The macroeconomics looks simply awful! Prices of food and other essentials will continue to rise at around 7-8% for the next few months, all of us are going to pay a whole lot more for loans and, since not too many companies are ready to move ahead on new manufacturing capacity, there could be fewer jobs for the taking.

The government?s finances are in big trouble because it will need to borrow much more than it had bargained for. That?s why the markets aren?t making too much of the factory output growth number for March, 2011 of 7.3% year-on-year, which is way above even the most optimistic projection of somewhere half of this level.

Moreover, the data flow has been rather uneven especially in segments like capital goods. But it?s nonetheless good to see the upswing in the capital goods segment, up 12.9% year-on-year, and that too on a high base. Coming as it did though, after a decline in the last couple of months ? it de-grew 18.6% in February after clocking a negative 18.4% in January ? there?s some reason to cheer. Read together with the HSBC PMI data which rose marginally in April after staying flat in March, it would seem that growth in manufacturing could be bottoming out.

However, it?s unlikely that this one data point will do too much to reassure corporate India or to prompt upgrades to the GDP growth number for 2011-12 which, by and large, is at just below the 8% mark. Indeed that projection could head south at some point because the course of the Indian economy is so dependent on crude oil prices; with prices of both diesel and petrol both in for a steep hike it?s not surprising India Inc?s so blue.

However, the markets haven?t exactly taken it on the chin even though the unexpected increase in policy rates by 50 basis points earlier this month did come as a bit of a jolt. Thereafter, it?s been grinding down with foreign investors clearly in no hurry to buy; most fund managers remain neutral or a tad underweight on the country because they?re not sure that the central bank has done enough to keep a lid on inflation and anticipate policy rates will rise by at least another 75 basis points in the course of the next twelve months.

India has been an underperformer so far in 2011, like many other emerging markets (EM) and since the growth in corporate earnings will be muted especially if prices of commodities remain where they are, there?s no reason to jump in.

Although the underperformance of the EMs relative to the developed markets (DM) has reversed somewhat in March and April, it?s expected to persist for some more time because corporate profits are going to be stressed and with downgrades on the cards, the markets aren?t cheap; assuming earnings of R1,215 the Sensex at 18,355, trades at 15 times forwards, which has been its historic mean.

So while there could be some downside, any inkling that the government will get going on new projects could see industry could get back its momentum. There?s plenty of money waiting on the sidelines so if the monsoon is a good one we may well see EMs start to outperform once again later in the year.