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Moneycontrol Pro Weekender: Surf’s Up 

Not only has slower global growth helped India through lower commodity prices, higher inflation in advanced economies has also boosted outsourcing 

May 27, 2023 / 10:01 AM IST


Dear Reader,

Fed watching is becoming more and more interesting. After panicking about interest rate hikes, and then resolutely ignoring and disbelieving the Fed, the US money markets have once again done a U-turn and now expect another rate hike at the Fed’s July meeting. But these expectations could turn on a dime and the schizophrenic nature of the market is evident from the fact that it still believes the Fed Funds rate will be 25 basis points lower than what it is now by the end of the year.

There’s a reason why not just the markets but also central banks in the developed economies are confused. As we had pointed out, the Flash PMIs for May show a two-speed global economy split between manufacturing and services, raising a dilemma for central banks.

This FT story, free to read for MC Pro subscribers, says large asset management groups are piling back into fixed income to lock in the higher yields on offer. The two-year US bond yield has risen again, and the dollar has firmed up. As for the US equity markets, our columnist Ajay Bagga has listed five reasons why they have been rallying. One of them is AI, which has led to euphoria in stocks that are expected to benefit from it.

Nvidia, which makes AI processors, posted a 24 percent rise in its share price on Thursday, and this is no small company, but one with a market cap approaching $1 trillion. NVidia’s CEO told analysts that a trillion dollars of data centre infrastructure will be upgraded to handle generative AI tools such as ChatGPT.

While AI has plenty of potential for good and evil, it’s also a fact that such frenzies often lead to bubbles, the dotcom one at the turn of the century being the obvious example. For the moment, though, the hope in India is that AI could mean the end of the funding winter for startups. We recommended RateGain Travel Technologies, which has, among other things going for it, acquired Adara, a company that provides AI-powered travel intent data.

As for the impact of such technological revolutions on the real economy, Tim Harford in this FT column quotes economists Daron Acemoglu and Simon Johnson: “Textile factories of the early British industrial revolution generated great wealth for a few, but did not raise worker incomes for almost a hundred years.” The Luddites may not have been the idiots they are often made out to be.

We have often said a global growth slowdown may not be a bad thing for India, as it will lead to lower commodity and crude oil prices. The finance ministry’s latest monthly economic review mentions how higher inflation in the developed countries has also been a boon for the Indian economy.

It points to the rise of non-IT services exports and says, “The sharp increase is linked to India's sudden proliferation of Global Capability Centres (GCC). Through GCC, global businesses outsourced their back-office operations to India after wage costs in their parent countries spiked up after the inflation spurt.” Simply put, higher costs in the developed economies increase the pressure to outsource.

In India, on the other hand, there are few concerns about either growth or inflation at the moment. RBI Governor Shaktikanta Das has said the GDP growth for FY23 could be above 7 percent. The RBI Bulletin’s State of the Economy report has said the inflation momentum is turning out to be softer than anticipated, which led us to speculate whether a change in monetary policy is around the corner. The finance ministry report points out, “Sticky core inflation has moderated significantly to almost a 3-year low in April, signalling a pass-through of lower input costs by producers. The central bank must be pleased.”

Both the State of the Economy report and the finance ministry review talk of a rise in the private sector capex. We are seeing that in several companies, such as JSW Steel and EIH. IRB Infra’s Q4 results show active tendering activity in the roads sector. Bharat Electronics has had robust order inflows. Ashok Leyland sees demand getting support from core activities such as construction, mining, and infrastructure. Strong demand is supporting Cummins India. Steel output worldwide is slipping, but India is one of the few exceptions. S&P Global Ratings has said the asset quality of Indian banks will continue to improve.

And then, there’s the geopolitical tailwind. The fawning reception that Prime Minister Modi received from US President Biden, Australian premier Albanese and, last but by far the most cringy, Papua New Guinea prime minister, reflect the ardent wooing of India by the West. Our columnist from Philadelphia wrote about the implications of Modi’s state visit to the US next month.

Jared Cohen, president of Global Affairs at Goldman Sachs, in an article titled ‘The rise of geopolitical swing states’, said that swing states such as India have a great deal of autonomy, even more so than during the Cold War. Unlike our home-grown sceptics, he writes: “India’s large labour and consumer markets, edge in pharmaceuticals, digital connectivity, and production-linked incentives like ‘Make in India’ position it to be the next global manufacturing hub.”

He adds, “With the right industrialisation policies and infrastructure, its economy could double in size by 2030, making it the third-largest on the planet. As India continues its economic rise, its exclusion from the G7 will only become more anachronistic.”

In other words, the consensus is the tide is turning for India. All we have to do is, as The Beach Boys sang, ‘Catch a wave and you’re sitting on top of the world.’ Unless, of course, this happens.


Manas Chakravarty

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:


LIC, Weekly tactical pick, Control Print, Page Industries, Nykaa, Hindalco, Va Tech Wabag, Balaji Amines, Dixon Technologies, Crompton Consumer, Safari Industries, Aditya Birla Fashion & Retail, Tata Motors, Divi’s Lab, Concor, PI Industries


Metals are flashing red signals

India tops the charts in APAC office property market

Why the auto sector is attracting FPIs

Non-ferrous metals wilt, as does Dr Copper

Financial Times 

How long can the gold boom last

‘Boomy’ talk about the Chinese economy is a charade

Companies and industry 

Fortis, Muthoot Finance, Siemens, A tale of two fintech companies, Rainbow Children’s Medicare, India’s airlines, Apparel makers’ fate


The EU learns some hard energy lessons

China’s dominance in rare earths and magnets is alarming

The Eastern Window: An expanded BRICS will be a challenge to US hegemony


No one owns Gatik and Buena Vista Shipping

Implications of the NCLAT order on Go Airlines

SEBI’s proposal allowing smaller REITs

The promise on the currency note

The 2000-rupee notes will die unsung

SEBI—guilty until proved innocent


Pro Economic Tracker

Rising currency in circulation


China’s housing crisis, Why Personal Finance must be taught in schools, Guruspeak

Manas Chakravarty
Manas Chakravarty
first published: May 27, 2023 10:01 am