{"id":36877,"date":"2025-04-11T19:57:07","date_gmt":"2025-04-11T14:27:07","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=36877"},"modified":"2025-04-12T09:55:28","modified_gmt":"2025-04-12T04:25:28","slug":"the-weekly-wrap-uncertainty-is-a-sure-thing","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-weekly-wrap-uncertainty-is-a-sure-thing\/","title":{"rendered":"The Weekly Wrap | Uncertainty is a Sure Thing"},"content":{"rendered":"

tl;dr<\/strong>\u00a0Hear the article in brief instead?<\/p>\n

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The future is no more uncertain than the present \u2013 Walt Whitman<\/p>\n

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The great American poet Walt Whitman wrote those words as part of a poem first published in his best-known collection, Leaves of Grass, more than a century and a half ago. But the words remain as true as ever.<\/p>\n

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Whitman, who also wrote the widely acclaimed poem “O Captain! My Captain!” on the death of Abraham Lincoln and “Passage to India”, may have hoped to gain fame or at least critical acclaim with “Leaves of Grass”. Instead, much of the book\u2019s content was deemed controversial, and he was fired from his government job. Uncertainty, you see!<\/p>\n

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Anyway, we are talking about uncertainty because, well, these are uncertain times. And even when something does seem certain, there is still a little bit of uncertainty around it. Like the Reserve Bank of India\u2019s interest rate cut this week.<\/p>\n

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The RBI lowered its policy rate by 25 basis points to 6% this week as inflation cooled. More importantly, it shifted its monetary policy stance to accommodative from neutral to support economic growth. And then, Governor Sanjay Malhotra made an extra effort to explain what this shift really signifies.<\/p>\n

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\u201cToday\u2019s change in stance from neutral to accommodative means that, going forward, absent any shocks, the MPC is considering only two options \u2013 status quo or a rate cut,\u201d he said.<\/p>\n

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Why would the RBI governor go out of his way to explain what is, in theory, a widely understood change in policy stance? In central banking parlance, this is an example of moral suasion\u2014a nudge to banks to transmit the rate cut to consumers, something they have been hesitant to do after the 25-basis-point cut in February.<\/p>\n

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This is not just about technical jargon. The implications are tangible. If you\u2019re considering making a fixed deposit, now might be the time to act before interest rates dip further. And if you\u2019ve taken a loan, especially one with a floating rate, your EMIs could soon come down\u2014provided banks do their part.<\/p>\n

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Spelling out the meaning of stance was important also because there were murmurs on how long the RBI will keep injecting cash when systemic liquidity has already moved into surplus. Clearly, Malhotra doesn\u2019t want the RBI\u2019s efforts to be ignored. So, his message was clear: banks must respond in kind, and the RBI is prepared to do more\u2014conditional, of course, on how macroeconomic conditions evolve. And that\u2019s where uncertainty comes into the picture.<\/p>\n

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The global economic landscape \u201cappears to be uncertain\u201d, the RBI said in its policy statement. At another point, it said the recent trade tariffs by the US and retaliatory measures by other countries have \u201cexacerbated uncertainties\u201d. This is clouding the economic outlook across regions and posing new headwinds for global growth and inflation, it said.<\/span><\/p>\n

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Essentially, nobody knows what lies in the future. And if you have been watching Donald Trump and US politics for the past few months, just like we are, few even know what\u2019s going on in the present!<\/p>\n

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\"Start<\/a><\/b><\/p>\n

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Watch the Bonds<\/h3>\n

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After two consecutive weeks of leading this newsletter with America\u2019s reciprocal tariff drama, we took a pause\u2014because so did President Donald Trump. Just as the tariffs were about to kick in, Trump did a volte-face and suspended the order for 90 days, with three key exceptions: China would still face a punitive tariff of 125%, and a baseline 10% tariff would remain applicable on all US imports, other tariffs such as 25% duties on steel, aluminium, and auto imports would stay.<\/p>\n

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Why did Trump change his mind? We don\u2019t know for sure. He claimed it was because more than 75 countries reached out to the US to negotiate a solution. Others pointed to the stock market crash\u2014something Trump had previously brushed off.<\/p>\n

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But those who claim to understand what truly gets Trump\u2019s attention said it was US Treasury yields.<\/p>\n

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Typically, when stock markets crash, investors rush to the safety of US government bonds, considered one of the most secure assets globally. This makes their prices rise and yields fall. But this time, bond prices fell alongside stocks\u2014an unusual and worrying trend. <\/span><\/p>\n

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The yield on the benchmark US Treasury note spiked to as much as 4.5%, marking the biggest intraday jump since 2009. If yields had continued to rise, it would have become harder for the US government to service its debt or raise fresh loans\u2014something it would surely need to do amid economic turmoil that the country\u2019s economy faced.<\/p>\n

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\u201cThe Bond Vigilantes have struck again,\u201d said economist Ed Yardeni in an April 8 research note. Yardeni, who coined the term \u201cbond vigilantes,\u201d used it to describe investors who dump Treasuries when they disapprove of government policies.<\/p>\n

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The yields cooled after Trump hit pause on the tariffs.<\/span><\/p>\n

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While the temporary relief on reciprocal tariffs is good news for exporters, the shift in yield dynamics has likely calmed nerves in India\u2019s bond market as well. As we\u2019ve explained in earlier newsletters, the RBI\u2014though it never says it outright\u2014tends to prefer maintaining a certain yield spread between Indian and US government bonds. That spread helps ensure that foreign portfolio investors continue to favour Indian gilts over US Treasury bonds.<\/span><\/p>\n

