At the start of September, there was hope that issues surrounding the global economic nervousness could become clearer, but matters seemed to worsen in the course of the month. In the US, a much-awaited third round of quantitative easing was not announced, while the expected unemployment rate remained above 9%. The euro zone hasn’t yet figured out a solution to correct the course of Greek’s sovereign debt crisis; the impact is now being felt on some large European banks. All these factors are raising doubts on the health of the global economy; this directly affects exporting nations among emerging economies. While the impact on India’s economic growth is being debated, high inflation and resultant high interest rates are hitting gross domestic product (GDP) growth keeping foreign investors at bay. The latest Index of Industrial Production (IIP) data shows a growth of 3.3% compared with 8.8% in June.
The Reserve Bank of India continues to battle inflation; it raised policy rates for the 12th time in September since March 2010. The fear of sovereign default in the euro zone coupled with the growing fears of a recession in the US has led to risky assets such as equities slipping across the globe. The S&P 500 has corrected 15.7% in the last six months. Emerging Portfolio Fund Research (EPFR) data showed there was some optimism in the first week of September; the US’ large-cap growth equity funds posted their biggest inflow in almost four years. But emerging market equity funds continued to show outflows due to uncertain export growth. India equity funds (overseas) too fared poorly. After the initial optimism, investors globally preferred more defensive assets, especiall commodity funds specializing in gold and precious metals for the rest of the month. Fears of a slowdown in some of the largest economies globally also fuelled a slide in crude. Until there is clarity on government action in Europe and the US, capita markets globally are unlikely to recover in a hurry.
Also See | Monthly Market Commentary (PDF)
Graphics by Sandeep Bhatnagar/Mint
Compiled by Lisa Pallavi Barbora