Markets Powered by Abundant Liquidity!!

Global markets took comfort from Janet Yellen’s statement to the Congress, where she indicated that the Fed was not in a great hurry to hike policy rates or reduce the balance sheet. EMs rallied as a result and in India the stock market climbed to new heights. Domestic markets also got support from rate cut hopes after benign inflation readings.

Abundant liquidity has set off a hunt for returns in the stock market. This surplus also gives the markets confidence to look through near term shakiness in growth momentum due to GST implementation.On the positive side, reports suggest inter-state tax collection under GST is as per normal, showing smooth implementation.

Meanwhile, monsoons progress is carrying a slight deficit with rainfall so far in July in significant deficit. This is worrying for four states – MH, GJ, KA and OR where rainfall, irrigation cover and reservoir levels are weak. Fortunately, the weather bureau is signally very strong rains this week, which could compensate for the weak start in July.

Watch out for

Weekly monsoon progress

RBI revealing the value of unaccounted cash post demonetization (end July). This could result in a bonus for the fiscal

1st August Manufacturing PMI for broad data point on restocking demand post GST