In recent times central banks of India & China sought to ease the monetary policy. We believe further easing is ahead.
Current rates in China & India are 5.6% and 7.75% respectively.
- China economy is slowing down gradually, China's GDP growth has fallen to 7.3% as per latest estimate from decade long double digit growth. Inflation estimate through both the Consumer & Producer price index has been falling steadily (CPI & PPI). We believe the Chinese stock market will perform very well over the months. Only caution is hard landing of China's economy instead of a current managed one.
- India on the other hand trying to recover from the recent slump through the process of reform initiated by recently elected government. We are pretty bullish on India. The CPI & WPI both have fallen sharply after the mega drop in oil price and given the Reserve Bank of India (RBI) enough room for further cuts. We believe the RBI will remain very cautious in the backdrop of strong dollar and reduce rates gradually. The outlook of easing makes us bullish both in the stocks and bonds of India.
Current benchmark yield in India is trading at 7.7%, falling since April 2014. Nifty is currently trading at 8865, up 10% YTD.
The chart shows the path of inflation in both the countries presented by RBA.
