In Finance, a dead cat bounce is a temporary, short-lived recovery of asset prices from a prolonged decline or a bear market that is followed by the continuation of the downtrend. Frequently, downtrends are interrupted by brief periods of recovery or small rallies – during which prices temporarily rise.
The markets have continued their volatile streak into May as well, rising sharply over the course of last two months, gaining approximately 10% from the April lows. Investors are wildly speculating whether this is a recovery or start of a fresh bear market – only time will tell. Good news being that Nifty has maintained 24,700 – a crucial support.
May has been an eventful month with a lot going on. India and UK signed their much-awaited Free Trade Agreement (FTA) which will boost bilateral trade between the two countries.
The FTA allows the elimination of tariffs on 99% of Indian tariff lines, covering nearly 100% of trade value, and reducing tariffs on 90% of UK tariff lines, the agreement is expected to deliver an estimated annual economic boost of around 15% to the Indian economy.
One of the most significant aspects of the UK-India FTA is the enhanced market access it provides to both countries. The agreement opens massive export opportunities for India in sectors such as textiles, marine products, leather, engineering goods, footwear, sports goods, toys, gems, jewellery, auto parts, engines, and organic chemicals. The zero-duty access will not only enhance access to the UK market but also aligns with the government’s focus on job creation through FTA in labour-intensive sectors. Another noteworthy feature of the India-UK FTA is its ambitious commitment to enhance the mobility of professionals and services. Indian service providers, particularly in IT, financial services, and professional sectors, are likely to gain a competitive edge in the UK market.
On the political front – India carried out a major strike against terror camps in Pakistan, code-named “Operation Sindoor”. It was a set of precision strikes across nine terror camps in Pakistan and PoK. The conflict had the potential of scaling into a full-scale war, but India’s military might led to Pakistan asking for a ceasefire. There was no panic selling and markets remained largely rangebound within +/- 0.30%. The following table shows market reaction during other Indo-Pak events:
Coming to global macros – The US Fed has kept the policy rates unchanged, citing higher inflation risk. But, the inflation data released shows a completely different story. To Fed’s surprise, it has cooled down to 2.3%. With US treasury yields touching 4.5% level, US economy shrinking 0.3% QoQ in the first quarter, and favourable inflation, there is increasing pressure on the Fed now to reduce the rates so as to avoid a recession in the US.
Rising American debt, tariff uncertainty and slowing economy has also spooked Moody’s, which has downgraded America's sovereign debt rating from Aaa (perfect credit rating) to Aa1, citing the $36.2 trillion debt pile, rising net interest costs, looming tax cuts, and political gridlock.
The global crude prices have been consolidating near the low level of $60 mainly due to increased production by non-OPEC as well as some OPEC+ countries. Another pain point indicated by low crude price is slowing economic growth – Chinese demand, a key driver of growth for oil demand, has been slowing at a significant pace. Over 2014-24, China added 60% of world demand, which slowed down to 18% in 2024. This can be attributed to a mix of rising dependence on renewable energy and slowing economic growth. Tariff related global uncertainty have exacerbated this situation for oil demand, despite tariff exemptions for oil, gas and refined products.
Amidst all this turmoil, the Indian economy shines as a beacon of hope – FPIs pour close to ₹ 15,000 in Indian equities (highest in last 8 months); inflation has eased to 3.16% (lowest in five years); RBI projects GDP growth of 6.5% for FY26; aggressive OMO auctions by the RBI to infuse liquidity in to the system; record RBI dividend for the government to the tune of ₹2.69 lakh crore – giving government more headroom for capex; PMI improving to 58.2; Record GST collection at ₹2.01 lakh crores, up 16.1% YoY; GDP growing better than expected at 7.4% in Q4FY25; and most importantly, India becoming the 4th largest economy in the world, surpassing Japan and with projections to surpass Germany to become the 3rd largest economy in the world by 2027-28.
Irrespective of such uncertain macro environment conditions, India has again proved to the world the strength and resiliency of its economy – it still remains India’s time to shine.
