Market Review
Growth moderated in major AEs like US and Euro Area (EA) with Q1CY23 GDP growing at modest pace. The high frequency indicators in US suggest that economic activity is so ening with retail sales moderating, job openings declining, weakness in manufacturing and housing sector, etc. However, services activity remain resilient and near record low unemployment rate with strong payroll data indicates that labour market continues to remain tight. In EA, services activity remained strong along with consumer confidence and sentiments while manufacturing sector continue to decelerate. Economic activity in China remained buoyant driven by improvement in services sector along with surprisingly strong merchandise export growth. Inflation especially core inflation remained at elevated levels in most AEs including US and EA. In May 2023, US Fed has raised policy rates by another 25 bps and now policy rate remained in the range of 5.0%-5.25%. The US FOMC statement also indicated that rates are now at sufficiently restrictive levels and further firming up of rates will be dependent on incoming data and a er factoring in the lagged impact of policy tightening.
Indian economic activity remained robust: Industrial activity was resilient as indicated by strong expansionary manufacturing PMI numbers and steady railway tonnage growth, although power consumption declined (partly due to relatively cooler weather). High GST collections & E-way bill generation, strong services PMI, strong consumer payments data suggest consumer spending too remained elevated. However, weakness was visible in retail auto registration growth which decelerated sharply in April 2023.
| Indicators | Units | Mar-22 | Jun-22 | Sep-22 | Dec-22 | Jan-23 | Feb-23 | Mar-23 | Apr-23 |
|---|---|---|---|---|---|---|---|---|---|
| Retail registration - Auto@ | |||||||||
| 2W | YoY, % | -2.8 | 20.2 | 16.7 | -1.3 | 24.5 | 28.7 | 25.1 | 2.9 |
| PV | -3.5 | 33.6 | 12.0 | 14.7 | 30.1 | 19.6 | 21.3 | 4.2 | |
| MHCV | 18.0 | 91.9 | 29.6 | 20.9 | 22.3 | 24.8 | 25.8 | 12.5 | |
| LCV | 8.1 | 62.4 | 15.8 | 8.1 | 17.9 | 17.6 | 4.8 | -0.9 | |
| Tractors | -5.3 | 11.9 | 4.9 | 27.8 | 33.6 | 39.3 | 30.5 | 14.8 | |
| Gross GST Collection | 14.7 | 55.8 | 26.2 | 15.2 | 12.7 | 12.4 | 12.7 | 11.6 | |
| Average E-Way bill generated | 9.7 | 36.2 | 23.7 | 17.5 | 19.7 | 18.4 | 16.3 | 12.2 | |
| Power demand | 5.9 | 16.2 | 11.3 | 9.8 | 12.0 | 7.7 | -2.1 | -1.8 | |
| Retail Spending | 71.0 | 75.4 | 60.6 | 44.6 | 45.7 | 40.7 | 37.5 | 35.6 | |
| Railway Freight Tonnage | 6.7 | 11.3 | 9.1 | 3.1 | 3.9 | 3.6 | 3.8 | 4.9 | |
| Railway Freight Earnings | 10.7 | 20.1 | 14.0 | 12.9 | 13.2 | 11.8 | 10.5 | 8.8 | |
| Manufacturing PMI^ | Index | 54.0 | 53.9 | 55.1 | 57.8 | 55.4 | 55.3 | 56.4 | 57.2 |
| Services PMI^ | Index | 53.6 | 59.2 | 54.3 | 58.5 | 57.2 | 59.4 | 57.8 | 62.0 |
| Unemployment | % | 7.6 | 7.8 | 6.4 | 8.3 | 7.1 | 7.5 | 7.8 | 8.1 |
Source: www.gstn.org.in, www.icegate.gov.in, CMIE, PIB, RBI, www.vaahan.parivahan.gov.in, www.posoco.in
^Number >50 reflects expansions and number <50 reflects contraction compared to previous month. @ - figures are preliminary data and are subject to revision.
Overall, India's economic activity strengthened supported by steady domestic consumption and robust services activity. However, the so ness in global trade is likely to weigh on industrial activities. We expect the growth momentum to moderate over the coming quarters but still outperform most major economies.
