The Indian stock market was taking a beating in the last month,with funds reportedly shifting to other countries such as China and Japan. We are bearing a lag effect of ‘Yen Carry Trade’ which had impacted the global market in July. This week too, we started on a weak note, in contrast to the positive performance observed globally. This underperformance, particularly ahead of the US election, stands out as the global market remains relatively stable. A contributing factor is the revised Q2 GDP growth estimate, which the RBI initially forecasted at 7.2% YoY but recently lowered to 7.0% YoY in its October policy update.
According to the latest market survey, the forecast is estimated to be much lower in a range of 6.4% to 6.8%. Given that Q1 was 6.7% and Q2 is estimated to be similar, there is a risk that FY25 GDP growth is downgrading. The decline in Q1 and Q2 is attributed to reduced government spending due to the national election from April to June and eight state elections (Andhra Pradesh, Arunachal Pradesh, Sikkim, Odisha, Jammu & Kashmir, Haryana, Maharashtra and Jharkhand) during June to November. Additionally, the global economy is slowing in 2024 due to hyperinflation and rising interest rates, while the domestic economy is experiencing a drop in urban demand.
This leads to the problem that India is trading at an excess valuation compared to the peers, at 80% premium to…
