invested and avoid timing the markets. As for companies seeking out investors, we had a timely guide on how to approach IPOs.

Markets are a reflection of the economy. Sometimes they are honest mirrors and sometimes they are mirages. Which one is India?

In yesterday’s Pro Panorama, Vatsala Kamat had questioned valuations and that more correction in equities is likely. Corporate earnings have not met expectations and a cyclical slowdown in the economy is underway. India’s stock market should reflect that, and finally they seem to be.

The economy may not deserve all the optimism it is getting but there isn’t reason enough for alarm as well.

Not all is good here but not all was good before as well for the economy. A K-shaped recovery has ensured a wide disparity between consumption classes. Affluence and premiumization have been the buzzwords and though they have helped carmakers and builders sell luxury vehicles and homes, it has also meant that consumer goods companies have been hurt. Urban demand for staples is low, discretionary spending beyond the sugar rush of festival consumption isn’t promising and households are looking at cutting corners in the budgets. This has been the story of India for the past year but the focus on the small holes in the tapestry have been ironically sharpened by events miles away from national borders.

At the same time, there has never been a stronger focus on capex-led growth and infrastructure investments are looking up. When banks begin to give out more corporate loans than retail, it is a sign that factories are getting built again. Private capex is on the move and historically it has led to a longer period of sustained growth, if done right.

At any given point in time, the economic tapestry has had strong threads, loose ones and even holes. If the strong threads are robust enough to withstand external pressure, there need not be a worry that the holes will get bigger. At the same time, the holes need to be fixed and policymakers have their task cut out.

As Trump embarks on policies that could upend global markets, India will need to avoid new tears in its tapestry to triumph.

Cheers,
Aparna Iyer

Event Alert: CNBC TV18 & Moneycontrol will be hosting the most definitive summit on Artificial Intelligence with top global and Indian voices on November 22nd in Bengaluru. Click here to register and get access to ‘CNBC-TV18 & Moneycontrol Global AI Conclave’.
Here, in case you missed some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:
Stocks
BSE, Safari Industries, Eicher, PG Electroplast, Cello World, Hyundai, Britannia Industries, Hindalco, PGCIL, TBO Tek, Asian Paints, RateGain, Aditya Birla Capital, SAMHI Hotels, Protean, Data Patterns, Asian Paints, Tata Motors, Indian Hotels Company, IRCTC, SBI, MapmyIndia, Ashok Leyland, Emami

Markets
Will there be a Santa Claus rally this year?

Bank NPAs are down, but watch the SMA-2 loans closely

BlackBuck IPO

'Buy anything phase' is over, bottom-up opportunities in innovation attractive as market gets off high-velocity phase: Tata MF CIO
The Second Coming: How Jerome Powell aided and abetted Donald Trump's return

Will investor confidence in Gold ETFs hold under the new US regime?

SIP inflows at record highs, but will household flows into equities start tapering soon?

Financial Times

How markets might be wrong about Donald Trump

Bitcoin’s big bang moment is impossible to ignore

Who’s Who in the Musk ‘A-team’ vying to shape Trump 2.0

Martin Wolf: Manufacturing fetishism is destined to fail

Trump should heed Adam Smith’s lesson on markets

Companies & Sectors

SBI's asset quality has improved despite a tricky loan market

ABB India: Change in order flow mix a boon or bane?

What do SBI’s July-September numbers tell us?

The remarkable recovery in Power Grid’s capex

All the signs point to a downcycle in commercial vehicles

Economy & Policy

It’s a tough job being part of the MPC these days

Should monetary policy be hostage to vegetable prices?

The Eastern Window: Is the world ready to call Trump’s bluff?

Global food inflation’s upward march keeps key risk in play

What to expect from the G20 summit in Rio de Janeiro?

Climate concern — Is COP29 doomed from the start?

We need a Department of Government Efficiency (DOGE) in India too

Q2 road tenders rise, but power sector shines in project awards

Pro Economic Tracker: Two-wheeler sales improve, car sales fall; labour participation, consumption sentiment weakenTech & Startups

Slice merger with NESFB comes with a cost: Legacy NPAs worth Rs 192 crore

Startup Street: Are India, its startups in danger of missing the AI bus?

MeitY outlines data law compliance steps, backs automation for easier adherence

AI boom sweeps through creator economy as influencers bank on artificial intelligence to bring down costs