The Signal: The Week & More

1. Retail Inflation falls back into the RBI’s comfort zone in July

Retail Inflation eased to 5.59% in the month of July as opposed to 6.26% in June. The inflation in the food basket also eased down to 3.96% from 5.15% in the previous month. This has been the first time in six months that the inflation has fallen below 6% which is an encouraging sign for the monetary policy committee

The inflation cocooned back into the RBI’s comfort level of less than 6%. The RBI in their latest assessment has hiked the inflation target from 5.1 to 5.7 for this fiscal year. Inflation in this range will provide comfort to RBI in with its accommodative stance.

2. IIP grows on low base rate

The Monetary policy committee has kept the repo rate and reverse repo rate steady for the seventh consecutive time in August 2021. Growth outlook has been retained, but inflation is expected to stay elevated for longer.

The IIP data is yet to improve to pre pandemic levels but the progress towards it would be seen in the coming weeks, with the vaccination numbers rising and private capex improving, the low CPI & high IIP will help the MPC to continue with their accommodative stance to support growth. 

3. US Senate passes Biden’s massive infrastructure bill

The U.S. Senate this week passed a $1 trillion infrastructure package that is a top priority for U.S. President. The bill includes biggest investment in decades in roads, bridges, airports, and waterways.

The bill is set to increase the federal budget deficit by $256 billion over 10 years. The estimated spends include $110 billion for roads & bridges, $73 billion for electric grid upgrades, $66 billion for rail and Amtrak, and $65 billion for broadband extension among others. If spent wisely the bill has potential to bring in economic support to the country 

4. Equity Mutual funds surge to record high in July

Equity schemes received a net inflow of ₹22,584 crores in July, a steep jump from the figures in June. NFOs have been on a rise in the recent months and AUM garnered by these NFOs has played a vital part in such high inflows.

Improving macro indictors and a run up in the market is bringing in the investors through the Mutual funds route. High inflows to arbitrage funds are a positive sign for the markets as it shows that even with uncertainty about the markets, investors are willing to stay invested in a staggered fashion. 

5. Apr-June net GST collections at 26.6% of budget estimates

The net GST collection in the April-June quarter was over Rs 1.67 lakh crore, which is 26.6 percent of the budget estimate of Rs 6.30 lakh crore for full 2021-22 fiscal.

This is encouraging data for the economy as even with the restrictions scattered across the country in the first quarter of this fiscal, the GST collections have been soaring above expectations. The third wave can be a hurdle for the government to reach its target, but the smooth pick up in collections is likely to improve from hereon given the vaccinations are ramping up alongside gradual easing of lockdown curbs