Indian markets traded most of the week on a positive note as improving PMI numbers coupled with monetary policy measures announced by the Reserve Bank of India (RBI) gave a shot in the arm to domestic investor sentiment. However, markets gave up some of their gains towards the end of the week as profit booking emerged at higher levels.
Monetary Policy Update
In its sixth bi-monthly policy review of the financial year, the six-member Monetary Policy Committee (MPC) decided to keep its short-term lending rate ie. the repo rate, unchanged at 5.15 per cent while maintaining its accommodative stance to support growth and making it clear that there is policy space available for future actions. The central bank focused on growth and showed a willingness to resort to unconventional steps to cap any up move in yields. GDP is estimated to grow at a rate of 6 per cent for 2020-21 while growth for Q3 December 2020 is projected at 6.2 per cent. However, concerns over concerns over rising inflation loom large. The RBI has revised the CPI inflation projection for Q4 March 2020 to 6.5 per cent, to 5.4-5 per cent in the first six months of 2020-21 and 3.2 per cent in the third quarter of 2020-21.
In a major positive, the Indian service sector rebounded at the start of 2020, amidst a fragile macro-economic environment and built up on the momentum gained at the end of 2019. The IHS Markit India Services PMI showed that the business activity index grew to 55.5 in January 2020 from 53.3 in the previous month. Strong domestic demand led to expansions in new business and output not seen for seven years. The upswing primarily stemmed from favourable market conditions and better underlying demand, as per the survey. The steepest increase in this figure came from the consumer services sector. With business revenues rising, service providers continued to increase capacity to meet further strong growth in sales.
India's manufacturing activity expanded at its quickest pace in nearly eight years in January 2020 on the back of a sharp rise in new business and production. The HIS Markit India Manufacturing Purchasing Managers' Index jumped to 55.3 in January 2020 from 52.7 in December 2019, making it the highest on record since February 2012.
Global markets traded under pressure as the rising death toll from the coronavirus stoked further concerns over its impact on economic growth. However, the US stock markets continued to scale record highs as trade negotiations with China took a positive turn. The Indian government is making a concerted effort to give a boost to flagging demand in the economy and ensure that credit offtake in the economy picks up. Markets wait to see the positive impact of these to be reflected in macro-economic numbers.