Kerala concerns, Sensex surge

Headline numbers suggest that the recent virus outbreak in Kerala has been brought under control, but that seems to be in large part a reflection of a sharp fall in testing. And with vaccination coverage still low, the risk of new national virus waves continues to loom. That is probably the key risk to our view that the rally in Indian equities - which hit a record high this week - has further to run.
Darren Aw Asia Economist
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India Economics Weekly

Encouraging signs in state-level virus data

COVID infections have been falling in parts of India over the past week, particularly in those areas that were first to report Omicron waves. We’re hopeful that this is a sign of things to come, and wouldn’t be surprised if India’s third wave had largely subsided by the time the RBI next meets in early February.

21 January 2022

India Economic Outlook

On the cusp of policy tightening

India’s Omicron wave should only be a temporary setback to the economic recovery. As long as recurrent large waves of COVID are avoided, we think that economic growth will be faster this year than last. We also think that inflation will soon start to worry the RBI. Consequently, policy rates will be hiked by more than most anticipate.

19 January 2022

India Economics Weekly

Omicron surging, asset sales progressing

COVID-19 cases in India are still surging. But the early indications are that healthcare systems are not under significant pressure, and we’re hopeful that India’s third wave will peak before long. Even if it doesn’t, the better-than-expected fiscal performance over recent months means that there is policy space for the government to intervene.  

14 January 2022

More from Darren Aw

India Chart Book

Capital outflows would be no major macro concern

Foreign portfolio outflows from Indian financial markets have been easing this month, bucking the broader EM trend. This may have been driven in part by the improvement in the virus situation. Looking ahead, the growing likelihood of the US Fed beginning to taper its asset purchases this year and an accompanying rise in US Treasury yields could reignite foreign outflows from Indian assets (as well as other EMs). But if they do pick up, India’s economy is much better placed to cope with a sustained bout of capital outflows than it has been in the past, most notably during the “Taper Tantrum” of 2013. After all, the current account is in surplus, FX reserves are close to all-time highs and the rupee does not look overvalued. One consequence of this is that the RBI will not rush to tighten monetary policy.

25 August 2021

India Data Response

Wholesale Prices (Jul.)

The drop in India’s headline wholesale price inflation in July came on the back of an easing in fuel and food inflation, both of which have further to run. And with headline CPI inflation having already peaked, we remain comfortable with our view that policy rate hikes will not come onto the agenda until well into next year.

16 August 2021

India Economics Update

Widening trade deficit no major concern

The widening in India’s goods trade deficit in July was due in large part to the continued rebound in imports as containment measures were scaled back further. The trade deficit may widen a little further over the coming months but the big picture is that external risks look limited.

16 August 2021
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