Do it yourself

Every day the stock markets in India (and other parts of the world also) are cheering the "positive data" and rising towards the previous highs. In my view, it may be a case of total cognitive dissonance. The market participants are selectively choosing the data that gives them hope of better days ahead; completely ignoring plethora of evidence indicating that economy is tottering on a long and winding road entering the dark woods with only scattered sunlight and no end in sight. Many experts have highlighted this case of dissonance between equity markets and economy, questioning optimism of investors and corporate managements. For example— The incumbent RBI governor Shaktikanta Das recently highlighted that "There is so much liquidity in the system, in the global economy, that's why the stock market is very buoyant and it is definitely disconnected with the real economy. There will definitely be a correction but we can't say when." The minutes of the ...

The first Monetary Policy Committee (MPC) of RBI met for the last time during 4 to 6 August 2020. To commemorate the end its four year term, the Committee thankfully did not take any populist decision. It prudently kept the policy rates unchanged, as I had wished for (see To cut or not to cut is not the question ), and focused on mitigation of stress caused by the economic lockdown due to spread of COVID-19. In line with the stand taken by the government, the MPC refrained from issuing growth and inflation estimates. However, the governor's statement makes the following things clear: (a)    Inflation, especially food & energy inflation, is a matter of serious concern at present and development on this front need to be watched carefully; though the governor expressed hope that as the monsoon progressed well and base effect comes into play, the food inflation will ease in 2HFY21 leading the headline inflation below the MPC target range. It is pertinent to note that for...

The three day periodic review meeting of the Monetary Policy Committee of RBI started yesterday. The Committee may review the monetary policy of RBI, in light of (i) the prevalent macroeconomic conditions-   especially inflation, fiscal balance, growth outlook; (ii) working of the financial system, e.g., liquidity situation, financial stress, credit off take, etc.; (iii) the global economic developments; and (iv) the assessment of economic shock in the aftermath of the pandemic. The market participants are mostly focused on the monetary stimulus, which the MPC may propose, especially cut in the policy repo rate. Besides, the market will be watching out for the RBI stance on further extension of the debt moratorium; targeted credit for weaker sections; relaxation to the bank and non bank lenders from provisioning norms; inflation outlook and growth outlook. In my view— 1.     Any cut in policy repo rate at this stage will be most...