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The pause in the tariff was announced after the monetary policy meeting. Otherwise, it could have made a case for a stronger signal on easing, although RBI governor Sanjay Malhotra did sound dovish enough.<\/span><\/p>\n

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Watch the Clouds<\/h3>\n

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The shifting winds of global trade isn\u2019t the only factor the RBI would be watching in coming months. Its decisions will also depend on India\u2019s most critical weather phenomenon: the monsoon.<\/p>\n

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Next week, the India Meteorological Department (IMD) will release its first forecast for this year\u2019s monsoon rains. The announcement will perhaps grab headlines and fuel debates on television, and may even move markets. But how accurate are these forecasts?<\/p>\n

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Weather, by its very nature, is difficult\u2014if not impossible\u2014to predict with precision. Even within the IMD\u2019s own stated error margin of 5%, the agency has missed the mark in 14 of the last 22 years, dating back to 2003.<\/p>\n

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Why start from 2003? Because in 2002\u2014a drought year\u2014the IMD’s forecast was widely off the mark, prompting a revamp of its prediction model. The changes made little difference in long-range forecasting accuracy.<\/p>\n

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While the April forecast tends to be less reliable, the odds improve by May, when the IMD updates its projection. The second forecast has been accurate, again with a 5% error margin, in half the times since 2003.<\/p>\n

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This timing is also crucial, especially when considering the role monsoon plays in Indian agriculture. With a large portion of farmland still lacking irrigation, the rains largely determine the fate of the summer, or kharif, crop.<\/p>\n

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It\u2019s in May that farmers decide whether to plant water-intensive crops like rice or opt for hardier varieties such as jowar that can withstand weaker rainfall.<\/p>\n

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Beyond the summer planting season, monsoon rains are vital for recharging soil moisture and refilling reservoirs\u2014both critical for winter, or rabi, crops.<\/span><\/p>\n

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So, if you\u2019re placing your bets on the monsoon forecast, it might be wise to wait a few more weeks for better odds and a lesser degree of uncertainty.<\/span><\/p>\n

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Watch the Earnings<\/h3>\n

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Trump may have paused the \u201creciprocal tariffs\u201d but the uncertainties created by his policies\u2014if they can be called that\u2014have already started affecting Indian companies. The first indication of that came from Tata Consultancy Services.<\/p>\n

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TCS, India\u2019s largest software services exporter, kicked off the corporate earnings season this week for the fourth quarter of 2024-25. The company missed earnings expectations as its net profit for the fourth quarter ended March 31 fell 1.7% from a year earlier to Rs 12,224 crore. Its revenue rose 5.3% to Rs 64,479 crore but still lagged analysts\u2019 estimates. The company won deals worth $12.2 billion during the quarter, down from $13.2 billion a year earlier.<\/span><\/p>\n

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The Tata Group company said that clients were delaying decision-making and rethinking discretionary projects due to the uncertainty around US tariffs. The bigger shock came when TCS said that it postponed a decision on annual salary hikes for employees because of the uncertain business environment.<\/span><\/p>\n

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TCS, like most big Indian IT companies, count the US as their largest market. These companies were hoping that after Trump\u2019s victory as president in November last year, the US government would follow business-friendly policies that would revive clients\u2019 confidence and nudge them to spend more on IT projects. But the exact opposite is now happening.<\/span><\/p>\n

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There is little hope now of any shift in fortunes thanks to Trump\u2019s flip-flops on tariffs, the crackdown on immigration and other measures that have soured sentiment.<\/span><\/p>\n

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Still, TCS CEO K Krithivasan sounded hopeful. He said that the uncertainty around tariffs was likely to settle over the next few months and that 2025-26 was likely to be better than last year. Unless, of course, Trump lifts the pause after 90 days.<\/span><\/p>\n

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\"FD<\/a><\/p>\n

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Market Wrap<\/b><\/h3>\n

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India\u2019s stock markets slipped for a second straight week, pulled down by uncertainties over Trump\u2019s tariffs. Both the BSE Sensex and the NSE dropped about 0.3% each this week. This was despite the Nifty surging 1.9% and the Sensex climbing almost 1.8% on Friday after Trump paused most tariffs for 90 days. Markets were closed for Mahavir Jayanti on Thursday.<\/span><\/p>\n

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Tata Group\u2019s fashion retailer Trent was the biggest loser, ending with losses of almost 14%, after saying revenue growth for the fourth quarter slowed. Two more Tata Group companies, Tata Steel and Tata Motors, were among the top losers. Both the companies will be affected by US tariffs since Trump hasn\u2019t paused levies on imports of steel and automobiles. <\/span><\/p>\n

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IT stocks continued to fall on worries of a hit on their businesses because of uncertainties among clients in the US, their biggest market. TCS, Infosys, Wipro, Tech Mahindra and HCL Tech slipped more than 2% each during the week.<\/span><\/p>\n

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Larsen & Toubro and most banks also ended in the red. <\/span><\/p>\n

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Gainers were led by Hindustan Unilever, Titan and Nestle. ITC also ended higher, as did Cipla, Bajaj Finance and Eicher. PSUs including Power Grid Corp, NTPC, ONGC and Coal India gained, too. Recent entrants Jio Financial and Eternal, the parent of Zomato, ended in the green as well.<\/span><\/p>\n

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Other Headlines<\/b><\/h3>\n

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