Summary of this article
Global headwinds persist which could lead to correction in global equity market
India's high-frequency indicators show resilience in domestic economy
RBI report says demand pick up driven by rural sector
The Reserve Bank of India, in a report on November 24, raised persistent concerns about the heightened exuberance in global equity markets and raised questions about its sustainability and the financial stability implications of any sharp correction. The report said that India’s economy is gaining momentum at a time when the global environment remains uncertain.
According to the recent State of Economy report published by the RBI in its monthly bulletin, the central bank noted that the sustainability of growing equity market valuations outpacing fundamentals.
“Financial market volatility, which had moderated in October, resurged in November due to concerns over stretched valuations in AI stocks,” the RBI said. “In this context, concerns persist about the heightened exuberance in global equity markets, raising questions about its sustainability and the financial stability implications of any sharp correction.”
The central bank said that despite surging equity valuations and uncertainty in global markets, the domestic economy was seen as resilient. High-frequency indicators signal broad-based strength in sectors such as manufacturing and services. There was also an uptick in overall economic activity last month, fuelled by the rejig in Goods and tax rates and demand during the festive season.
“The Indian economy showed signs of a further pick up in momentum, despite continuing global headwinds,” the paper said. “Quarterly results of listed private companies in manufacturing and services show an uptick in sales growth.”
The rise in demand during October was driven by the rural regions. Favourable monsoon conditions, strong agricultural activity, along with GST rate cuts and higher spending during the festive season, boosted overall demand, the RBI said.
The report also noted that India’s CPI inflation has moderated to historic lows and was well below the RBI’s target rate, which was also an indication of the health of the domestic economy. In the latest October headline inflation data, the print was 0.25 per cent, the lowest so far.
The central bank also said that digital transactions have indicated a growth in the adoption and use of digital payments across regions and merchant categories. This includes consumers now increasingly opting for digital payments for groceries and supermarkets, as well as for gold purchases.
