Market Review
The global economy continues to perform better than expected driven by strength in the US economy. IMF revised up its global growth forecast for CY24 to 3.1% (from 2.9%). The US GDP grew at an annualized pace of 3.3% in Q4CY23 led by resilient personal consumption. The US labour market continues to be tight with non-farm payroll coming in better than expected, unemployment rate low and wage growth elevated. However, the housing and manufacturing sectors remain under pressure on the back of elevated interest rates. Broad based weakness was visible in the Eurozone with manufacturing as well as the services sector decelerating. The tight monetary policy, low consumer confidence, extended war, slowing global trade, etc. continue to weigh on its growth. China’s economic conditions remain sanguine too with real estate weak and CPI in deflationary territory. However, manufacturing and infrastructure investments along with retail sales are holding up well. Chinese regulatory authority continued to rollout growth supportive measures such as further relaxation for housing sector, a higher than expected cut of 50 bps (consensus expectation: 25 bps) for its banks to improve liquidity, etc.
Inflation trended lower across major economies with both headline and core inflation so ening. The Core inflation, while still higher than pre-pandemic as well as target, the trajectory is comforting for Central banks in AEs. Consequently, majority of central banks, such as those of the US, UK, ECB, and Bank of Japan, opted to keep their monetary policy unchanged.
Interim Budget remains focused on fiscal consolidation: Surpassing the market expectations, central government announced fiscal deficit target of 5.1% of GDP in FY25 (FY24RE: 5.8%) and reiterated its commitment to bring down the same to below 4.5% by FY26. The fiscal assumptions appear to be realistic and credible. The assumed tax buoyancy of ~1.2x and ~1.1x for direct and indirect tax collections respectively is broadly in line with recent trends. Achievement of capital receipts is contingent upon successful divestment in key companies. The government aims to maintain a tight leash on revenue spending (~3.2% growth YoY) and continue its thrust on capex (growth of 16.9% over RE).
| INR trillion | FY23 Actual | FY24RE | FY25BE | FY24RE over FY23 Actual | FY25BE over FY24RE |
|---|---|---|---|---|---|
| Gross tax collection | 30.5 | 34.4 | 38.3 | 12.5% | 11.5% |
| Total Direct Tax | 16.7 | 19.6 | 22.1 | 17.1% | 13.0% |
| Corporate Tax | 8.3 | 9.2 | 10.4 | 11.7% | 13.0% |
| Personal Income Tax | 8.5 | 10.4 | 11.7 | 22.3% | 13.0% |
| Total Indirect Tax | 13.8 | 14.8 | 16.2 | 7.1% | 9.4% |
| GST | 8.5 | 9.6 | 10.7 | 12.7% | 11.6% |
| Less: Share of States and others | 9.6 | 11.1 | 12.3 | 16.4% | 10.4% |
| Net Tax collection | 21.0 | 23.2 | 26.0 | 10.8% | 11.9% |
| Non-Tax Revenue | 2.9 | 3.8 | 4.0 | 31.7% | 6.4% |
| Total Revenue Receipts | 23.8 | 27.0 | 30.0 | 13.3% | 11.2% |
| Capital Receipts | 0.7 | 0.6 | 0.8 | -22.4% | 41.1% |
| Divestments | 0.5 | 0.3 | 0.5 | -34.8% | 66.7% |
| Total Receipts | 24.6 | 27.6 | 30.8 | 12.2% | 11.8% |
| Revenue Expenditures | 34.5 | 35.4 | 36.5 | 2.5% | 3.2% |
| Capital Expenditures | 7.4 | 9.5 | 11.1 | 28.4% | 16.9% |
| Total Expenditures | 41.9 | 44.9 | 47.7 | 7.1% | 6.1% |
| Gross Fiscal Deficit | -17.4 | -17.3 | -16.9 | -0.2% | -2.8% |
| Fiscal Deficit as % of GDP | -6.4% | -5.8% | -5.1% |
Indian economic activity holding up well: India's growth momentum remains steady reflected in buoyant performance of most high frequency indicators. PMIs, digital spending, GST collections, 2W and 4W registrations, power demand, railway goods movement, etc. grew at a robust pace. Furthermore, rebound was visible in tractor sales and unemployment eased from the peak. However, some moderation was visible in CV sales.
