Moneycontrol Pro Panorama | Omicron casts a long shadow over economy

Omicron | Representative image

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

The Reserve Bank of India (RBI) stuck to its gross domestic product growth projection of 9.5 percent for this financial year, according to monetary policy resolution earlier this month. But doubts are beginning to emerge, thanks to Omicron.

The minutes of the monetary policy panel meeting suggest that it spent a lot of time discussing the Omicron issue. There is still little clarity on how severe this variant of coronavirus is, and how it will impact economic activity. But the virus is only amplifying the existing risks in the domestic economy.

Persisting core inflation is turning more broad-based. And, capacity utilisation in manufacturing industries is below the long-term average and doesn’t justify fresh capital expenditure. Add to this the scarring of consumer sentiment from unemployment, job loss and reduced disposable income.

However, rising bank credit, tax revenues and exports together make a silver lining to this cloud of gloom.

These two contrasting scenarios will continue to make the task of managing policy rates for the RBI more challenging. Meanwhile, global issues such as supply-side disruptions and clear indications by the US Fed and some other developed country central banks that they will withdraw the monetary stimulus faster than expected could have spillover effects for the Indian economy.

This article explains why decoupling of global and India’s growth prospects may be limited -- a key takeaway from the minutes of the recent Monetary Policy Committee meeting.

Markets too, have begun shedding gains and also the optimism of a strong recovery in the economy, in the near term. Investors are uncertain whether strong revenue and profit growth will continue in the second half of FY22 as effects of cost inflation set in with a lag.

Perhaps, investors could use the opportunity thrown up by falling indices and stock prices to reset their portfolios. Our Personal Finance column tells you why and how. For those who believe in the lustre of gold as an investment hedge, this article argues why the precious metal is losing its status as a safe haven.

Some interesting investment analysis from our Research Team:Zee Entertainment: Merger half-way through, successful completion to unlock value

Construction sector: Huge runway for growth; stay stock selective

What else are we reading?

The case for booster dose gets stronger

The FMCG sector’s defensive shield has a weak spot

Tweak SEZ rules to add mojo to manufacturing

Here’s how COVID-19 could transform healthcare in India

In 2022, policymakers must tackle the unemployment crisis on a priority basis

US financial conditions remain easy even as Fed pulls back on stimulus  (republished from the FT)

Picks from our Technical Analysts: Delta Corp, Clean Science and Tech, Tech Mahindra and ITC(These are published every trading day before markets open)
Vatsala Kamat
Moneycontrol Pro