Market Review
The global growth was mixed with US economy so ening, China activity improving and the Euro area remaining under pressure. US Q1CY24 GDP growth also came in weaker than expected driven by rise in net imports dragging overall growth whilst private consumption continuing to grow at a healthy pace. The US labor market eased marginally in April 2024 with job additions and unemployment rate coming in weaker than expected. Moreover, housing and manufacturing sectors also slowed down together with a dip in consumer confidence. The Euro Area's growth remained weak with both manufacturing and services sectors weakening. China's economic activity continues to remain positive with manufacturing, infrastructure investments, and retail consumption resilient. However, its property sector remained fragile. China regulatory authorities are increasingly rolling out measures to aid consumption and support asset prices.
Inflation stayed within a range across the majority of Advanced Economies (AEs), although core inflation momentum in the US remained high and beat the forecast in its latest reading. China inflation remained benign with both its PPI in negative territory while CPI remained benign. Most central banks in AEs kept their monetary policies unchanged.
Indian economic activity remained resilient: Growth in India remained robust, as reflected in the steady increase in different measures of activity over the past few months. Both the manufacturing and services Purchasing Managers' Index (PMIs) indicate a steady growth momentum. This is supported by strong GST collections and increased online spending. Also, there's noticeable growth in both two-wheelers and four-wheelers retail registration. Power demand grew at a healthy pace partly due to rise in temperature across many regions in India. However, the growth of tractors and commercial vehicles remained sluggish.
| Indicators | Units | Sep-23 | Oct-23 | Nov-23 | Dec-23 | Jan-24 | Feb-24 | Mar-24 | Apr-24 |
|---|---|---|---|---|---|---|---|---|---|
| Retail registration - Auto@ | |||||||||
| 2W | YoY, % | 21.9 | -12.6 | 21.5 | 27.5 | 15.4 | 13.6 | 5.7 | 33.1 |
| PV | 19.0 | -2.0 | 19.7 | 2.1 | 16.0 | 14.8 | -4.3 | 15.7 | |
| MHCV | 7.7 | 17.9 | -2.0 | -0.4 | 2.3 | -3.4 | -15.7 | -5.6 | |
| LCV | -3.3 | 2.4 | -9.1 | -4.4 | -4.0 | -1.4 | -7.8 | -2.0 | |
| Tractors | -7.3 | 3.5 | -22.3 | 1.4 | 23.9 | 12.8 | -1.8 | 2.5 | |
| Gross GST Collection | 10.2 | 13.4 | 15.1 | 10.3 | 11.7 | 12.5 | 11.5 | 12.4 | |
| Average E-Way bill generated | 9.5 | 30.5 | 8.5 | 13.2 | 16.4 | 14.8 | 13.9 | 14.5 | |
| Power demand | 10.3 | 20.9 | 6.1 | 1.6 | 6.1 | 4.7 | 9.1 | 10.5 | |
| Digital Spending & | 32.8 | 34.4 | 38.3 | 35.3 | 35.5 | 40.6 | 33.5 | 32.6 | |
| Railway Freight Tonnage | 6.8 | 8.5 | 4.3 | 6.4 | 6.4 | 10.1 | 9.5 | NA | |
| Railway Freight Earnings | 5.1 | 6.6 | 3.8 | 3.6 | 4.1 | 9.0 | NA | NA | |
| Manufacturing PMI^ | Index | 57.5 | 55.5 | 56.0 | 54.9 | 56.5 | 56.9 | 59.1 | 58.8 |
| Services PMI^ | Index | 61.0 | 58.4 | 56.9 | 59.0 | 61.8 | 60.6 | 61.2 | 60.8 |
| Unemployment | % | 7.3 | 9.4 | 8.9 | 8.7 | 7.4 | 8.1 | 7.4 | 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. &- Sum of UPI+IMPS spending
India's growth in FY25 is expected to remain steady, albeit lower than FY24, bolstered by robust industrial and services sectors alongside resilient urban consumption. However, rural recovery remains mixed but we remain optimistic in view of expectations of normal monsoon.
Central government finances in a comfortable position: Revenue collections surprised on the upside in FY24 led by robust growth in both personal and corporate tax. Indirect tax collections, however, remained sluggish. While GST collections continue to grow at a healthy pace, excise collections were subdued on back of reduction in windfall taxes levied on Oil & Gas sector. The non-tax receipts were boosted due to higher dividends from the RBI and PSUs. These are likely to make up for miss in divestment targets. Government exercised significant restraint over revenue spending during the year while capital spending grew at buoyant pace led by railway and road sectors. In view of the above, centre is likely to meet its revised fiscal deficit target of 5.8% of GDP in FY24.
| FYTD ending (INR billion) | Feb-23 | Feb-24 | Change (YoY) |
|---|---|---|---|
| Gross tax revenue | 25,473 | 28,899 | 13.4 |
| Total Direct Tax | 12,874 | 15,651 | 21.6% |
| Total Indirect Tax | 12,599 | 13,248 | 5.1% |
| Less: Share of States & others | 8,151 | 10,404 | 27.6% |
| Net Tax collection | 17,322 | 18,495 | 6.8% |
| Non-Tax Revenue | 2,486 | 3,603 | 44.9% |
| Total Revenue Receipts | 19,808 | 22,098 | 11.6% |
| Total Capital Receipts | 589 | 361 | -38.6% |
| Total Receipts | 20,397 | 22,459 | 10.1% |
| Total Revenue Expenditures | 29,034 | 29,417 | 1.3% |
| Total Capital Expenditures | 5,902 | 8,056 | 36.5% |
| Total Expenditures | 34,936 | 37,473 | 7.3% |
| Gross Fiscal Deficit | -14,539 | -15,014 | 3.3% |
| Fiscal Deficit as % of GDP | -5.4% | -5.1% |
Source: CMIE
For FY25, in view of realistic assumptions, the budgeted deficit of 5.1% of GDP appears achievable.