| Indicators | Units | Apr-23 | May-23 | Jun-23 | Jul-23 | Aug-23 | Sep-23 | Oct-23 | Nov-23 | Dec-23 | Jan-24 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Retail registration - Auto@ | |||||||||||
| 2W | YoY, % | -7.0 | 9.6 | 7.1 | 8.5 | 6.6 | 21.9 | -12.6 | 21.5 | 27.5 | 15.0 |
| PV | 0.6 | 6.3 | 6.6 | 5.7 | 8.3 | 19.0 | -2.0 | 19.7 | 2.1 | 13.3 | |
| MHCV | 10.3 | 11.0 | 0.9 | 5.4 | 8.1 | 7.7 | 17.9 | -2.0 | -0.4 | -1.0 | |
| LCV | -4.4 | 2.4 | -4.7 | -5.4 | -1.3 | -3.3 | 2.4 | -9.1 | -4.4 | -6.4 | |
| Tractors | 1.8 | 10.3 | 43.1 | 25.1 | 16.5 | -7.3 | 3.5 | -22.3 | 1.4 | 24.0 | |
| Gross GST Collection | 11.6 | 11.5 | 11.7 | 10.8 | 10.8 | 10.2 | 13.4 | 15.1 | 10.3 | 10.4 | |
| Average E-Way bill generated | 12.2 | 19.7 | 15.5 | 16.4 | 19.5 | 9.5 | 30.5 | 8.5 | 13.2 | NA | |
| Power demand | -1.8 | -0.4 | 4.3 | 8.0 | 16.3 | 10.3 | 20.9 | 6.1 | 1.6 | 6.1 | |
| Digital Spending& | 35.0 | 34.9 | 34.2 | 35.7 | 37.7 | 32.8 | 34.4 | 38.3 | 35.3 | 35.5 | |
| Railway Freight Tonnage | 3.5 | 1.9 | -1.9 | 1.5 | 6.4 | 6.8 | 8.5 | 4.3 | 6.4 | 6.4 | |
| Railway Freight Earnings | 6.8 | 4.0 | -1.0 | 3.2 | 2.7 | 5.1 | 6.6 | 3.8 | 3.6 | 4.1 | |
| Manufacturing PMI^ | Index | 57.2 | 58.7 | 57.8 | 57.7 | 58.6 | 57.5 | 55.5 | 56.0 | 54.9 | 56.5 |
| Services PMI^ | Index | 62.0 | 61.2 | 58.5 | 62.3 | 60.1 | 61.0 | 58.4 | 56.9 | 59.0 | 61.8 |
| Unemployment | % | 8.5 | 7.6 | 8.5 | 7.9 | 8.1 | 7.0 | 9.4 | 8.9 | 8.7 | 6.8 |
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 trajectory is expected to be stable supported by strong industrial as well as services activity and consumption. Nevertheless, the adverse impact of spatial and temporal distribution of the monsoon on crop yields could potentially dampen rural consumption.
Retail inflation flat, likely to inch lower in the near term: CPI remained largely unchanged in December 2023 as the impact of higher food inflation was offset by lower core inflation. Food inflation picked up with an increase in vegetable prices along with elevated cereal, fruits, pulses and spices inflation. However, core inflation moderated on the back of a favourable base and continuing so momentum. The correction in commodity prices over the past few months is keeping the input price pressure under check.
