Market Review
The global economy continues to outperform expectations, primarily propelled by the strength of the US economy. The labor market in the US remains tight, with non-farm payrolls surpassing projections, low unemployment rates, and elevated wage growth. Additionally, there are indications of stabilization in the manufacturing sector. However, the housing sector faces pressure due to high interest rates. Conversely, the Eurozone exhibits widespread weakness, with both manufacturing and services sectors slowing down. Factors such as tight monetary policy, diminished consumer confidence, prolonged conflicts, and sluggish global trade continue to hinder its growth. China's economic situation remains generally positive, although weaknesses persist in the real estate sector. Nevertheless, manufacturing, infrastructure investments, and retail consumption remain resilient.
Inflation (YoY) stayed within a range across the majority of Advanced Economies (AEs), although there was a notable acceleration in core inflation momentum in the US. China continued to experience deflationary trends in its Consumer Price Index (CPI). Most central banks in Advanced Economies maintained their monetary policies unchanged. However, the People's Bank of China (PBoC) reduced the 5-year loan prime rate by 25 basis points to 3.95%.
India’s Q3FY24 Growth remained strong: GDP expanded by 8.4% year-on-year in Q3FY24, surpassing consensus expectations of 6.6%, while Gross Value Added (GVA) grew by only 6.5%. The notable difference between GDP (which includes GVA and net indirect taxes) and GVA growth rates was primarily due to ~32% rise in net indirect taxes (indirect taxes minus subsidies). Despite this adjustment, internal factors remained favorable, indicating resilience in growth. GVA Growth was predominantly driven by the industrial sector, with manufacturing and construction sectors displaying robust performance. Services also saw improvement compared to previous periods, albeit with some unevenness, while agricultural output contracted due to irregular and unseasonal rainfall. On the expenditure front, investments remained strong, supported by continued impressive performance from both government and private sectors. However, private consumption was relatively weak driven by subdued rural consumption.
| Quarter ended (YoY, %) | Sep-23 | Dec-23 | Sep-23 | Dec-23 | |
|---|---|---|---|---|---|
| GDP | 8.1 | 8.4 | GVA | 7.7 | 6.5 |
| Private Consumption | 2.4 | 3.5 | Agriculture, Forestry and Fishing | 1.6 | -0.8 |
| Government Consumption | 13.8 | -3.2 | Industry | 13.6 | 10.4 |
| Gross Capital Formation | 10.6 | 12.2 | Manufacturing | 14.4 | 11.6 |
| Gross Fixed Capital Formation | 11.6 | 10.6 | Construction | 13.5 | 9.5 |
| Services | 6.0 | 7.0 | |||
| Exports | 5.3 | 3.4 | Trade, Hotels, Transport, etc. | 4.5 | 6.7 |
| Imports | 11.9 | 8.3 | PADO | 7.7 | 7.5 |
Source: CMIE, MOSPI, GVA – Gross Value Added, GDP – Gross Domestic Product, PADO - Public administration, defence and other services
In view of strong sequential momentum, GDP growth is expected to remain better than previously expected in coming quarters as well.
Indian economic activity holding up well: India's growth trajectory remains robust, evident from the sustained pace of expansion across various activity indicators in recent months. Both manufacturing and services Purchasing Managers' Index (PMIs) signal significant expansion, complemented by robust GST collections and strong growth in digital spending. Additionally, there is notable growth in retail registrations for both two-wheelers and four-wheelers. Industrial activities are also witnessing healthy growth, as reflected in steady demand for power and buoyant movement of goods via railways. However, commercial vehicle growth continues to lag behind.