Retail inflation eases, likely to be rangebound in the near term: In March 2024, the CPI eased to 4.9% YoY from 5.1% in February 2024. The bulk of the easing was due to fall in Fuel & Light CPI on back of reduction in LPG prices. Food inflation continued to remain at elevated level driven by high vegetable, pulses, cereals, spices and sugar inflation. Core CPI was relatively steady driven by benign inflation in housing goods and services, health, clothing and footwear, and recreation and amusements items.
| YoY, % | Feb-24 | Mar-24 | Change in % |
|---|---|---|---|
| CPI | 5.1 | 4.9 | -0.2 |
| Food & Beverages | 7.8 | 7.7 | -0.1 |
| Fuel and Light | -0.8 | -3.2 | -2.4 |
| Housing | 2.9 | 2.8 | -0.1 |
| Transportation & communication | 1.8 | 1.5 | -0.3 |
| Core CPI@ | 4.0 | 4.0 | 0.0 |
Source: CMIE; @-CPI excluding food, fuel, transportation & housing
CPI is expected to ease over the coming quarter aided by favorable base effects, reduced input price pressure and sluggish core cpi momentum.
Trade Deficit narrows further, likely to remain rangebound in the near term: In line with the seasonal trend, trade deficit fell month-on-month in March 2024. The narrowing of trade deficit was driven by fall in net gold imports and NONG* imports. However, this was offset by rise in net oil imports driven by rise in oil prices and lower petroleum product exports. NONG* exports rose on the back of higher exports of engineering goods, electronics and chemicals. This was partially offset by rise in imports of transport equipments, project goods and metals.
| Amount in USD billion | Feb-24 | Mar-24 | Change |
|---|---|---|---|
| Trade Deficit / (Surplus) | 18.7 | 15.6 | -16.7% |
| Net Oil Imports | 8.7 | 11.8 | 36.5% |
| Net Gold^ Imports | 6.8 | 2.3 | -67.8% |
| Net NONG* imports | 3.2 | 1.5 | -51.4% |
Source: CMIE, Ministry of Commerce; NM – Not meaningful. ^ Net Gold includes gold, silver and pearls precious & semiprecious stones adjusted for gems and jewellery exports. *NONG refers to Non-Oil Non Gold (as defined above) imports/exports.
The fourth quarter of the financial year typically sees trade deficit narrowing and it should normalise in the coming months. Key risks to watch out for are Red Sea conflict and its impact on supply chain and escalation of geopolitical tension in Middle east which can result in surge in oil prices.
Commodity prices: Most industrial commodity prices saw a sharp increase during the month on the back improvement in China's economic activities and favourable demand outlook. Brent crude oil prices, however, cooled off as the tensions between Israel – Iran stabilised for the time being.
| Market price (USD)* | FY24 (YoY, %)& | Apr-24 (%)^ | |
|---|---|---|---|
| Brent Crude (per barrel) | 87.9 | 9.7 | 0.4 |
| Gold (per ounce) | 2,286 | 13.2 | 2.5 |
| Steel (per tonne) | 530 | (22.1) | 3.9 |
| Zinc (per tonne) | 2,925 | (17.7) | 22.3 |
| Copper (per tonne) | 9,974 | (2.3) | 14.3 |
| Aluminium (per tonne) | 2,585 | (3.4) | 12.6 |
| Lead (per tonne) | 2,184 | (8.4) | 11.1 |
Source: Bloomberg; *Market prices as on April 30, 2024. ^M-o-M change. & - Change in FY24
Summary and Conclusion:
Global growth trends are a bit mixed currently. China's recovery seems to be holding up, but the US economy is showing some weakness. India's growth is staying steady, thanks to buoyed urban consumption and resilient industrial and service sectors. Rural economic picture remains unclear as on one hand 2W sales are growing at healthy pace while tractor sales and rural wages remain modest. While Governmentled capital expenditure supports investment activity, the residential real estate market shows resilience. Although private corporate capital expenditure is somewhat modest, favourable conditions such as low leverage, rising capacity utilization, consistent corporate profitability, and a strong banking sector balance sheet suggest potential for pickup. The external sector appears robust, with expectations for steady current account performance and a continued surplus in the Balance of Payments.
Looking forward, the outlook for India's economy in the medium term seems positive. Favourable government policies, the benefits of Production-Linked Incentive schemes, opportunities stemming from shis in the global supply chain, increased infrastructure spending, potential recovery in private sector investment, and the enduring strength of personal consumption.
