A short view on Economic Indicators

Growth Indicators

  1. GDP: Amid the ongoing nationwide lock down due to COVID pandemic, 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%, In June update, IMF has cut India’s GDP growth Estimate for FY21 by 640 bps to -4.5% from 1.9% estimated earlier in Apr-20, citing longer than expected lock down. India’s GDP growth will see a sharp recovery of 6% in FY22, assuming a gradual pick-up in economic activity and demand in the second half.
  2. IIP (Index of Industrial Production) Growth: India’s GDP growth will see a sharp recovery of 6% in FY22, assuming a gradual pick-up in economic activity and demand in the second half.
  3. PMI (Purchase Manager’s Index) : India’s manufacturing PMI contracted for 3rd straight month in a row in June but reported a sharp recovery to 42.7 from 30.8 in May. Firms remained positive toward the twelve-month business outlook, with sentiment strengthening to a four-month high. Manufacturing activity is expected to recover better in upcoming months.
  4. Market Cap to GDP(Buffet Indicator) : In current Equity market outlook as on June 2020, India’s Market Cap to GDP ratio recovered to 68 from 56, the sharpest decline in March 2020 (Lowest since FY2009-10), The historical average of India’s Market Cap to GDP ratio is around 75. Thus, we can say that current market outlook (where, Market cap to GDP ratio is at 68) is significantly undervalued as compared with historical average valuation (75). – This can be a great opportunity for the investors to enter into fundamentally good stocks which have been corrected significantly and are now available at attractive valuations.

Monetary Indicators

  1. Inflation : Retail food inflation saw a year-on-year rise to 9.28% in May-20. While, the month-on-month rise was 0.13% in comparison to Apr-20. 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)
  2. RBI Policy : Key Relief Measures announced by RBI are : Further Cut in Policy Rates to mitigate the impact of COVID : Repo Rate & Reverse Repo Rate cut by 40 bps (Earlier Reverse Repo Cut : 90bps + 25bps), Widening Monetary Policy Corridor : In view of persistent excess liquidity, RBI has decided to widen the existing policy rate corridor from 50 bps to 65 bps. Under the new corridor, the Reverse Repo Rate under the liquidity adjustment facility (LAF) would be 40 bps lower than the policy repo rate

We wont be commenting on FDI & Banking health as FDI is dynamic and Banking NPA can only be commented post moratorium

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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