| Indicators | Units | May-23 | Jun-23 | Jul-23 | Aug-23 | Sep-23 | Oct-23 | Nov-23 | Dec-23 | Jan-24 | Feb-24 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Retail registration - Auto@ | |||||||||||
| 2W | YoY, % | 9.6 | 7.1 | 8.5 | 6.6 | 21.9 | -12.6 | 21.5 | 27.5 | 15.0 | 13.1 |
| PV | 6.3 | 6.6 | 5.7 | 8.3 | 19.0 | -2.0 | 19.7 | 2.1 | 13.3 | 11.5 | |
| MHCV | 11.0 | 0.9 | 5.4 | 8.1 | 7.7 | 17.9 | -2.0 | -0.4 | -1.0 | -4.2 | |
| LCV | 2.4 | -4.7 | -5.4 | -1.3 | -3.3 | 2.4 | -9.1 | -4.4 | -6.4 | -2.1 | |
| Tractors | 10.3 | 43.1 | 25.1 | 16.5 | -7.3 | 3.5 | -22.3 | 1.4 | 24.0 | 12.8 | |
| Gross GST Collection | 11.5 | 11.7 | 10.8 | 10.8 | 10.2 | 13.4 | 15.1 | 10.3 | 10.4 | 12.5 | |
| Average E-Way bill generated | 19.7 | 15.5 | 16.4 | 19.5 | 9.5 | 30.5 | 8.5 | 13.2 | NA | NA | |
| Power demand | -0.4 | 4.3 | 8.0 | 16.3 | 10.3 | 20.9 | 6.1 | 1.6 | 6.1 | 4.7 | |
| Digital Spending& | 34.9 | 34.2 | 35.7 | 37.7 | 32.8 | 34.4 | 38.3 | 35.3 | 35.5 | 40.6 | |
| Railway Freight Tonnage | 1.9 | -1.9 | 1.5 | 6.4 | 6.8 | 8.5 | 4.3 | 6.4 | 6.4 | 10.1 | |
| Railway Freight Earnings | 4.0 | -1.0 | 3.2 | 2.7 | 5.1 | 6.6 | 3.8 | 3.6 | 4.1 | 9.0 | |
| Manufacturing PMI^ | Index | 58.7 | 57.8 | 57.7 | 58.6 | 57.5 | 55.5 | 56.0 | 54.9 | 56.5 | 56.9 |
| Services PMI^ | Index | 61.2 | 58.5 | 62.3 | 60.1 | 61.0 | 58.4 | 56.9 | 59.0 | 61.8 | 60.6 |
| Unemployment | % | 7.6 | 8.5 | 7.9 | 8.1 | 7.1 | 9.4 | 8.9 | 8.7 | 6.8 | 8.0 |
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 is expected to remain steady, bolstered by robust industrial and services sectors alongside resilient urban consumption. However, rural consumption recovery is in nascent stage and high food inflation can adversely impact the same.
Prudent revenue expenditure and robust direct tax collections keeps fiscal deficit under control: The fiscal performance of the central government remains promising for FY24, supported by robust direct tax revenues. Personal income tax notably drove a ~24% year-on-year increase in direct tax collection. However, growth in indirect tax collection was comparatively subdued. While capital expenditure growth has slowed in recent months, it continues to expand at a healthy rate. Additionally, stringent control over revenue spending has resulted in a year-on-year decline in revenue expenditure in recent months.
| FYTD ending (INR billion) | Jan-23 | Jan-24 | Change (YoY) |
|---|---|---|---|
| Gross tax revenue | 23,627 | 27,062 | 14.5% |
| Total Direct Tax | 12,166 | 15,038 | 23.6% |
| Total Indirect Tax | 11,460 | 12,024 | 4.9% |
| Less: Share of States & others | 6,740 | 8,264 | 22.6% |
| Net Tax collection | 16,887 | 18,798 | 11.3% |
| Non-Tax Revenue | 2,309 | 3,391 | 46.4% |
| Total Revenue Receipts | 19,196 | 22,179 | 15.5% |
| Total Capital Receipts | 572 | 342 | -40.2% |
| Total Receipts | 19,768 | 22,521 | 13.9% |
| Total Revenue Expenditures | 25,978 | 26,335 | 1.4% |
| Total Capital Expenditures | 5,699 | 7,212 | 26.5% |
| Total Expenditures | 31,676 | 33,547 | 5.9% |
| Gross Fiscal Deficit | -11,908 | -11,026 | -7.4% |
| Fiscal Deficit as % of GDP | -4.5% | -3.8% |
Source: CMIE
Government expenditure is expected to pick up considerably in February and March 2024. However, strong revenue growth and disciplined spending are likely to keep fiscal deficit on course to achieve the FY24RE targeted deficit.
