Moneycontrol Pro Panorama | Markets fret at growth risks, but is bearishness overdone?

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Market volatility is a reflection of volatility in global economies. With rising food and fuel prices, supply-side shocks, the resurgence of virus and a war that has impacted, directly and indirectly, most of Europe, uncertainty has increased. Lack of visibility is something that the market does not like.

On the economic front, everything boils down to growth. Rising prices lead to higher interest rates and lower spending, which in turn impacts growth.

The second part of Moneycontrol Pro’s interview with Chief Economic Adviser V Anantha Nageswaran highlights the risks to growth, both in the domestic and global economies and their interdependence.

He says that since global growth is coming under strain due to geopolitical uncertainties and monetary policy tightening, it is difficult to say if the high export growth rate of 2021-22 will be repeated in 2022-23.

Inflation is a big worry for the government, especially imported inflation. Higher prices for edible oils, crude oil and fertilisers will have an adverse effect on India’s current account deficit this year, says the CEA. The resulting higher interest rates will not only restrain aggressive demand growth but will also restrain imports and incentivise domestic financial savings.

Monetary tightening in advanced economies and asset market corrections could restrain demand growth globally, he adds.

Adding to growth problems are the internals of rising energy prices. Though crude oil has touched $115 a barrel, prices of fuels like petrol and diesel are at levels when crude oil is at $250 a barrel. The sharp difference between fuel and oil prices is because of limited addition to refining capacity and supply-side bottlenecks and higher cooling demand on account of the heatwave.

Though oil production continues to remain high despite the Russian war, distilled fuel availability has decreased. Commenting on the situation, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said: “When in our lifetimes have we seen refining margins of $47-50 a barrel? It tells you there is no refining capacity commensurate with the current demand and expectation of demand this summer.”

Unless the supply side bottlenecks are untangled and the temperature comes down leading to lower energy demand, refining margins are expected to remain high.

Given these scenarios, the immediate task at hand for most governments would be to control prices, sacrificing growth. And as Anantha Nageswaran says economic growth, in the end, is the best guarantor of fiscal health.

As for Indian markets, the much-awaited listing of LIC did not meet expectations. The insurance major closed at a discount to its offer price. We have a report suggesting that the stock may drift lower to catch up with its fundamental value.

However, it’s not all gloom and doom in the markets. Manas Chakravarty comments on the Bank of America survey of global fund managers that points to extreme bearishness, indicating a bounce.

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Shishir Asthana

Moneycontrol Pro