After a disappointing start to the new year, given the drubbing markets received from China’s stock market crash and Indian factory activity contracting in December, markets will brace for another week of volatility as the government releases data on inflation, industrial production and exports and companies announce their earnings for third quarter.
The year 2016 started on a choppy note for the Indian markets as Shanghai stock exchange hit the circuit breaker twice in a week to close 10 per cent lower on Friday eroding the gains from last year. On the other hand India’s benchmark index Sensex closed the week 2.7 per cent lower.
It was a mixed bag for the Indian economy with Nikkei’s manufacturing PMI released on Monday showing the economy contracted for the first time in two years. On the other hand a rapid expansion in services PMI to a 10-month high helped some acceleration in private sector output but not enough to assure the markets of a recovery.
“Overall, the PMI data continue to portray a struggling economy, weighed down by weak underlying demand,” said Pollyanna De Lima, economist at Markit.
It was not all bad news as the government made some effort to revive discussions with the opposition parties for safe passage of the landmark GST legislation through the Upper House of Parliament during the budget session.
There was some disappointment from the World Bank as the international lender revised down its estimates for growth to 7.3 per cent for the current year and 7.8 per cent for the next fiscal in the first release of its bi-annual publication Global Economic Prospects. Though World Bank has revised its forecast for the next fiscal, it is still higher than the government estimates which predict growth to be much the same or slightly higher for 2016-17, but given the empirical evidence the bank may revise its growth further in the June issue by 0.3 to 0.4 per cent as it has done in the past half a decade.
The data for industrial production for November to be released on Tuesday along with December print for consumer inflation is expected to bring more disappointment for the economy. A poll conducted by VCCircle of 10 economists showed that while inflation numbers will be much the same at 5.4 per cent, industrial activity is expected to fall to 2.5 per cent given the subdued demand conditions and poor growth in the core sector. The data for infrastructure growth released a fortnight ago had shown a contraction in core industries by 1.3 per cent driven down by a slump in steel industry.
Data for trade balance to be released on Thursday may bring some relief given the seasonal uptick in exports and the fall in imports on account of oil prices. Crude prices started the year with another dip falling below the $30 mark per barrel.
More than the economy numbers, markets will be closely watching for corporate earnings as Indian firms release their third quarter data for the fiscal. While analysts are divided over the performance of Indian companies in the last quarter with some expecting a revival, what remains to be seen is how well corporates have taken to the reforms.
A report by ratings agency CRISIL released last week said that corporate earnings may remain weak given the slow pace of reforms, slump in commodity prices and depressed rural demand.