Moneycontrol Pro Weekender | Apocalypse Postponed, Again

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Dear Reader,

It’s already halfway into 2025, and where on earth is the much-anticipated global economic slowdown? What happened to the outburst of inflation in the US that Trump’s tariffs were supposed to bring on? Where are all the recessionistas hiding? The job market is doing pretty well, thank you. The S&P Global US Composite PMI posted solid growth in June. And if all that’s not bullish enough, then there’s the One Big Beautiful Bill (OBBB), which will deliver a big beautiful stimulus to the US economy. Small wonder then that the US equity markets are scaling new highs.

Sure, there’s a lot of talk about the US fiscal deficit exploding because of the OBBB---Paul Krugman as usual was particularly scathing, calling it Trump’s Big Beautiful Debt Bomb, and the US 10-year Treasury yield did rise a bit after the bill was passed. But here’s the thing, the 10-year yield is around 4.35 percent, while in early January it was 4.6 percent. Where’s the panic?
And it’s not just the US—the MSCI All-Country World Index too is at an all-time high. The JP Morgan Global Composite PMI index rose to a 3-month high in June. All the predictions of doom and gloom from economists, from think-tanks, from op-eds and from global institutions, have thus far come to naught. Are they all full of sound and fury, signifying nothing?
There has been no dearth of naysayers, the latest being the Bank for International Settlements, the central bankers’ central bank, whose Annual Economic Report paints a picture of fissures deepening across the real economy, fiscal systems stretched thin, and financial markets balanced precariously. The markets, of course, completely ignored it.

What could change this optimism? Ruchir Sharma, writing in the Financial Times, said there are three ways this buoyancy might break: the AI narrative shifts again, the threat of lower growth and higher inflation from tariffs comes true, or investors realise that the apparent strength of US consumers and corporations is only on account of the massive US government deficit. Until that happens, the US markets are expected to remain buoyant. Here’s another take on the reasons why the markets are shrugging off risk, also from the FT.

But are they really that bullish? It depends on the currency you use to measure them. For instance, the MSCI All Country World Index (ACWI) in USD is up 10 percent this year, as on July 3. The EM index is up 15 percent. But change the measuring rod to the Euro, and the ACWI is down 3 percent year to date and the EM index up a very modest 1.3 percent.

The fall of the USD is the story of the year and the RBI’s Financial Stability Report said “we could be entering uncharted territory in the global financial system as the USD’s primacy and safe-haven status are being challenged”. We took another stab at explaining it here. Some point out that while the broad-based Real Effective Exchange Rate of the USD has fallen this year, it was even lower for much of 2024. For the moment, therefore, we should probably say of the USD what Miss Prism said to Cicely about the rupee in Oscar Wilde’s ‘The Importance of Being Earnest’, ‘The chapter on the Fall of the Rupee you may omit. It is somewhat too sensational. Even these metallic problems have their melodramatic side”.

Back home in India, the Nifty is very near its high for the year. In the US, the consensus among economists seems to be that while everything looks fine at the moment, a reckoning will happen later in the year. But in India, nobody is quite sure whether growth is really holding up. The PMI survey for June said, “The HSBC India Composite PMI Output Index rose from 59.3 in May to 61, indicating the fastest rate of expansion in 14 months.” Yet, the Index of Industrial Production data showed that India’s industrial engine is sputtering. The auto sales numbers for June have been underwhelming. We said two-wheeler sales will hit the skids, thanks to new regulations. The June numbers for growth in GST collection are disappointing.

Jefferies’ Head of Research Mahesh Nandurkar has an explanation. In a recent research note, he said, “India’s nominal GDP growth will likely slow down to 9% in FY26 -- the second-lowest pace since FY04 (barring COVID) -- due to low inflation, despite a healthy 6.5% real GDP growth. This could soften corporate revenue growth, credit growth etc. Lower inflation is good for bond yields (already down 50 bps CYTD) and hence higher PEs. But lower nominal growth implies possible EPS cuts. Our base case is for sideways equity market for the rest of FY26.” But then, won’t monetary easing ride to the rescue?

Also, looming ahead of us next week is the Damocles sword of higher tariffs if no trade deal is concluded before July 9 -- We hoped and prayed for one here.

So, here we are: halfway through 2025, and the apocalypse is once again postponed. The doomsayers have retreated quietly, the recessionistas have gone off-grid, and the markets—buoyed by AI dreams, big beautiful bills, and the alchemy of deficit spending—continue their improbable levitation act.

As my colleague Aparna Iyer pointed out in Friday’s Panorama, we are still dancing. Tina Charles captured the mood in today’s markets perfectly many decades ago in ‘Dance Little Lady Dance’:

‘Dance little lady, dance
You know you've only got one chance
So, come on dance, dance, dance, oh
Yeah, yeah
Ooh, we boogie and we bump until we're fit to drop
And when he gets me going, I don't want to stop.’

Cheers,

Manas Chakravarty
In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

Weekly Tactical Pick : Why this frontline defence stock still offers value, Crizac Ltd IPO, Aarti Industries, Aadhar Housing Finance, Cochin Shipyard, Protean, Cera Sanitaryware, Gabriel India,

RateGain, Tata Tech, Bharat Dynamics, Inox India, Metro Brands, Balaji Amines

Markets

Relief for options traders as SEBI cracks down on Jane Street

From Gloom to Boom: India’s IPO saga

As IPOs rain down, is it time to join the crowd or step aside?

Traders in this asset class need not fear Algos, AI

India’s push to monetise PSU bank subsidiaries may unlock most value at SBI

Are retail investors warming up to direct investments in government bonds?

Financial Times

Whose job is safe from AI?

‘Elon has finally woken up’: Musk battles to save Tesla from Trump

The US can beat China on critical minerals but not by copying it

In defence of the second-mover advantage

Market squalls threaten to throw container shipping off course

Companies and sectors

Why Akzo Nobel India’s minority shareholders may have got a profitable exit

Torrent Pharma puts the money where its heart is

Diamonds are forever, at a discount

Coffee prices fall 25 percent from peak, bringing relief to marketers

Luxury housing crisis hits Mumbai as affordability reaches breaking point

Early crop sowing data indicate a good season for agriculture-inputs providers

Microfinance in India: Is the worst over?

For Tata Chemicals, steady India demand can bring limited relief

Karnataka Bank’s top brass exit: Personal reasons or boardroom friction?

Economy & Policy

Why India’s nutrition crisis is an economic one

India’s industrial engine sputters at FY26 start as consumer goods production slumps

Policy transmission is held up by fixed rate loans of private banks

How deep is the slowdown in bank credit?

RBI report reveals India’s consumption boom powered by affluent borrowers

Can a unique borrower ID be a game changer in India’s loan market?

Pro Economic Tracker

Politics

As the 2026 election nears, Bengal braces for more bloodshed

Geopolitics & Geoeconomics

Trump-brokered Congo-Rwanda peace deal aims to unlock critical mineral access for US

Europe’s bid for strategic autonomy faces twin hurdles: Trump’s tariffs and China’s clout

Is there an India-China crack in the BRIC-work?

Chinese car makers topple global dominance in domestic markets

Tech & Startups

Start-up Street | When start-ups compete with their investors, and vice-versa…

Crypto regulations need clear vision and govt support, says Binance CEO Richard Teng

India’s top IT firms lean towards IP-led growth as Gen AI shrinks the pyramid

Electronics, spacetech sectors cheer Rs 1 lakh crore RDI scheme as gamechanger for deeptech

Others

Personal Finance: Don’t sell for the wrong reason

Delhi’s ban on fuel sale to old vehicles reveals a patchy solution to pollution