The Signal: The Week Highlights

1. In Shifting From Co-vid To Go-vid, IIP Stands For “India’s Industry (Is) Positive”

IIP grew by 3.6% in Oct’20 vs 0.5% in Sep’20 and -6.6% in Oct’19. It maintained positive trend for 2nd straight month with growth touching 8- month high. Previous high was in Feb’20 when IIP grew by 5.2%. The rise in IIP can be attributed to buoyancy of festive demand and favorable base effect

Revival of demand and consumption can be hinted by growth seen in consumer durables, non-durables and electricity elements. In the post-lockdown economy, manufacturing has enjoyed uphill climb while contact-intensive services in hospitality, transport & tourism yet to see signs of green shoots. 

2. Inflation Piques Peaks

WPI: WPI maintained record of +ve figures, signaling producers regaining pricing powers. The rise is due to price increases of manufacturing items during festival season. The rich monsoon and smoothening of demand will play key roles in determining inflation print in times to come.

CPI: India’s retail inflation showed signs of easing after touching its highest figures in last 6 years, in the previous month. Inflation came in at 6.93% in November vs 7.61% in October, with it staying above RBI tolerance level for 8th consecutive month. Core CPI rose to highest in ~2 years, registering 5.51% vs 5.46% in the month prior

Inflation breathed a sigh of relief as heavy monsoons and smoother supply chain systems helped comfort elevated food prices. High base-effect came into play too in seeing inflation picture a softer print. With fears of 2nd covid wave, we expect supply challenges to sustain over the short-term.

3. Covid Over Capex – State Budget’s New Mantra

States continue post-covid trend of striking budgetary spending with focus on heavy borrowing to sustain state macro health and wealth. A capex increase of 30% in promises has resulted in 23% cuts in payments with borrowings increasing 50%+ vs 2.6% increase on YoY comparison.

The aftermath of the viral virus comes with stern economic shocks across domestic borders. The gain in spending is impeded by pain in being spent, as govt’s look to feed higher wallet share to fill the need of the times. However, the issue may meet its tissue in coming times as unlockings pick pace

4. MF Industry Grows With Time & Tech

SEBI amended norms w.r.t minimum public shareholding while easing eligibility norms for entities to launch Asset Management Companies (AMCs). Sponsors not fulfilling profitability criteria can now be considered, provided they give min. net-worth of Rs.100 crore as contribution towards AMC.

The norms encourage in setting-up of newer AMCs as Mutual fund penetration in India is less than the global average of ~55%. With plenty room to grow and maintain current growth momentum (MF industry crossed INR 30 Tn, growing 3x in 6 years!), the ease of norms can encourage fintech firms to step-up technology in playing vital roles for MF industry for transition from awareness to action.

5. Investment In Construction To Construct New India

The vitality of the infra vertical in the country is key in vaccinating the virality of the virus. The sentiment is reflected via benchmark policy in ‘Atma Nirbhar Bharat’, and supported via boosted via latest IIP figures. It registered 3.6% last-month, growing at its fastest pace in last 7 months. 

Reading elemental growth of IIP shows how the infra sector is readying for a bounce-back. From a 100 Cr+ spend package to revived demand for steel and consumer durables shows willingness of country in printing its growth via manufacturing more manufacturing and service outputs.