25/08/2022
Key highlights for the month of August,2022:
The economy seems to have taken a breather, but the signs of resilience remain. One thing is clear, unlike the west, there’s no case for recession in India in the near-term.
Inflation has been easing owing to favourable base coming into play, apart from easing of global commodity prices. We believe global inflation will continue to ease, providing comfort to monetary policy.
Industrial growth remains strong with manufacturing PMI continuing to inch upwards. Credit, core production numbers, IIP all remain robust. Rise in capacity utilisation above 75 is a harbinger for increased capex ahead.
Services PMI eased after the record high reading last month but remained in expansionary phase. Credit remains strong and air passenger traffic is booming but some slowdown is seen in e-toll collections.
RBI has turned hawkish in attempt to protect inflation and currency. The yield curve is now flattening with rise in short term rates exceeding the rise in long term rates. M3 growth is slowing down.
India’s fiscal authorities are striving hard to maintain fiscal deficit and are likely to find success in avoiding extra borrowings this year. While there have been excise duty cuts and extra subsidies, tax revenues are looking good. More than budgeted tax revenues will make up for the extra expenditure this year.
External headwinds have mildly eased as crude prices fell and monetary policies appear softer than previously expected. High trade deficit, however, keeps the currency under pressure.
FII equity flows turned positive after 9 months of record outflows. India’s inclusion in JPM EM Bond Index will help debt flows if that happens. Otherwise, FDI and ECB flows were moderate. MF flows slowed down, but the SIP book remained strong.
