Global Economy
In 2019, the dominant global theme will be quantitative tightening, with major central banks draining systemic liquidity after a decade. This comes at a time when global growth is sluggish and interest rates are rising. Consequently, we expect a shift to relatively dovish stance. Soft commodity prices on the back of sluggish growth will also support lower inflation. Commodity-importing emerging markets (EMs) like India can heave a sigh of relief as macro stability has returned, and the worst is behind. Nevertheless, we do not rule out ‘panic attacks’ in EMs, given tightening global liquidity. 
Ongoing trade will remain in limelight this year as well. Interesting thing will be to note how it turns out after the upcoming meeting in January. Global growth is already facing headwinds with growth in the European Union slowing. Chinese growth is also under pressure, and economies from East Asia to Germany are feeling the impact of trade wars. Quantitative tightening and rising US interest rates imply that global growth could come under further stress. Moreover, Countries dependent most on exports, specially the commodities might get suffer. Further, slowdown in developed nation might lead their domestic firms output to dump in emerging countries and will impact emerging economies as well. Indian Economy
General Election 2019 - The year 2019 would witness General elections (April/May) along with a host of state assembly elections. 4 states could have polling along with General elections – Andhra Pradesh, Odisha, Sikkim, and Arunachal Pradesh; followed by elections in the state of Maharashtra, Haryana, J&K and Jharkhand later in the year. Any change in political formations would be keenly watched by the investors in the run up to the General elections; however it is the fact that 5 of the 7 election years in the past 3 decades have yielded positive returns. 
GDP Growth - In 1QFY19 and 2QFY19, GDP grew by 8.2% and 7.1%, respectively. The cyclical recovery in 1H2019 was due to a low base of 1H2018. Despite fears of emerging market contagion and the US-China trade war rhetoric, India is expected to grow at 7.3% in FY2018-19. India’s favourable demographics continue to support growth from a long-term perspective with India remaining one of the fastest growing economies in the world. 
Indian Rupee - The INR was one of the better performing emerging market currencies in 2017 but quantitative tightening by the US Fed, FII outflows, emerging market currency weakness and higher crude prices (and CAD) led to a weak INR throughout 2018. The INR fell sharply to an alltime low of 74.39 v/s the USD but smartly recovered by 5% in the last two months, which coincided with the sharp fall in crude oil prices. Historically, over the past 15 years the INR has witnessed long periods of overvaluation and short periods of sharp corrections. INR levels in 2019 will primarily depend on three factors - CPI, crude prices, global yields and it is believed that the INR will be rangebound within (+/-) 3-5% from the current level. 
Crude Oil - By Oct’18, crude appreciated 36% and hit a near 4-year high of USD 86/bbl due to rising concerns regarding sanction on Iranian oil exports by the US with many analysts projecting a possible hit of USD 100/bbl mark. However, the last couple of months saw a very sharp 40% correction in crude prices due to fears of weak global demand. This fall in price reduced pressure on CAD and provided potential for INR appreciation. Due to increased supply and softening demand, crude oil prices are expected to remain subdued in 2019. 
CPI Inflation & RBI policy - CPI Inflation was 5.07% at the start of 2018, while it declined sharply to 2.33% by Nov’18, much below the medium-term target of 4% by the RBI, mainly due to continued deflation in food prices and the recent fall in crude oil prices. The RBI has projected inflation at 2.7-3.2% in the 2HFY19 and 3.8-4.2% in 1HFY20. CPI Inflation is expected to remain under control; however, core Inflation is likely to remain elevated for the next few months. Repo rate was at 6% in the beginning of 2018. The RBI hiked the repo rate twice by 25bps (in June and August) due to expectations of higher inflationary pressures. The RBI changed its stance to “calibrated tightening” in its October monetary policy and has maintained the stance, keeping the repo rate unchanged. 
Current Account Deficit (CAD) - In FY18, the CAD increased to 1.9% of GDP from 0.7% in FY17. In 1HFY19, the CAD increased to 2.7% of GDP from 1.8% in 1HFY18, on the back of trade deficit widening. The external sector should continue to be a headwind for the Indian economy in CY2019. While softening crude oil prices will provide the relief, there are some structural factors like lack of strong export growth and uncertainty of capital flows, which will pressurise the external sector. 
