Economic Indicators

Key Topics

  1. Growth Indicators – GDP Growth
  2. Monetary Indicators
  3. Deficit
  4. Foreign Investment
  5. Banking Health

Highlights

IMF anticipates sharply negative global economic growth fallout in 2020 on the back of COVID-19. Given the containment measures to slow the spread of the virus, the world economy is taking a substantial hit. In the IMF’s April Update of World Economic Outlook (WEO), IMF said, COVID pandemic will shrink world output by 3% in 2020, Warning “The Worst Recession since the Great Depression”

IMF said, India and China would be the only two economies likely to register growth, with all other contracting. India’s GDP hit 11-year low at 4.2% in FY20 from 6.1% in FY19.

Overall Economy health can be improved with the introduction of more Industry friendly and welcoming FDI policies by the government.

India’s GDP hit 11-year low at 4.2% in FY20 due to drop in consumption & investment. While, Q4 FY20 GDP growth slowed to 3.1%. Industrial growth (IIP) reported the sharpest contraction of 16.7%

April’s CPI Inflation could not be recorded in absence sufficient data collection amid COVID lockdown. In March 2020, CPI inflation eased to 5.84% from 6.58% in Feb-20, mainly driven by softening of food prices.

GDP Growth

India’s GDP Growth Projection by IMF in April Updates
1. IMF projects India’s GDP growth at 1.9% FY21 from 5.8% estimated
earlier in Jan-20 update and forecasts a global recession due to
COVID-19
2India’s GDP growth will see a sharp recovery of 7.4% in FY22,
assuming a gradual pick-up in economic activity and demand in the
second half.

IIP Growth

After marking the 7-months high IIP growth at 4.5% in February, India’s Industrial Output contracted by 16.7% in March 2020, reporting a sharpest contraction in IIP on-record, as factories shuttered down towards the March-end due to the nationwide lockdown. IIP fall in Mar-20 is mainly driven by contraction in the output of Manufacturing (-20.6%) and Electricity (-6.8%) sectors, while Mining output remained flat in March.

• The previous instance of record fall was 10-years back in February 2009, when IIP shrank by 7.2%. IIP had given a growth of 2.7% last year March 2019. This steepest Industrial output Decline in March led to IIP Annual growth in FY20 contracting by 0.7% as opposed to a growth of 3.8% in FY19

• Consumer Non-durable (an indicator of rural demand) contracted by 16.2% in Mar-20 vs flat growth in Feb-20. Production of consumer durables (a reflection of urban demand) shrank 33.1% in Mar-20 further deepened vs -6.4% in Feb-20, while production of capital goods (an indicator of investment activity) contracted by 35.6% in Mar-20 against a contraction of 9.7% Feb-20.

• Industrial output in April-20 is expected to be much worse with a month-long suspension of industrial units across sectors, many of which still remain hamstrung by lack of Labour, Logistics and Raw materials. Thus, the recovery in Industrial Production will only be gradual in the short to medium term as the sectors will continue to struggle with Sluggish demand, Supply chain bottlenecks, Raw material availability, Labour issues and Credit squeeze

 

Manufacturing PMI

India’s manufacturing PMI contracted for the second month in arow to 30.8 in May as the coronavirus-driven isolation ordersdeteriorated business conditions. In March, PMI recorded a historic dip at 27.4 in from 51.8 (the sharpest deterioration in business conditions since IHS Markit began Survey in March 2005) – Purchasing Managers’ Index, compiled by IHS Markit shows a expansion (PMI > 50) or a contraction (PMI < 50) in manufacturing activity compared with previous month. It correlates with IIP & GDP numbers.- After making it through March relatively intact, the Indian manufacturing sector felt the full force of COVID pandemic in April as well as May 2020

On Inflation Front

Retail Inflation, CPI eased to 5.84% in Mar-20 (lowest in 4-months) from 6.58% in Feb-20, mainly driven by softening of food prices (Food Inflation of 8.76% in Mar-20 vs 10.81% in Feb-20). CPI Inflation in Mar-19 was 2.86%.

• This is the first time since Nov-19 that retail inflation based on Consumer Price Index (CPI) has fallen below the Reserve Bank of India Monetary Policy Committee’s targeted upper band of 6%

• CPI inflation has declined by almost 170 basis points from its Jan-20 peak

• Wholesale Inflation (WPI) eased to 1% in Mar-20 (at 4-months low) from 2.26% in Feb-20 on the back of lower inflation in food articles (5.49% in Mar-20 vs 7.31% in Feb-20). WPI Inflation in Mar-19 was 3.10%.

• Subdued demand and prices pressure and constrained global crude oil price movement amid COVID-19 supported the softening of CPI as well as WPI inflation in Mar-20.

