The Signal: The Week Highlights

1. Transparent Taxation – Honoring the Honest

Govt., recently announced key tax reforms to improve tax compliancy, and digital assessment, and ease-of-use. Reduction of current thresholds, and inclusion of newer ones will put a check on tax evasion and widen tax base (only 1.5 Cr people pay tax amongst 130 Cr). Transactions such as white good purchases, property tax payment, medical and life insurance premium, and hotel payments, amongst others will define tax liability of patrons, per their respective pre-defined limits.

The tax reforms saga sees a new branch, after 22% corp. tax and budget CY20 tax reforms. While bold and highly laudable, we will have to wait to determine the success of new reforms. This Mountain-like policy with mole-like details can augur good news for healthier credit image of the country, both domestically and internationally, while also boosting another key agenda of this Government – The Digital India initiative!

2. The Growth of COVID 19 Is The Birth Of Recession

Global powerhouses report catastrophic numbers as, UK plunges into deepest recession on record, shrinking by 20% in Q2FY21. Singapore followed suit, as it saw its economy shrink by more than 40% on QoQ basis!

Covid 19 has 1 word resonate in the country’s literature and Math, and that is – “Pain-demic”! In a quarter imitating it’s predecessor, Q2 puts recessionary expectations into reality. But, Like with a trampoline, economies must press down first to jump higher. The catalyst for a faster jump is a potential vaccine – which Russia has released this week! Maybe (read: hopefully), your weekly coverage can be covid-sans, sooner than expected! 

3. Inflation Impression Imprints an In-Line Image

India’s retail inflation exceeds MPC Target for 4th month in a row, rising to 6.93% in July from 6.23% in June. At over 6%, inflation remains just above the MPC’s tolerance band of 4 (+/-2)%, creating a stagflation-like scenario where inflation is high despite a collapse in growth. Supply sinkages, pried higher inflation figures on account of amplified fodder prices.

Amidst a corona- filled year, disruption in supply-chain activity was a given, and was reflected in latest figures. However, ample system support via liquidity measures and restructuring facilities, spells better times for country ahead. As for rate-cuts, we see a pause in the upcoming October meet, as outputs of effective policies and transmissions are brought outwards.

4. In COVID 19 Parlance, IIP Stands For “Indian Industrial Problems”

The Index of industrial production (IIP) contracted 16.6% in June VS 33.8% in May and record 57.6% in April, thus falling consecutively for 4 months! Manufacturing, which accounts for 78% of the IIP, improved, contracting by 17.1% in June Vs 38.4% in May. Overall, the drag in IIP has spiked expectations of a sharp GDP contraction in Q2FY21 for India.

As India relearns how to walk, we bid adieu to conservative climate, though with pain. The holistic growth in all components of the IIP is a sign of India defining the new normal by quenching the old demand. In this process, like a tortoise (slow and steady) it is sowing the seeds of the much-awaited and talked about V-shaped recovery.

5. COVID Cuts A Slice Of The Mutual Fund Pie

Indian equity mutual funds faced 1st monthly withdrawal in 4 years as at Rs 2,480 cr. as investors continued to cash out to tide over the pandemic-related credit crunch. The Mutual Fund industry, however, saw a spike in net inflow at Rs. 89,813 cr., VS meagre Rs.7,265 cr last month.

“Be Greedy when others are fearful” is a half-quote with a full impact. The $1.9 Tn market of a $5 Tn to-be economy has a mix of doubters (domestic equity selling) and believers (Net FII buying – 4 months now!). As the economy recovered 40% from March lows, basic math tells us there is still a 60% gap (read as: offering), for those willing to risk it. The choice is yours; the time is not. Thick Quick – Act Quicker