The prices of key vegetables like tomato, onion, potatoes, etc. have moderated in recent months and are likely to push headline inflation lower. Core inflation is likely to remain rangebound as momentum remains subdued. Thus, overall inflation is expected to ease in the coming months.
| YoY, % | Nov-23 | Dec-23 | Change in % |
|---|---|---|---|
| CPI | 5.6 | 5.7 | 0.1 |
| Food & Beverages | 8.0 | 8.7 | 0.7 |
| Fuel and Light | -0.8 | -1.0 | -0.2 |
| Housing | 3.6 | 3.6 | 0.1 |
| Transportation & communication | 2.1 | 2.0 | -0.1 |
| Core CPI@ | 4.8 | 4.3 | -0.5 |
Source: CMIE; @-CPI excluding food, fuel, transportation & housing
Trade Deficit eases, likely to remain rangebound in the near term: Trade deficit narrowed sequentially in December 2023 driven by an improvement in net NONG imports. This was partially offset by higher net oil and gold imports. The reduction in NONG deficit was led by an increase in exports of engineering goods, chemicals, rice and garments. This was partly counterbalanced by higher imports of electronics goods, machinery, fertilisers, etc.
The Q4 of the financial year is a seasonally strong quarter for exports in India, thus, the trade deficit should narrow in coming months. However, given the rise in shipping time due to the Red Sea conflict, India's exports to select geographies especially Europe, might get impacted.
| Amount in USD billion | Nov-23 | Dec-23 | Change |
|---|---|---|---|
| Trade Deficit / (Surplus) | 20.6 | 19.8 | -3.8% |
| Net Oil Imports | 7.5 | 8.1 | 8.2% |
| Net Gold^ Imports | 2.1 | 2.5 | 15.7% |
| NONG* net imports | 11.0 | 9.3 | -15.7% |
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
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 led to oil prices rising during the month.
| Market price (USD)* | Jan-24^ (%) | FYTD24& (%) | |
|---|---|---|---|
| Brent Crude (per barrel) | 81.7 | 6.1 | 2.4 |
| Gold (per ounce) | 2,040 | (1.1) | 3.6 |
| Steel (per tonne) | 570 | 0.9 | (13.0) |
| Zinc (per tonne) | 2,552 | (3.4) | (12.2) |
| Copper (per tonne) | 8,513 | 0.4 | (4.7) |
| Aluminium (per tonne) | 2,241 | (4.4) | (5.7) |
| Lead (per tonne) | 2,173 | 7.0 | 1.3 |
Source: Bloomberg; *Market prices as on January 31, 2024. ^M-o-M change. & - change during FY24
Summary and Conclusion:
Global growth momentum witnessed a divergent trend with the US economic activity beating expectations while Europe and China surprised on the downside. Given healthy growth in the US and easing inflation, the narrative of “so landing” is increasingly becoming consensus. Eurozone economic activity remains subdued with weak PMIs, low consumer confidence and a tight monetary policy. Chinese economic recovery remains fragile with real estate woes weighing on growth.
India's growth momentum is holding steady and is poised to continue, driven by urban consumption and a resilient industrial and services sector. However, there are risks to this outlook, particularly the potential impact of erratic rainfall patterns on Kharif crop yields, which could disrupt rural recovery efforts. Investment activity is being supported by both central and state governments, with front-loaded capital expenditure spending, while household real estate activity continues to show resilience. Although private capital expenditure remains somewhat subdued, there is potential for it to pick up given conducive conditions such as low leverage, increasing capacity utilization, steady corporate profitability, and the robust balance sheet of the banking sector. The external sector is comfortably placed, with expectations for an improved year-on-year current account performance and the Balance of Payments (BoP) likely to remain in surplus.
Looking ahead over the medium term, outlook for the Indian economy remains optimistic. This is driven by several factors, including the favourable policy environment, the positive effects of Production-Linked Incentive (PLI) schemes, opportunities arising from the global supply chain's shi , the government's emphasis on infrastructure spending, the potential for a recovery in private sector capital expenditure, and the resilience of personal consumption, among others.
