Over the past six months the market has plummeted from all-time highs to a place where people believe that the worst is over. But is that true? Where is the market headed. Are my investments safe? In a free-wheeling discussion I had with some market experts we made some sense of the mayhem already caused and tried to arrive at a consensus. The discussion centred around the global economy, how the Indian economy responded and where the earnings growth would come from if the market had to recover. This is the first of the articles and gives us a perspective on what’s happening globally.
The complaints about Powell are not so much about the interest rate increase, the single biggest hike in three decades, which Wall Street investors initially cheered before sending stocks tanking again Thursday. Instead, executives are focused on what they see as Powell getting the persistence and scope of inflation so wrong that he and his FED colleagues are now being forced to overcompensate on rate increases that could blow the economy into a sharp slump leading to a recession.
He is obviously playing catch-up, 100 percent. He was clearly behind the curve and clearly late, and the runway for a ‘soft landing’ for the economy is now much shorter and narrower.
A former president of Goldman Sachs,
(top economic adviser to President Donald Trump)
Last month, inflation in the US hit 8.6%, one of the highest rates in the world. The factors driving inflation like supply chain disruptions from Covid or higher food prices after severe storms and drought hurt harvests are not unique to the US.
So why did the US fare worse?
The problem was the massive $5 trillion in spending the US government approved to shield households and businesses from the economic shock of the pandemic. A $2000 direct cheque to every US individual. By cushioning family finances, the aid helped people keep buying.
Goods like furniture, cars and electronics saw a surge of orders, as shoppers redirected money they might otherwise have spent on restaurants and travel. And as unusually high demand collided with supply issues stemming from Covid, businesses raised prices.
The war in Ukraine has led to a surge in prices across a wide range of energy-related commodities. Higher energy prices will lower real incomes, raise production costs, tighten financial conditions, and constrain macroeconomic policy especially in energy-importing countries.
In the United States, average gasoline prices, which have jumped to $5 per gallon, are burdening consumers and forcing President Biden to take measures ahead of the midterm congressional elections this fall.
Globally, families are worrying how to keep the lights on, fill the car’s gas tank, heat their homes and cook their food. Businesses grapple with rising transit and operating costs and with demands for wage increases from their workers.
Companies contemplating diversifying their dependence on China is a strategy known as “China-Plus-One”. Now many MNCs are adding new operations in other developing Asian countries like India, Vietnam, Thailand, Bangladesh and Malaysia, and are welcoming new manufacturing opportunities. A strategy that is an answer to having efficient supply chain management.
The Production-Linked Incentive (PLI) rolled out by India intends to boost production, manufacturing and export. Many MNCs intending to shift part of their supply chain to India have evinced interest.
The PLI, I think has been a game-changer in drawing industries coming out of certain geographical territories to countries like India and being a part of the domestic and also the export market. This will reduce India’s trade deficit and at the same time boost manufacturing and exports
Finance Minister (India)
Sometimes, one thinks, is it a mere coincidence of such unrelated events happening together or is nature conspiring for India to take advantage and establish its mark in the global manufacturing sector.
In our second part we will look at what is influencing the Indian economy and earnings growth in GY 2022-23