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Slower Start to a Faster Year

The first week of the new year ended on a slightly negative note. After all the exuberance through December, a lack of positivity seems like quite a bummer. So what’s causing the fizzing out?


Trouble in the Red Sea 🚢

The Houthis - a rebel group in Yemen had launched attacks on Israel. But after their weapons were intercepted, they started attacking vessels in the Red Sea. The US claims for the Houthis to have targeted more than 25 vessels since November. And now things are escalating with multiple countries getting involved.


This has led to global shipping giants like Maersk halting their transit through the route. The other alternate is around Africa, which is 25% longer and more expensive, and results in a surge in prices of not just containers, but also all the goods that are being shipped from the route.


For context, 15% of the world’s seaborne trade gets affected by this. Container shipping prices are already 3x. Traffic is already down by 1/3rd in the last two weeks. This builds anxiety around the otherwise bettering inflation situation.


US recession?

Although inflation is under control, and the Fed has paused rate hikes, the full impact of rate hikes is yet to be seen. After all, the rate hikes last year were the highest and fastest ever, and are bound to impact the economy - but with a lag.


Most of Wall Street has forecasted a ‘soft landing’, which means the economy doesn’t get tipped into a deep recession. But a slowdown or mild recession are pretty much where expectations lie at the moment.


Indian IT stocks, until then, continue hopping between green, led by hopes of rate cuts in the US, and red, with results still expected to be muted, thanks to prolonged inflation and lower discretionary spend.


Inflation in Europe 

Yes, inflation again! Inflation in Europe rose to 2.9% in December, after months of declining. The ECB President, Christine Lagarde warned of inflation ticking up in the coming months. Sounds familiar to the food inflation situation in India, no?


Anyway, data revealed France and Germany, the two powerhouses of Europe saw an increase in prices of 3.7%, which makes this a little more dodgy given most manufactured goods in Europe come from here.


Most investors have been expecting rate cuts, and that’s what has led the rally on the global front. Any lag on that front would directly impact the markets negatively.


But hey, everything’s good at home ✌🏻

  • India’s economy grew by 7.6% in 2Q of FY23, which is very healthy

  • The RBI expects India’s economy to grow by 7% in FY24, and upped its forecast from the earlier 6.5% after seeing the 2Q numbers

  • The Finance Ministry expects the economy to grow comfortably above its own estimate of 6.5%

  • To add to this, just last week, the Ministry of Statistics and Programme Implementation estimated India’s GDP at 7.3%


While inflation remains a common worry for the world and for India, India’s growth is expected to continue being much higher than others. This is likely to continue resulting in higher valuations and better market performance for India compared to the others.

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