Retail inflation eases, likely to be rangebound in the near term: In January 2024, the Consumer Price Index (CPI) recorded a rate of 5.1%, which marked a decrease of 60 basis points compared to the previous month. The primary driver behind this decline was the reduction in year-on-year food inflation, primarily attributable to base effects. Specifically, inflation for cereals, edible oils, and fruits either eased or remained subdued compared to the previous month. However, inflation for pulses, spices, and vegetables remained relatively high. In addition to food, both core and housing inflation also moderated. A broad-based deceleration was observed in core inflation, particularly in categories such as housing goods and services, health, clothing and footwear, and recreation and amusements items.
| YoY, % | Dec-23 | Jan-24 | Change in % |
|---|---|---|---|
| CPI | 5.7 | 5.1 | -0.6 |
| Food & Beverages | 8.7 | 7.6 | -1.1 |
| Fuel and Light | -1.0 | -0.6 | 0.4 |
| Housing | 3.6 | 3.2 | -0.4 |
| Transportation & communication | 2.0 | 2.0 | -0.0 |
| Core CPI@ | 4.3 | 4.1 | -0.2 |
Source: CMIE; @-CPI excluding food, fuel, transportation & housing
It is expected that inflation will continue to decrease in the forthcoming months, propelled by favorable base effects, reduced pressure from input prices, sluggish core price momentum, and relatively stable food prices. Nonetheless, there is a risk stemming from the recent uptick in prices of certain vegetables, such as onions, which could exert upward pressure on the CPI.
Trade Deficit narrows further, likely to remain rangebound in the near term: Following a contraction in December 2023, the trade deficit continued to narrow in January 2024, primarily due to a decrease in net NONG imports. Additionally, sequential declines were observed in net gold imports, while net oil imports saw only a slight increase. The reduction in the NONG deficit was driven by declines in imports of electronics goods, machinery, metals, chemicals, and plastic materials. However, this was partially offset by decreases in exports of engineering goods, pharmaceuticals, and electronics goods.
| Amount in USD billion | Dec-23 | Jan-24 | Change |
|---|---|---|---|
| Trade Deficit / (Surplus) | 19.8 | 17.5 | -11.7% |
| Net Oil Imports | 8.1 | 8.4 | 3.6% |
| Net Gold^ Imports | 2.5 | 1.5 | -37.5% |
| Net NONG* imports | 9.3 | 7.6 | -18.1% |
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 a surge in exports from India and, thus the trade deficit is likely to be within a similar range in the upcoming months. However, the ongoing Red Sea conflict causing an increase in shipping time could potentially impact India's exports to certain regions, particularly Europe, thereby potentially worsening the trade deficit.
Commodity prices: Most industrial commodity prices remained subdued during the month as China’s growth continued to surprise on the downside. The risk of escalation in the Red Sea crisis and continuation of production cuts by OPEC+ members led to oil prices rising during the month.
| Market price (USD)* | Feb-24^ (%) | FYTD24& (%) | |
|---|---|---|---|
| Brent Crude (per barrel) | 83.6 | 2.3 | 4.8 |
| Gold (per ounce) | 2,044 | 0.2 | 3.8 |
| Steel (per tonne) | 565 | (0.9) | (13.7) |
| Zinc (per tonne) | 2,382 | (6.6) | (18.0) |
| Copper (per tonne) | 8,389 | (1.5) | (6.1) |
| Aluminium (per tonne) | 2,187 | (2.4) | (8.0) |
| Lead (per tonne) | 2,067 | (4.9) | (3.6) |
Source: Bloomberg; *Market prices as on February 29, 2024. ^M-o-M change. & - change during FY24
Summary and Conclusion
Global growth momentum displayed a mixed picture, with the US surpassing expectations while Europe and China faced downside surprises. The US economy exhibited robust growth and easing inflation, leading to growing consensus around the idea of a "soft landing." Conversely, the Eurozone experienced subdued economic activity marked by weak PMIs, weak consumer confidence, and tight monetary policies. China's economic recovery remained fragile, hampered by challenges in the real estate sector.
India's growth trajectory remains steady, buoyed by urban consumption and resilient industrial and service sectors. However, risks persist, notably from unpredictable rainfall patterns impacting crop yields and potentially disrupting rural recovery efforts. Government-led initiatives, including increased capital expenditure, support investment activity, while the real estate market shows resilience. Although private capital expenditure is somewhat restrained, favorable conditions such as low leverage, rising capacity utilization, consistent corporate profitability, and a strong banking sector balance sheet suggest potential for growth. The external sector appears robust, with expectations for improved current account performance and a continued surplus in the Balance of Payments.
Looking ahead, the medium-term outlook for the Indian economy remains positive, driven by factors such as a conducive policy environment, the benefits of Production-Linked Incentive schemes, opportunities stemming from shifts in the global supply chain, increased infrastructure spending, potential recovery in private sector investment, and the enduring strength of personal consumption.
