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Indian economy week ahead: GST to decide the course for markets

30 November, 2015

The Indian stock market investors will closely watch parliamentary proceedings this week as the government seeks to pass the crucial Goods and Services tax while the central bank’s monetary policy review and data on economic growth will be the other major triggers.

Data showing gross domestic product growth likely accelerated in the July-September quarter may keep hopes buoyed for a revival of the economy. The Reserve Bank of India’ comments at its monetary policy review, where it is widely expected to stand pat on interest rates, will also be closely followed. Data on purchasing managers’ index surveys on manufacturing and services will also be released this week. 

The stock market climbed 170 points on Friday to close at 26,128.2, rising for a second week in a row, as the government extended an olive branch to the opposition to pass the GST legislation through the upper house, Rajya Sabha, where it lacks a majority.

Finance minister Arun Jaitley had in September, after the monsoon session of parliament was washed out due to protests, promised to implement the tax system from April next year. Prime Minister Narendra Modi has also been reassuring foreign investors after the Bihar poll debacle that the government is committed to passing reforms and making it easier to do business in India.

Besides the GST bill, another closely watched event by the markets will be the report by a panel headed by chief economic advisor Arvind Subramanian on GST that will be made public this week.

The report will shed light on a revenue neutral rate for the tax. Media reports have speculated the rate could be 18 per cent to as high as 24 per cent.

Data to be released later in the day is expected to show GDP growth for the July-September quarter accelerated to 7.4 per cent, according to the median forecast of 10 economists conducted by VCCircle. The economy grew 7 per cent in the first quarter of this fiscal year and 8.4 per cent in the second quarter of FY15.

While the economists highlighted strong momentum in manufacturing, they forecasted tepid growth for the farm economy. The push to GDP by manufacturing will be a welcoming news for the government as it stands behind its Make in India campaign.

The RBI’s bi-monthly policy review is slated for Tuesday. While the bank is expected to hold rates after slashing rates four times this year, more stress will be on the bank’s forward guidance.

Recent data showed that despite the main repo rate coming down to 6.75 per cent, credit growth has remained in single digits. This is a cause for concern for the central bank. On the other hand, while inflation is set to be below the RBI target of 6 per cent for January 2016, the central bank will watch closely for signs of uptick as recommendations of the seventh pay commission on increasing salaries of government employees come into effect from January.   

Along with the RBI data release, PMI data on manufacturing for November is due to release on Tuesday. The Nikkei India manufacturing index had hit a 22-month low in October.

PMI data on services for November will be released on Thursday. The service sector performance in October was in contrast to that of manufacturing with PMI at an eight-month high on boost from new businesses.

While the markets are expected to be in a better position, the rupee is expected to weaken as the US Federal Reserve meeting draws close. Foreign investors have been flocking to the US market as the US central bank, which is expected to meet in mid-December, may hike interest rates for the first time in nine years.

The rupee had dropped to 66.89 against the dollar on Friday, its lowest level since 2013, before recovering a tad.


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Indian economy week ahead: GST to decide the course for markets

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