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Good News = Bad News? 🤷🏻‍♂️

After seven straight weeks of gains, a cumulative rally of 10%, and touching all-time highs, the Nifty fell by 1% last week.

The week’s been a classic case of good news = bad news. Ideally, increased economic activity and more jobs are good news. However, in the current context, these only mean more efforts to slow things down; i.e more rate hikes.

What’s finally causing the markets to breathe out a little?

It all started with Fed Chairman Jerome Powell indicating slower rate hikes. Naturally, this was a cause of a heap of optimism.

Positive Indicators

However, positive economic indicators flowing in after that didn't quite bode well as fears of continued aggression on rate hikes crept back in. Some of them include:

  1. The jobs report reflected a continued and stubborn hot labour market

  2. The Non-Manufacturing PMI (Purchasing Managers’ Index) reading in November was better than expected. This data point is an indicator of business activity in the services sector

On top of that, wholesale prices rose more than expected; and this was followed by a series of finance CEOs warning of a bumpy road ahead, and several layoffs across big banks.

The India Story

On the other hand, the RBI raised rates by 35 bps, which is lower than its past four hikes, since May 2022; driven by lower CPI inflation. Global commodity prices have also been coming off, making a sharper hike unnecessary.

The RBI Governor also made it clear that India’s monetary policy actions are not driven by, or based on what the Fed does.

The IT Drawdown

However, the markets don’t function that way. Last week’s 1% Nifty down-move was massively driven by the IT sector. 5 out of the 7 worst performing stocks in the Nifty 50 were IT stocks. All the IT stocks in Nifty 50 were down between 4-10% in just one week.

IT stocks depend on the US for most of their revenue, and any deterioration of the US economy poses a threat to the performance of IT companies.

💡 Our View: While India’s economic situation appears relatively more robust than the rest of the world, it is not immune to what’s happening globally. Global supply chain disruptions, the threat of higher inflation, and worsening stress in the US and in Europe pose a downward risk to India’s growth and policy direction.

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