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Kunal Kundu of Societe Generale highlights that India's recent Goods and Services Tax (GST) collections and Index of Industrial Production (IIP) data indicate weaker-than-expected consumption trends. GST collections for April 2024 were lower than anticipated, while the IIP growth rate slowed to 1.1% year-over-year, reflecting subdued industrial activity. These figures suggest that domestic demand remains fragile despite earlier hopes of a recovery driven by government stimulus and lower interest rates.
For forex markets, the data could pressure the Indian rupee (INR) against major currencies like the USD, as softer economic indicators often lead to reduced foreign investor inflows. Traders should monitor how the Reserve Bank of India (RBI) responds, as a dovish stance might further weaken the INR. Additionally, the data may influence global investors' risk appetite, particularly in emerging markets, if similar consumption slowdowns emerge elsewhere.
The implications for Gulf investors are twofold: first, India's economic slowdown could dampen demand for Gulf exports, particularly in sectors like energy and construction. Second, the RBI's potential policy adjustments may create volatility in INR/USD, affecting hedging strategies for Gulf firms with Indian exposure. Key watchpoints include upcoming RBI policy meetings and quarterly GDP data for confirmation of the consumption slowdown.
