The Signal: The Week Highlights

1. India GDP To Make A Comeback

The seemingly-sharp expansion will be led by the continued normalization in economic activities as the rollout of Covid-19 vaccines gathers traction and the low base. Growth laggards will be in contact-intensive sectors, discretionary consumption and private sector investment.

India reinstates its position as the apple of the (investor) eyes, by doctoring itself out of current cry-sis. Govt.’s marquee policies and packages, in support with RBI’s financially prudent intervention has India kick-start its economy in the higher gears. When peers are entering lock-downs, India looks to lock-in monies across borders, ready to become the fastest growing economy in the coming times. 

2. Inflation Mutes Its Voice 

Inflation came in lowest level in the last 15 months at 4.59% in Dec’20 vs 6.93% in Nov’20. It Eased for 2nd straight month after touching its highest figures in the last 6 years in Oct’20. Core CPI eased to 5.34% after rising to highest in ~2 years at 5.51% in the month prior. Coming in-line with RBI tolerance level after staying above it for 8 consecutive months, fall in inflation can be credited to crash in vegetable prices and high base effect.

Broad-based domestic and global economic recovery should improve aggregate demand, posing an upside risk to inflation. Favorable base effect, appreciating rupee and any risk of second or third wave of covid led slowdown, will be a tailwind for CPI inflation. In current readings, Apart from vegetables, other in category basket carried positive price movements.

3. Indian Industries Take A Pause Cause Of The Cause

IIP contracts by 1.9% in Nov’20 vs 3.6% in Oct’20 and 2.1% in Nov’19. It recorded leakage in growth after 2 consecutive months of expansion, with growth rate touching an 8-month high in month prior. The fall in IIP can be attributed to declines seen in manufacturing & mining sectors.

Disaggregated data across elements highlight significance of next 2-3 months in charting industrial production’s health & wealth. Manufacturing has enjoyed a uphill climb with its peers in contact-intensive services, such as hospitality, transport and tourism yet to see signs of green shoot.

4. Indian Mutual Fund Industry’s Health & Wealth

MF AUM grew by 3.78% to record ₹ 30.96 Trillion As On December 31, 2020. December SIP crossing INR 8,000 Cr After 7 months. December Saw Inflows Of INR 3k Cr Owing Largely To Debt Oriented Schemes. Equity AUM Increased By 6.3% To INR 11.20 Lakh Crs Owing To Increase In Market Capitalization. However elevated market levels also marked heavy profit bookings.

India equities were subject to pocketing-monies practices as valuations are stretched with RoEs at historical lows. Flurry of NFOs in recent past drove AUM on the upside. Liquid & Overnight Funds Turned Fates, As Investors Exited Duration Schemes To Limit Interest Volatility.

5. Budget Broadens To Support Subsidies

Centre’s subsidy bill for FY21 likely to be higher by rs.400 bln than budgeted. FY22BE to be higher than FY21 BE. Higher spending on food and fertilizer sees minimal comfort by reduced in low oil prices. Cash transfers see robust response from beneficiaries, as can be inferred from data on Aadhaar-enabled Payment System, where the value and volume of transactions have risen steadily this year

The higher outlay on subsidy must also be seen in the backdrop of the Covid-19 pandemic and lockdown, with the Centre announcing relief measures under the Pradhan Mantri Garib Kalyan Yojana. Real shock is likely to come from low revenue receipts.