It has been an interesting week on the Indian bourses with markets starting the week on a negative note but finally ending it with some gains. Selling was triggered in the beginning of the week by higher crude oil prices. Oil prices spiked on Monday after two large crude production bases in Libya shut down due to a military blockade. This could potentially curtail crude flows from Libya to a trickle.The negative sentiment further intensified after the International Monetary Fund (IMF) lowered India's growth forecast. Subdued quarterly results by key index constituents and negative global cues also put pressure on domestic shares. Most of the selling at the beginning of the week was broad-based as both the BSE Mid-Cap index and the BSE Small-Cap index witnessed losses. Domestic institutional investors maintained the selling pressure having net sold Indian equities worth Rs 3,539 crore in the period between January 17 to 23. However, sentiments improved towards the latter half of the week due to a correction in crude oil prices and amid heavy buying interest by foreign institutional investors (FIIs). In the same time period as mentioned above, FIIs net bought Indian equities worth Rs 1,396 crore.
The state of the Indian economy continued to be a cause of concern for most investors. This was further stoked by a slew of reports that confirmed that the ongoing slowdown is very real. According to a Reuters poll, rising inflation is expected to keep the RBI from cutting rates again until late this year. This considerably hinders the central bank’s ability to use interest rates as a toll to stoke consumption demand and credit growth. This is going to be a tricky balance to strike for the government as it has already announced a slew of supply side measure to give a fillip to domestic demand and industrial activity.
On the other hand, growth forecasts continue to be tepid. The ratings agency India Ratings has pegged India’s GDP growth for FY21 at 5.5 per cent. However, it expects downside risks to persist. Also, it expects the shortfall in the tax plus non-tax revenue to result in fiscal deficit slipping to 3.6 per cent of GDP (budgeted 3.3 per cent) in FY20, after accounting for the surplus transferred by the RBI. Adding to growth worries is the lacklustre consumer sentiment and depleting confidence. According to a report by Thomson Reuters-Ipsos, consumer sentiment nosedived by 7.3 per cent in January 2020. The report added that the pessimism is caused by the depleting confidence around personal spending and investments. However, it should be noted that confidence for jobs has slightly moved up as compared to last month.
With the budget slated for February 1, 2020, sentiment during the coming week is going to be dominated by budget expectations as investors, corporations and businesses wait to see whether the FM will be able to do the tightrope walk without falling.