• Lower Inflation in coming months ahead could open up greater room for policy easing in coming MPC meet in June. To address Coronavirus pandemic and make available sufficient liquidity in the system, RBI had earlier announced a significant rate cut in its preponed MPC meet held on March 27, 2020.

10-Year G-Sec Yield & Overnight MIBOR Rate

As expected, decreasing benchmark interest rates are consistently decreasing the MIBOR rates as well 10-year G-Sec yield.

Current Yields are among the lowest since demonetization. Yields came very low after demonetization due to excess liquidity in the banking system. Even though G-Sec are decreasing, corporate bond yields have not seen the similar downfall due to NBFC crisis and high NPAs in banking sector.

There was a sudden surge in the 10-year G-sec yield towards the end of 2019. In the backdrop of rising inflation, the fear of excess government borrowing is pushing up interest rates. Bond yields increased after the foreigners dumped the Indian bonds fearing a widening fiscal deficit.

The government’s market borrowing plans in the forthcoming financial year will remain crucial to guide the direction in yields. We expect
yields to decrease further in coming months especially due to market expectation of further repo rate fall on accommodative stance of RBI.

Fiscal Deficit

India’s Fiscal Deficit widened to 4.6% of GDP for FY20, overshooting (by Rs.1.7 Trillion) the Government’s revised target of 3.8% set in Union Budget Feb 2020The Government had set Fiscal deficit target for FY21 at 3.5% in the FY21 budget estimate released in February. However, it is expected to be at 6%-7% after accounting for the COVID-19 outbreak and lockdown impact.

With subdued economic growth, sharp net tax shortfalls are expected both in GST and income tax collections. Fiscal Deficit of is at Rs.9.36 Trillion, which is 122% of Government’s revised full-year target of Rs.7.66 Trillion. Missing the revised target could lead to spike in G-Sec bond yields.

The fiscal deficit for April reached 35.1% of the FY21 target of Rs.7.96 Lakh Crore due to lower revenue, which was hit hard as economic activity stalled after the lockdown was imposed to contain the spread of COVID-19.

3.5% fiscal target seemed unreal with a hard hit on economic activity due to
COVID crisis, slowing growth and worst shortfall in net tax revenue.
Government’s ambitious disinvestment and high tax revenue targets to keep the
deficit in check. The Divestment target for FY20 has already fell short off by
almost 80%. It will lead to fresh borrowing by government for FY21 also.

Thus, delivering on fiscal consolidation and raising incomes will be extremely
challenging for India, since growth is likely to remain weak over the coming
quarters.

FDI Inflows

After reporting a steep fall in Feb-20 (USD 1,981 Mn) from USD 5,668 in Jan-20, FDI net inflows shown a revival in Mar-20 with net inflows of USD 2,874 Mn
– Foreign investment in the form of FDI has seen a significant rise during FY2019-20 compared to FY2018-19. Net FDI during FY2019-20 is at $42.89 bn, which is 4%
higher than the net FDI inflows worth $30.71 bn in FY2018-19. – In Union Budget 2019-20, Indian government has supported FDIs by introducing various FDI welcoming
norms like 100% FDI in insurance, Entry of FDI in Aviation, Media industry and recent cabinet decision to increase

FDI limit in Single brand retail, coal mining & contract manufacturing. – Enthused by a record foreign investment inflow, India is optimistic of continuing to be one of the world’s favourite FDI destinations in 2020 on the back of the Indian Government’s liberalized norms and a significant jump in the ease of doing business ranking.

– Despite a slowdown in the global economy, inflows of foreign investment into the country have not been impacted, boosted in Dec-19 and Jan-20

 

FII & DII Monthly Trend

March-20 indicates the sharpest monthly fall since 2008 in the domestic indices – Sensex & Nifty.

• In May-20, Indian Stock Market fell MoM after attaining the revival path in April-20

• However, Both FII & DII were the net Buyers in May with the inflow of Rs.13,914 Cr & Rs.12,293 Crrespectively, which is a very positive sign for the Indian Equity Markets

 

Banking Health

As the bank’s are passing the benefit of reducing interest rates to consumers, banks’ credit growth is expected to rise though at a slower pace. Credit growth is expected to be around 14% in upcoming in FY as compared to only 8% in last FY

– Deposit growth is increasing in past few months due to problems in debt market defaults of IL&FS, Zee and DHFL. Due to these, investors are moving towards more stable Bank’s deposits

– Amidst the current COVID scenario, since RBI cut the reverse repo rate cut by higher points (90bps) than repo rate (75bps), Banks are having limited option but to transmit the lower policy rates to the end consumers in order to achieve the credit growth momentum.

– Bank Deposit was seen at 6.1%, Bank’s deposit rates are also coming down
hand-in-hand with the declined interest rates.

Signing off ……..

Having worked several years into Life Insurance, Health Insurance, Mutual Funds & Closely with people into financial planning i am now putting my first step in investment advisory

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