Retail inflation eases, likely to trend lower in the near term: CPI inflation in March 2023 moderated steeply to 5.7% (February 2023: 6.4%), its lowest print in past 15 months. The moderation in prices was mainly led by favourable base and vegetables and edible oil & fats. So electricity and traditional cooking fuel prices eased fuel & light inflation. Core inflation moderated but still remained at elevated levels as prices of major components such as clothing & footwear, personal care and household goods & services continue to remain sticky.
| YoY, % | Feb-23 | Mar-23 | Change |
|---|---|---|---|
| CPI | 6.4 | 5.7 | -0.7 |
| Food & Beverages | 6.3 | 5.1 | -1.2 |
| Fuel and Light | 9.9 | 8.9 | -1.0 |
| Housing | 4.8 | 5.0 | 0.2 |
| Transportation & communication | 4.5 | 4.0 | -0.5 |
| Core CPI@ | 7.0 | 6.5 | -0.5 |
Source: CMIE; @-CPI excluding food, fuel, housing and transportation & communication
The CPI is likely to cool down from Q1FY24 as the favourable base effect kicks in, slowing inflation momentum and as impact of correction in commodity prices is eventually passed on to the consumers over time. However, impact on crop production due to potential occurrence of El Nino and resilient demand are upside risks to CPI outlook.
Trade Deficit rises, likely to worsen in the near term: Trade deficit increased to ~USD 18.6 billion in March 2023 primarily driven by higher net gold imports. Net imports of non-oil & non-gold narrowed as export saw a broad based sequential improvement led by engineering goods, electronics, chemicals and agriculture products. However, this was set off by increase in NONG imports driven by growth in electronic parts, coals, chemicals, etc.
| Amount in USD billion | Feb-23 | Mar-23 | Change (MoM, %) |
|---|---|---|---|
| Trade Deficit / (Surplus) | 16.2 | 18.6 | 14.8 |
| Net Oil Imports | 9.1 | 9.7 | 6.5 |
| Net Gold Imports* | 1.6 | 3.7 | 131.4 |
| NONG deficit | 5.5 | 5.3 | -4.7 |
Source: CMIE, Ministry of Commerce; *NONG includes net imports of gold, silver and pearls precious & semiprecious stones adjusted for gems and jewellery.
Q4FY23 saw a sharp decline in trade deficit to USD 51.4 billion (Q3FY23: USD 73.3 billion) due to moderation in import growth. Going forward, the exports are expected to moderate given the expected slowdown in global trade while domestic demand is likely to remain relatively robust. Thus, trade deficit is likely to worsen in coming quarters. However, correction in commodity prices especially oil could keep the trade deficit within reasonable range.
Commodity prices: OPEC's decision to cut oil production by 1.2 mbpd helped oil prices to rise and remain beyond USD 80 per barrel during most part of the month. However, recession related fears, growing expectation of another rate hike by the US fed and lower than expected crude oil demand from China eventually led to oil prices settling below USD 80 per barrel by end of the month. A er seeing a sharp surge in prices during March 2023, gold prices remained flattish during April 2023. Metal prices moderated as Chinese economic recovery (which was driven by growth in services consumption) did not result in significant improvement in metal demand due to so fixed asset investment.
| Market price (USD)* | FY23& (%) | Apr-23^ (%) | |
|---|---|---|---|
| Brent Crude (per barrel) | 79.5 | (26.1) | (0.3) |
| Gold (per ounce) | 1,990 | 1.6 | 1.1 |
| Steel (per tonne) | 600 | (21.6) | (8.4) |
| Zinc (per tonne) | 2,680 | (31.8) | (7.8) |
| Copper (per tonne) | 8,571 | (13.6) | (4.1) |
| Aluminium (per tonne) | 2,368 | (31.7) | (0.4) |
| Lead (per tonne) | 2,162 | (11.8) | 0.8 |
Source: Bloomberg; *Market prices as on April 30, 2023. ^M-o-M change. & - YoY change during FY23
Global growth remained more resilient than expected in AEs especially in US and EU with tight labour market, steady consumer spending and improvement in consumer sentiments. However, elevated interest rate and modest goods demand impacted housing and manufacturing activity adversely. Further, while the inflation has come off from the peak, it remained at elevated levels. While major central banks are close to peak rate, the rates can remain at elevated levels for longer period.
Indian economic activity continues to be robust supported by domestic consumption especially services. Further, trade deficit reduced in view of correction in commodity prices which lowered imports and steady NONG exports. We remain optimistic on India's growth prospects in the near term on the back of resilience in discretionary services spending, easing supply chain, correction in commodity prices and supportive fiscal policies. Current account is also expected to improve hereon supported by improvement in services exports. While capital flows remain uncertain in view of global monetary tightening, BoP is expected to remain within manageable levels.
Over the medium term, Indian economy is likely to be supported by favourable policy environment, impact of PLI schemes, opportunities arising from shi of global supply chain, Government thrust on infrastructure spending, etc. Further, strong increase in private sector capex announcement along with low leverage, rising capacity utilization, steady corporate profitability and robust balance sheet of banking sector bode well for the overall growth.
