Finance Ministry yesterday, on 26 September 2024 announced the Monthly Economic Review until August 2024. The monthly economic review August while indicates stability in the economy but concerns are also raised by the Finance Ministry regarding stock market correction that too globally in the near future given the current spike across markets around the world. So what exactly made the Finance Ministry warn against potential stock market fall? Let’s find out.
Finance Ministry on Global Stock Market Correction
According to the Finance Ministry, the stock markets around the world are now highly inflated or overvalued driven by highly favorable economic policies. While this boom is adding to the investors’ kitty, and also helping the businesses to grow the risk of a potential correction in the market is also getting increased.
While presenting the monthly economic review on the global stock market, the finance ministry stated that since all the financial systems are interconnected, a correction in any significant stock market could shake the entire global market. However, the lower oil prices are adding fresh air to the economy and helping in keeping the inflationary pressure down.
Key highlights of the Monthly Economic Review Report – August 2024
- FDI or Foreign Direct Investment has a significant amount mentioned in this monthly economic review in August. FDI inflow declined across the globe due to economic uncertainty in different parts of the world. Apart from economic uncertainty, increasing borrowing costs, and geopolitical issues added up to the declining FDI flow. According to the UNCTAD World Investment Report 2024 in 2023, emerging countries on average witnessed a 15% decline in their FDI inflows.
- However, India, in the first four months of the FY25 witnessed a whopping rise in Net FDI inflows by 52.4%, even though the gross FDI inflow increased by around 23.7% on a YoY basis. Over 3/4th of the gross FDI inflows came from manufacturing, computer services, financial services, communication services, electricity, and other power and energy sectors.
- India still holds the position as one of the strongest destinations for FDI and recent Greenfield projects, and international project finance deals make it even better.
- Coming to the foreign portfolio investors (FPI), they turned net buyers in the first five months of FY25. Net FPI inflow was $10.4 billion during this period; however, it is quite a drop from the previous year’s Net FPI during the corresponding period.
- On 30 August 2024, India witnessed the highest foreign exchange reserve which was USD 684 billion, it was an increase of $64 billion since January 2024.
- India was the fastest-growing major economy between April and June 2024 with a 6.7% growth rate.
- Gross Fixed capital formation (GFCF) at constant prices increased by 7.5%
- Exports of goods and non-factor services grew by 8.7% during April-June quarter.
- In Q2 FY25, the gross GST collection grew by 9.1% compared to FY24’s 8.3%
- The PMI (Manufacturing) remained steady between April and August 2024
- Labor and job market look promising with the job additional and new EPFO account opening. The growth in the job market also displays the increasing participation of an organized workforce in the market.
Outlook by Finance Ministry
Finance Ministry raises concern over stock market corrections, but its outlook for the upcoming months seems positive with the inflation trajectory remaining muted, and core inflation declining, above normal or fair monsoon added to the economic boom. It also added that a healthy sowing of kharif crop seeds would help in keeping inflation under check.
Wrapping up
Thus, while the monthly economic review suggests growth in FDI, job market improvement, and stable PMI, however, global economic uncertainty and recession fears in certain parts of the world making everyone worried. As the stock market valuations are at their high now, even small adversities can affect the prices a lot and lead to significant corrections.
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