Economic Reports

COVID has resulted in twin pressures on the government’s fiscal balance, both from cyclical and countercyclical sides, which is likely to result in FY21 fiscal deficit ratio rising to 7.5% of GDP. The FY22 Budget must prioritize both - Fiscal consolidation and Fiscal credibility, while providing the right support to "reconstruct" the economy.

From FX perspective, EURINR currently displays strong sensitivity to the incremental vaccination spread between EU and India. The sensitivity in case of USDINR and GBPINR is expected to pick up in H2 2021 as the pace of domestic inoculation drive gains momentum.

Economic activity Report in May
Our proprietary Daily Activity & Index Tracker (DART) Index for the Indian economy basis high frequency indicators underscores a continued slowdown in economic activity, albeit at a slower pace for the week ending 2nd May-21. After contracting by over 10.0% in the preceding two weeks, the index eased by 7.1% on a WoW basis. Latest DART index marks the 8th consecutive WoW decline - the longest correction streak since Mar/Apr-20 (five successive weekly declines albeit of much larger magnitude).

QuantEco DART Index – Economic activity records a modest dip

Our proprietary Daily Activity & Index Tracker (DART) Index for the Indian economy estimates economic activity to have dipped modestly* compared to last three weeks for the week ending 9th May-21.

India Apr – 21 CPI: The inflation antithesis
We continue to expect CPI inflation to moderate towards 5.0% in FY22 from 6.2% in FY21 as expectation of normal monsoon/ bumper harvest, likelihood of downward adjustment in fuel taxes, and favorable base effect would offset the upside emanating from higher global commodity prices.

We recently revised our FY22 GDP growth estimate lower by 150 bps to 10.0% basis our assessment of the impact of the second wave of COVID infections. The sequential growth setback in Q1 FY22 will be dominated by demand destruction/deferment as opposed to Q1 FY21 which began with a supply disruption of massive proportion.

India’s CPI inflation decelerated sharply to 4.29% YoY in Apr-21 from 5.52% in Mar-21, supported by a strong favorable statistical base. Sequentially, inflation momentum rose due to summer seasonality, elevated input costs, and some adverse, albeit minor spillover from lockdowns in several states.

We revise our FY22 GDP growth estimate lower by 150 bps to 10.0% basis our assessment of the impact of the current wave of COVID infections that is yet to peak. The growth setback in Q1 FY22 will be dominated more by demand deferment as opposed to Q1 FY21 which began with a supply disruption of epic proportion.

Our proprietary Daily Activity & Index Tracker (DART) Index for the Indian economy estimates economic activity to have to have flattened out in the week ending 23rd May-21. On a WoW basis, the index contracted by 0.1% i.e., the slowest pace of decline in last 2 months, compared to 6.4% in the previous week (revised up from -5.4%)

Our proprietary Daily Activity & Index Tracker (DART) Index for the Indian economy indicates a third consecutive weekly expansion in economic activity for the week ending 6th Jun-21, further cementing the turn around from last week. On a WoW basis, index rose by 12.4% compared to upwardly revised previous week’s change of 5.6% (4.8% earlier).

India Inflation Outlook: Decoding the inflation conundrum
In our assessment, CPI inflation is likely to average close to 5.0% in FY22, not far from RBI’s recently revised estimate of 5.1%. This will definitely come as a reprieve compared to FY21 average inflation of 6.2%.

India’s industrial production began FY22 literally with a bang. Catapulted by an extraordinary base, IIP growth vaulted to a triple-digit expansion in Apr-21 of 134.4%YoY compared to an upwardly revised 24.1% in Mar-21. To recall, nationwide lockdown had brought economic activity to a near complete standstill in Apr-20 to depress the IIP base.

In a further corroboration of reviving economic activity, our proprietary DART (Daily Activity and Recovery Tracker) Index rose by 10.5%WoW in the week ending 13th Jun-21, albeit a tad softer vs. previous week’s pace of 13.1% (revised up from 12.8%) This marks the fourth consecutive week of economic activity on the mend, reversing nearly half of the dip recorded over mid-Mar-21 to mid-May-21 in tandem with the second wave of COVID infections.

India’s merchandise trade deficit touched a record high of USD 23.3 bn in Nov-21. In comparison with the previous high in Sep-21 that was driven by a relative outperformance of imports over exports, the record high print in Nov-21 was on account of a relatively faster pace of sequential decline in exports vis-à-vis imports.

Growth in India’s industrial production on an annualized basis came in at 3.2% in Oct-21 (QuantEco: 3.0%, Consensus: 4.0%), almost flatline compared to 3.3% in Sep-21 (revised up from 3.1%). The subdued headline growth however masked a robust sequential pickup of 4.5%MoM vs. an average seasonal expansion of 1.5% typically recorded in the month of October.

Recall, amidst a sharp reduction in demand and disruptions on the supply side since the onset of the pandemic, core inflation (i.e., headline inflation excluding Food and Fuel inflation) has continued to remain elevated. We break-down core inflation into COVID sensitive and COVID insensitive components, both being mutually exclusive groups.

India’s CPI inflation showed a marked deceleration in Dec-20 as the strong salubrious seasonality in food prices exerted itself while ongoing gradual unlock continued to help restore supply side disruptions, caused earlier from COVID related lockdown. While the moderate trend is likely to persist in the near to medium term, upside risks are building up from hardening of global commodity prices.

Economic analysis report on India’s CPI inflation in January
CPI inflation that averaged at 6.8% between Apr-Nov FY21, corrected sharply in Dec-20 (14-month low of 4.59%) and has printed yet another number below 5.0% in Jan-21. At 4.06%, while the strength of the downdraft in Jan-21 CPI inflation has caught us and markets by surprise (QuantEco forecast: 4.79%, Bloomberg consensus: 4.4%), it is nevertheless heartening to see inflation revert to RBI’s midpoint of inflation target range of 4% +/-2%.

Index of industrial production in December 2020
After a contraction of 2.1%YoY in Nov-20 which was more a function of post festive fatigue, Dec-20 IIP posted a mild growth of 1.0% to belie our and market expectations of a contraction (Bloomberg consensus: -0.5%, QuantEco Research: -0.9%).

India Monetary Policy - A dovish RBI maintains focus on growth…for now
RBI in its Dec-20 Monetary Policy Review maintained status quo on rates and reiterated its commitment to maintain the accommodative stance into FY22, which was along expected lines. It also revised yet again its projections on growth and inflation.

Indian Monetary Policy
The RBI maintained status quo on monetary policy as well its accommodative stance while announcing extension of special liquidity dispensations, incentives for targeted credit flow for MSMEs, and retail access to primary and secondary g-sec markets, besides other regulatory changes.

India CPI - Inflation Pull, Push and the Pipes
India CPI Inflation climbed up to an 8-month high of 7.34%YoY in Sep-20 compared to 6.69% in Aug-20, marking the sixth consecutive month of retail inflation remaining above RBI’s upper threshold of tolerance i.e. at 6.0%.

India’s IIP yet again slipped into a contraction in Nov-20, owing to a combination of loss of working days in a festivity heavy month along with a negative base. In addition, withering of the initial pent up demand post lockdown along with festive seasonality support, IIP is likely to have taken a breather in November.

INDIA Monsoon - Adieu monsoon: Implications for growth and inflation

India Q3FY21 GDP - Shifting gears Reverse to Drive
Reports on India’s GDP- FY21