Disappointing GDP data, weak global cues to weigh on market sentiments

The disappointing gross domestic product (GDP) numbers, coupled with weak global cues, are likely to weigh on investors’ sentiment during Thursday’s trade.

India's gross domestic product (GDP) rose 13.5 per cent year-on-year in the April-June period. Though it is the fastest annual expansion in a year, it was lower than the predictions made by the Reserve Bank of India (RBI; 16.2 per cent) and other analysts.

India was expected to post robust economic growth on the back of a demand revival after the government eased Covid-related restrictions. Optimism about India’s growth prospects has fuelled the rally in recent months in domestic equities.

 "India is largely on the growth path but it may not be as good as expected. Though the GDP numbers optically look very high, these won't fire up the markets,” said U R Bhat, co-founder, Alphaniti Fintech. He noted that the equity markets had run up a lot on Tuesday and they shall correct now. Most global equity markets were trading in the red on Wednesday amid heightened volatility. The Indian markets were closed on Wednesday due to Ganesh Chaturthi celebrations.

Analysts said there are signs of the waning of the intensity of tailwind generated by economic reopening. Instead in the coming months, India’s economy shall face headwinds because of a widening trade deficit as a result of decelerating exports because of a global demand slowdown, they said. Investments in the economy may also get hindered due to costlier borrowing and elevated input costs. 

 "Deteriorating global growth prospects, higher inflation impacting consumption, and gradually tightening financial conditions eventually start to impact the pace of growth momentum as the year progresses,” said Aurodeep Nandi, India economist and vice-president, Nomura, in a media statement after GDP figures were released.

 The RBI has raised its benchmark rates by 140 basis points since May in a bid to bring down inflation. Concerns about rate hikes by major central banks are likely to weigh on investors’ sentiment in the coming days.

Soaring inflation in Europe and possible energy crisis in Europe and geopolitical tensions are other headwinds the markets are grappling with.

 On Wednesday, a European Central Bank (ECB) governing council member, Robert Holzmann, said the ECB should not show any kind of leniency in its intent to reduce inflation. Also, news reports suggested that Taiwanese soldiers on Wednesday fired to ward off drones flying close to offshore islands controlled by Taipei.

Going forward, analysts said investors shall be keenly tracking US non-farm payrolls and other economic data to gauge the future course of action by central banks. 
 

Foreign Portfolio Investor (FPI) buying will be another determinant of the Indian equity market's trajectory. In August, FPIs bought equities worth Rs 51,204 crore, according to NSDL data. On Tuesday, FPIs bought shares worth Rs 4,166 crore.

“We have to see how the trend of foreign investor buying is on Thursday. If we have good FPI buying things might look by the end of the day,” said Bhat.