The Signal: The Week & More

1. What’s April Got In Store For You

A year and many deaths later, economies, globally are tailoring their fiscal and monetary positions to “vaccinate” their economies and bring sanity to means of production and drivers of demand. Re-scaling growth estimates in light of new information on covid cases and economic factions has India yet touted as the fastest economy of the coming decade.

Indian equities continue to show broadening with return potential illuminating in riskier covenants of the market. Cross-capitalization growth within India Inc has upside contribution effect dilute within the polarized benchmark indices. As an investor actionable, view every forthcoming market dip as an opportunity to participate in India’s growth story. Enter markets in a calibrated method while keeping your risk acumen and appetite in mind.

2. The “Made In India” Production Bites The Bullet 

IIP contracted for 2nd time in a row by 3.6% in Feb’21, after welcoming 2021 with 1.6% decline previous month. On FY21YTD basis, IIP has contracted by 11.3%, vs 1.0% growth in corresponding period a year ago. It follows sharpest contraction (4.6%) seen in eight infrastructure sectors over the last six months, reversing two months of positive growth.

The contraction in IIP during February was primarily on account of the manufacturing and mining sectors. Resurgence of health risks in fragmented pockets of the nation, disrupted supply-side economics and overly cautious retail consumption continue to be prominent risks to India’s full-blown economic recovery.

3. Increasing Inflation Itch!

India’s retail inflation for 2nd consecutive month, recording 5.52% (4-month high) in Mar’21 vs 5.03% in the month prior. Inflation has inched closer to the upper limit of 6% after RBI extended the inflation-targeting framework of 4(+/-2)% band for next five years till March 2026.

The rise in inflation can be credited to sharp upticks witnessed in food (oil, meat & non-alcoholic beverages), fuel, and transportation costs. Rising commodity prices, and pass-through pricing power courtesy of demand normalization pose as upside risks to inflation readings in near-term. It is likely for RBI to remain on pause in next meet and consider rate-cuts in near future after efficacy in transmission of prior rate-cut 

4. GDP Suffers A Pushback?…

Covid-19 pandemic pushes back india’s $5-trillion GDP goal by 3 years to FY32. Currently, India is the fifth-largest economy in the world behind Germany. The government has set a target of becoming a USD5-trillion economy by 2030. It should touch Japan’s nominal GDP in 2031 (in USD terms) if it grows at 9 per cent and in 2030 if it grows at 10 per cent.

This assumes a realistic 6 per cent real growth, 5 per cent inflation and 2 per cent rupee depreciation. In 2017, BofA predicted that India would emerge as the third-largest economy in 2027-28 based on demographic dividend, growing financial maturity, and the emergence of mass markets.

5. Old Gold Readies A Comeback

Gold is set to score the best gains in a decade this year as the pandemic and a gloomy outlook for the world economy sparked a rush towards the yellow metal, considered a safe haven in turbulent times. Volatility in other asset classes and a risk-off sentiment also attracted investors to gold.

Delay in approval of vaccine, fear of lockdown and fear of covid strain may create a global turbulence and positive support for gold. As the economic and social uncertainties triggered by the coronavirus pandemic turned the spotlight on gold as a safe haven.