Do it yourself

The Reserve Bank of India (RBI) recently released the half yearly Financial Stability Report (FSR). A key highlight of the latest FSR is RBI’s confidence in the resilience and sustainability of growth in the Indian economy. The report notes “heightened risks and uncertainties” in the global economy and financial system, while highlighting the “remarkable resilience” and receding risks of a hard landing. It also cautions, “While near-term prospects are improving, pitstops in the last mile of disinflation, high public debt, stretched asset valuations, economic fragmentation, geopolitical tensions, climate disasters and cyber threats present downside risks. Emerging market economies (EMEs) remain vulnerable to external shocks and spillovers.” Regardless, the RBI finds the Indian economy on a strong footing. It notes, “Strong macroeconomic fundamentals and a sound and stable financial system have supported the sustained expansion of the Indian economy. Moderating inflation, a strong e...

 RBI released the 22 nd edition of its biannual Financial Stability Report (FSR) on Monday, January 11, 2021. The report highlights some key trends that could influence the financial markets in months to come. I note the following red flags raised in the report, which in my view could be relevant to my investment strategy: Uneven and hesitant recovery, with disconnect in real activity and asset price Economic activity has begun making a hesitant and uneven recovery from the unprecedented steep decline in the wake of the COVID-19 pandemic. Active intervention by central banks and fiscal authorities has been able to stabilize financial markets but there are risks of spillovers, with macrofinancial implications from disconnect between certain segments of financial markets and real sector activity. In a period of continued uncertainty, this has implications for the banking sector as its balance sheet is linked with corporate and household sector vulnerabilities. COVID-19 pandem...