What we learn from the markets...

Don’t forget the Fed and the other central banks (they are still the biggest game in town)?

The Fed chair Powell has acknowledged that disinflation has begun in earnest, and the US growth is slowing, but they will continue the rate enhancement process for the time being. They are waiting for "substantially more evidence" that inflation is coming down for good.?

It is to be noted that there is a significant differential between the estimates of inflation projections of the markets and that of the Fed.?The Federal reserve sees inflation moderating without plummeting while the markets see inflation, dropping like a rock. This is a large risk since if Fed turns out to be correct in its numbers, there will be a sharp repricing of both equities and debt.?

The robust jobs data in the USA (it always has the capacity to move the markets)?

Friday’s release of data in the USA showed that the economy added more than 500,000 jobs in January, miles ahead of the 185,000 expected. The conversations around recession may have to wait a bit longer to realise, despite the view of Fed that the numbers indicate a slowdown looming.?

India is marching with a secular long term growth story (a quantum leap, not just an incremental one)

The recent Union budget was in line with the intent of the Indian government to remove bottlenecks in the economy and create a fast-paced growth environment.

The highlights which promise a strong growth are:

1. A jump of 33% in the infrastructure / capex spending to more than Rs. 10 lakh crores. Not only will this add straight to the GDP growth but will also have a significant multiplier effect.?
2. Fiscal deficit on expected lines. Importantly, the expenditure is in the infrastructure and capital goods area.?
3. Many regulatory compliances were eased to help growth of businesses.?
4. The government has taken appropriate care of the expenses on social sector and agriculture. Food security too has seen an adequate focus on the numbers. A developed country needs inclusive growth and that is one of the key focus areas of this budget.?

Adani (a quick mention)?

1. There was no doubt in the minds of investors that Adani stocks were overpriced. The Hindenburg report has had an effect which rode on top of this existing belief.
2. One of the top finance brains, Aswath Damodaran has published his valuation estimate for Adani Enterprises which is quite close to the recent lows of the stock.

Chinese growth coming back (the primary driver of the global economy ?)?

The big Chinese economic recoveries of the past decade or so have been characterised by two features - they have been stimulus-driven and investment-led with large?amounts of support via credit markets and local government off-balance sheet financing vehicles, focused on supporting infrastructure and real estate. Fiscal and monetary stimulus delivered a surge in investment spending.

China's economic performance in 2023 will however be different in the sense that it will be just the result of the country ending its lockdown. It is likely to be a spontaneous recovery (not stimulus-driven) which will see the biggest effects on services and consumption (and not investment). Nonetheless, there will still be a benign effect of the Chinese recovery on the global economy.