Challenging Inflationary Environment and India’s GDP Growth

In the past week, global stock markets remained volatile due to mixed economic signals. A surprising drop in consumer inflation raised questions about whether the recent removal of interest-rate cuts from forecasts had been premature. In this blog, we’ll know in detail what happened last week (January 13, 2025 to January 17, 2025) all across the globe.

Rise in US 10-Year Yield

Investors closely monitored the Capitol Hill confirmation hearing of Scott Bessent, President-elect Donald Trump’s Treasury Secretary Nominee. Expectations for a Federal Reserve rate cut by mid-2025 rebounded, reversing earlier skepticism sparked by December’s robust jobs report.

Positive developments, including progress on the Israel-Hamas ceasefire and a reduced U.S. trade deficit, slightly improved market sentiment. However, December retail sales grew just 0.4%, below the 0.6% forecast, signaling a slower economic momentum.

Concerns linger over sticky inflation and potential exacerbation by Trump’s forthcoming policies, dampening optimism for 2025. A surge in the 10-year Treasury yield has further weighed on stock markets across the globe.

Europe Economy Jolted

In Europe, Germany confirmed its economy contracted 0.2% in 2024, following a 0.3% decline in 2023. Weak consumer spending and falling house prices have stifled recovery in Europe’s largest economy.

Meanwhile, Japan’s wholesale prices rose 3.8% year-on-year in December, with import prices up 1.0%, reflecting steady inflationary pressures.

China’s Exports Growth

China achieved its 2024 growth target of 5%, driven by strong exports and stimulus measures. In the fourth quarter, the economy grew 5.4% year-on-year, as companies rushed shipments ahead of potential U.S. tariff hikes under President-elect Trump.

However, China continues to face challenges from domestic demand weakness and heightened geopolitical tensions with the U.S. Overall, the week underscored a complex global economic outlook, with shifting dynamics influenced by inflation, policy changes, and geopolitical developments.

India’s Focus on Budget

Back at home, the domestic stock market exhibited mixed movements. Persistent selling by Foreign Institutional Investors (FIls) this month has weighed on investor sentiment. However, there are glimmers of optimism stemming from global developments.

The cooler-than-expected US inflation data for December has bolstered hopes of further interest rate cuts in 2025, providing a positive outlook. Additionally, robust earnings reported by major US banks have improved global market sentiment, indirectly supporting the domestic market’s tone.

On the flip side, the outlook for Q3 corporate earnings in India remains subdued, much like the disappointing results of the previous quarter. This has fueled concerns about the near-term trajectory of the market. The upcoming Union Budget 2025 is anticipated to strike a delicate balance between fostering economic growth and ensuring social security, a move that could influence market dynamics.

Conclusion

World Bank has revised its projection for India’s GDP growth to 6.5% for the year, slightly below its earlier estimate of 6.6%. The services sector is expected to maintain its momentum, while manufacturing activity is likely to benefit from ongoing government efforts to enhance the business environment.

India’s investment growth is predicted to remain stable, with rising private sector participation offsetting a moderation in public investment. Looking ahead, market movements will be shaped by a blend of domestic and global factors, keeping investors on edge. So, open Demat account with SMC Global Securities and invest as per your investment objective and risk profile.

Reference:
SMC Global Securities’ Research Team

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