GDP data a mild positive for Indian equities but US stocks, surging crude to dictate market moves

Meanwhile, the overall growth recorded for the financial year 2021-22 was pegged at 8.7 per cent, lower than 8.9 per cent in the second advance estimate in February.

The estimated numbers have come down from the official second advance estimate of 8.9% released on February 28, owing to third-wave of Covid-19 and surging global prices.

India’s gross domestic product (GDP) had contracted by 6.6% in FY21. The expansion in gross value added (GVA), meanwhile, has been pegged at 3.9% in year-on-year (YoY) terms.

HOW COULD STOCKS REACT?
Analysts who ET Markets spoke to said that overall, the GDP data for the fourth quarter of 2021-22 (Apr-Mar) was above expectations and could act as a tailwind for equities, which have recently witnessed a bout of volatility.

“People were talking about the GDP number being anywhere between 2.7% to 3.8%. The previous quarter’s numbers have been revised downwards, that has also helped. That has also helped in providing a better number this time around. No negative is a positive,” said Deepak Jasani, Head of Research – Retail at

Securities.

On an immediate basis, however, the larger driver for Indian stock markets would be the overnight performance of US stock markets, which reopen after a three-day break and the latest trajectory of crude oil prices.

Global crude oil prices have surged past the $120 per barrel mark over the last couple of days as the European Union approved a ban on 90 per cent of oil imports by the end of this year.

The fresh rise in oil prices has rekindled worries of higher inflation at home and abroad and stoked fears of aggressive interest rate hikes both by the Reserve Bank of India and the US Federal Reserve.

“It (the GDP data) will have a favourable impact, but how favourable it is depends on the other markets, the overnight US markets and the European markets. The US is opening after a three-day holiday. In case there we see some sell-off or a negative closing, then the positive impact of this gets cancelled out,” Jasani said.

According to Milan Vaishnav, founder, Gemstone Equity Research & Advisory Services, from a short-term perspective, stock markets would react to the GDP data on a neutral to mildly positive note.

As long as the Nifty stays above the 16,400 level, markets could trade with a positive bias, Vaishnav said, adding that at the same time, consolidation could not be ruled out despite a better-than-expected GDP print. The Nifty ended at 16,584.55 on Tuesday, 0.5 per cent lower than the previous close.

With the US Fed’s aggressive rate hike signals leading to ferocious selling pressure from overseas investors this month, the Nifty posted its lowest monthly close since May 2012. The index declined over 3 per cent to close lower four out of the last five months.

This has also been the worst month for both Sensex and Nifty since February when stocks tumbled at the beginning of the Russia-Ukraine war.

Following a choppy month, equity investors were left poorer by over Rs 8 lakh crore as the total market cap of BSE-listed firms, which reflected investor wealth, slid to 257.81 lakh crore.

According to Vinod Nair, Head of Research at

, domestic equities have already been factoring in the possibility of softer GDP prints amid the negative effects of high inflation.

As such, the market would gain larger cues from the upcoming RBI and Fed policies next month, Nair said.

BONDS TO FOCUS ON INFLATION, NOT GROWTH

According to bond traders, the GDP data was unlikely to have much of an impact on the market as the print does not materially change the outlook on monetary policy.

With CPI inflation rising to an eight-year high of 7.79 per cent in April, traders are all but convinced that the RBI will hike interest rates again in June, with the expectation being that of a 35-50 basis point increase.

With the central bank also looking to reduce the liquidity surplus in the banking system, the direction for bond yields is upward amid massive bond supply pressures, dealers said.

Yield on the 10-year benchmark government bond has climbed close to 100 basis points so far in 2022. Bond prices and yields move inversely.

“The market’s attention is on inflation and the upcoming RBI policy. The GDP data does not change things. It is not like there has been a slump in the full-year growth estimate. The RBI is undoubtedly set to hike rates further,”

Primary Dealerships Head of Trading Naveen Singh said.

Rising government bond yields lead to an increase in borrowing costs across the economy while threatening to erode the valuation of equities.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)