Shivam Daga MBA-FA (2018-20)
In 2019, the dominant global theme will be quantitative tightening, with major central banks draining systemic liquidity after a decade. This comes at a time when global growth is sluggish and interest rates are rising. Consequently, we expect a shift to relatively dovish stance. Soft commodity prices on the back of sluggish growth will also support lower inflation. Commodity-importing emerging markets (EMs) like India can heave a sigh of relief as macro stability has returned, and the worst is behind. Nevertheless, we do not rule out ‘panic attacks’ in EMs, given tightening global liquidity. Ongoing trade will remain in limelight this year as well. Interesting thing will be to note how it turns out after the upcoming meeting in January. Global growth is already facing headwinds with growth in the European Union slowing. Chinese growth is also under pressure, and economies from East Asia to Germany are feeling the impact of trade wars. Quantitative tightening and rising US interest rates imply that global growth could come under further stress. Moreover, Countries dependent most on exports, specially the commodities might get suffer. Further, slowdown in developed nation might lead their domestic firms output to dump in emerging countries and will impact emerging economies as well. Indian EconomyGeneral Election 2019 - The year 2019 would witness General elections (April/May) along with a host of state assembly elections. 4 states could have polling along with General elections – Andhra Pradesh, Odisha, Sikkim, and Arunachal Pradesh; followed by elections in the state of Maharashtra, Haryana, J&K and Jharkhand later in the year. Any change in political formations would be keenly watched by the investors in the run up to the General elections; however it is the fact that 5 of the 7 election years in the past 3 decades have yielded positive returns. GDP Growth - In 1QFY19 and 2QFY19, GDP grew by 8.2% and 7.1%, respectively. The cyclical recovery in 1H2019 was due to a low base of 1H2018. Despite fears of emerging market contagion and the US-China trade war rhetoric, India is expected to grow at 7.3% in FY2018-19. India’s favourable demographics continue to support growth from a long-term perspective with India remaining one of the fastest growing economies in the world. Indian Rupee - The INR was one of the better performing emerging market currencies in 2017 but quantitative tightening by the US Fed, FII outflows, emerging market currency weakness and higher crude prices (and CAD) led to a weak INR throughout 2018. The INR fell sharply to an alltime low of 74.39 v/s the USD but smartly recovered by 5% in the last two months, which coincided with the sharp fall in crude oil prices. Historically, over the past 15 years the INR has witnessed long periods of overvaluation and short periods of sharp corrections. INR levels in 2019 will primarily depend on three factors - CPI, crude prices, global yields and it is believed that the INR will be rangebound within (+/-) 3-5% from the current level. Crude Oil - By Oct’18, crude appreciated 36% and hit a near 4-year high of USD 86/bbl due to rising concerns regarding sanction on Iranian oil exports by the US with many analysts projecting a possible hit of USD 100/bbl mark. However, the last couple of months saw a very sharp 40% correction in crude prices due to fears of weak global demand. This fall in price reduced pressure on CAD and provided potential for INR appreciation. Due to increased supply and softening demand, crude oil prices are expected to remain subdued in 2019. CPI Inflation & RBI policy - CPI Inflation was 5.07% at the start of 2018, while it declined sharply to 2.33% by Nov’18, much below the medium-term target of 4% by the RBI, mainly due to continued deflation in food prices and the recent fall in crude oil prices. The RBI has projected inflation at 2.7-3.2% in the 2HFY19 and 3.8-4.2% in 1HFY20. CPI Inflation is expected to remain under control; however, core Inflation is likely to remain elevated for the next few months. Repo rate was at 6% in the beginning of 2018. The RBI hiked the repo rate twice by 25bps (in June and August) due to expectations of higher inflationary pressures. The RBI changed its stance to “calibrated tightening” in its October monetary policy and has maintained the stance, keeping the repo rate unchanged. Current Account Deficit (CAD) - In FY18, the CAD increased to 1.9% of GDP from 0.7% in FY17. In 1HFY19, the CAD increased to 2.7% of GDP from 1.8% in 1HFY18, on the back of trade deficit widening. The external sector should continue to be a headwind for the Indian economy in CY2019. While softening crude oil prices will provide the relief, there are some structural factors like lack of strong export growth and uncertainty of capital flows, which will pressurise the external sector. Shivam Daga MBA-FA (2018-20)