The world's two largest economies - U.S. and China - are undergoing an economic slowdown - even as they are locked in a trade war.
One could see a very quick slowdown if the trade talks between China and US are not conclusive enough quickly. Even if there is a trade deal in due course of time its impact is not going to be felt immediately.
Even as that plays out the U.S. Federal Reserve (Central Bank) has rolled a plan to tighten the monetary policy - which means that the central bank will ensure that interest rates in the U.S. economy move up to control inflation worries. Remember as interest rates go up, investors will spend less and save more by investing monies in banks.
Also it will impact corporate earnings as corporates will have to borrow at higher interest rates than before. This will then impact the stock markets.
Will it have a spiralling effect in other markets - for sure yes - but by how much - we will have to see.
Then there is also the fact that most of this may have already been "factored in" by the markets as this is something which is "already known" and hence "may not surprise" the markets. However a sharp increase in interest rates will definitely "surprise" the markets.
The situation in India seems to be entirely opposite. The Indian CPI (Consumer Price Index) inflation is under control for long time and the IIP (Index of Industrial Production) numbers seems to be slowing down and inconsistent. Thus a case of decrease in interest rates is building up ( no worries of inflation).
(Disclaimer : Not to solicit any business. Investing in equity markets is a with risk investing and hence it is our view that investments in equity markets must be done for a minimum period of three years.)
One could see a very quick slowdown if the trade talks between China and US are not conclusive enough quickly. Even if there is a trade deal in due course of time its impact is not going to be felt immediately.
Even as that plays out the U.S. Federal Reserve (Central Bank) has rolled a plan to tighten the monetary policy - which means that the central bank will ensure that interest rates in the U.S. economy move up to control inflation worries. Remember as interest rates go up, investors will spend less and save more by investing monies in banks.
Also it will impact corporate earnings as corporates will have to borrow at higher interest rates than before. This will then impact the stock markets.
Will it have a spiralling effect in other markets - for sure yes - but by how much - we will have to see.
Then there is also the fact that most of this may have already been "factored in" by the markets as this is something which is "already known" and hence "may not surprise" the markets. However a sharp increase in interest rates will definitely "surprise" the markets.
The situation in India seems to be entirely opposite. The Indian CPI (Consumer Price Index) inflation is under control for long time and the IIP (Index of Industrial Production) numbers seems to be slowing down and inconsistent. Thus a case of decrease in interest rates is building up ( no worries of inflation).
INFLATION IN INDIA IS UNDER CONTROL
(CONSUMER INFLATION IN INDIA)
INDUSTRIAL ACTIVITY IN INDIA IS SLOWING DOWN AND INCONSISTENT
(INDIA'S INDUSTRIAL PRODUCTION GOWTH)
So if the interest rates in India go down it indeed will be positive for growth and corporate earnings as corporates will borrow at a lower rate than before thereby increasing corporate profits.
Please note that the phenomenon of change of interest rates w.r.t. to inflation and growth takes time to reflect in the economy and there is always a lag effect.
It is also impacted by many other factors such as govt. policy ( e.g. if the government announces loan waiver then it will have to borrow more to meet the cost of loan waiver - again leading to increase in interest rates.).
Therefore for the - MPC (Monetary Policy Committee) of Indian central bank - RBI (Reserve Bank of India) it is very important to know that what the govt. will be doing. MPC is responsible for taking the policy decision on interest rates.
The current Indian Govt. present's its last budget on the 1st of February and that's what perhaps the MPC - RBI will be waiting for.
Let's wait and see what happens.
(Disclaimer : Not to solicit any business. Investing in equity markets is a with risk investing and hence it is our view that investments in equity markets must be done for a minimum period of three years.)
