News Bulletin and Market Update 14/09/21

News Bulletin

▫️ Retail Inflation eased to 4 month low of 5.30% in August. This will cool pressure from RBI to curb liquidity (positive for market).

▫️Old dues to private power generation companies from distribution companies touched ₹49,000 crores and is a cause of concern.

▫️Jet Airways will again touch the sky in 2022, and has already hired 150 full time employees.

▫️ Govt may give approval to PLI scheme for auto industry. This will be the last and the biggest of the 13 PLI schemes. The scheme will be focused towards EVs (Tata Motors biggest beneficiary)

▫️ Lower covid count last week and approaching festive season, has put Indian economy on a fast lane.

▫️ Unemployment fell to lowest in 7 weeks for the week ended on Sep 12.

▫️Non-food credit grew fastest in over a year by 6.68% for the fortnight ended on Aug 27.

▫️Infy completed its ₹9,200 crore share buy back program at an average price of ₹1,648.53.

▫️ Vedanta Resources reduced its net debt by $300 million in 1H22 and further expects to reduce it by $500 in full FY22.

▫️TCS joined hands with NXP Semiconductor, to drive the latter’s digital IT services strategy.

▫️Top investors of Zee Entertainment seek removal of CEO Punit Goenka.

▫️BPCL is formulating export strategy for its petroleum products.

▫️Spice Jet to resume 737 flight from September end.

▫️SBI led bank consortium has asked govt to give more time to Voda Idea to clear their dues.

▫️ Infosys and Microsoft entered into agreement with Australia’s largest electricity distributor on east coast, to transform its digital platform.

▫️Eveready Industries expects to be debt free in 2 years.

▫️India may get exclusive right to sell Basmati in EU. (Stock to watch for: Dawaat)


▫️ Chinese tech companies fell sharply on Monday, after a fresh curb announced by Chinese government.

▫️China urges US to repair damaged ties between the two countries.

▫️ Aluminum prices for the first time in 13 years hit $3,000, amid supply disruption and strong demand.

▫️ India’s 10 year govt bond yield rose amid speculation that government may increase its borrowing in 2nd half of FY22.

Market Update

▫️The benchmark indices closed negative due to sell off in frontline heavyweight stocks.

▫️Sensex and Nifty ended in red at 58,178 (-0.22%) and 17,355 (-0.08%).

▫️ Broader markets performed well, with Advance Decline ratio of 935:870. Further, Midcap and Smallcap indices closed positive and outperformed benchmark indices.

▫️ Financial Services including Banking was the worst performing sector, while IT, Metal and Media out shined.

▫️Ruppee dived down 18 paise and closed weak at 73.68, due to strong dollar overseas and weak trend in domestic equity market. US inflation data today will determine the movement in dollar. Further, improvement in India’s inflation data which was released yesterday may provide some support to the local currency.

▫️Oil prices continued to move up due to lasting impact of Hurricane Ida on the US oil production. However, OPEC has trimmed it’s oil demand forecast for last quarter of the year, which can bring pressure on oil prices.

▫️ Gold prices remained stable and closed marginally lower. The yellow metal is awaiting the US Fed Policy Outcome next week, which will decide its movement.

▫️The number of covid Infections in US fell consistently last week and is 10% down from its peak.

▫️Taking cheer from this, US markets jumped and ended the day in green.

▫️ Today morning, US futures is trading in positive territory, complimented by positive opening of Asian markets.

▫️SGX Nifty is currently stable with a positive bias. Indian markets are expected to open gap up, taking cues from strong global markets and improved inflation data.

This is for educational purposes only.

Exports Elevating Elephant Economy

It’s an Eeee moment for the Indian economy, which depends substantially on exports for its growth and development. Historically, on an average exports contributed approximately 20.0% to the India’s GDP. Moreover, GDP and exports have a very strong positive correlation of 0.986 (based on the GDP and export date from 1960 to 2019). This essentially reflects that for Indian economy to prosper, its exports need to perform.

The Covid-19 pandemic has bought domestic consumption to its knees. Therefore, the dependence on exports to propel the economy has increased multi-fold. The US, China and the Europe, key markets for Indian exports have witnessed sharp economy recovery, thanks to the unprecedented fiscal stimulus and mass vaccination drive. As a result, Indian exports have sky rocketed in the recent months. India’s merchandise exports grew 67% in May’21 (YoY), it was also 8% higher than the pre pandemic level (May’19). While, service exports which has largely remain resilient grew by 6% in May’21. The tentative data for the first week of June, reflected that merchandise exports jumped by 52.4% between June 1-7. India’s merchandise exports have consistently been above $30.0 billion per month since Mar’21, and may achieve the ambitious target of $400.0 billion in FY22.

The government too, has realised the importance of exports and has not drifted away from providing full policy support to the exporters. By boosting exports, government could also revive the MSME sector, as MSME contributes 40% to the overall merchandise exports. Further, if exporters are bullish about foreign markets, then they could undertake higher investments and this may create a virtuous cycle of private investment led demand in the economy. This can partially compensate for the sluggish domestic demand.

In the recent monetary policy meeting, RBI also emphasised for liberal export policies, and urged government to take advantage of the rising external demand for Indian goods and services. The PLI scheme launched by the government is yet to show its results. Large number of companies have signed up for the scheme and we may see its effect during second half of the year. The Aatmanirbhar Bharat policy has slowly started to show it’s results, as their has been a significant surge in the export of machinery and IT equipment lately.

We believe that the Indian economy may throw a positive surprise, if it is able to sustain the current export growth trajectory, and a double digit GDP growth for FY22 may be a reality. The world may refrain from travelling to India, but they cannot abstain from using Indian goods and services.

Eeee!!!!

See you next time!!!

Bhartiya Economy!

All strange things are happening around the world currently. Gold and Stock markets which apparently have inverse correlation are moving north like best friends and there’s no halt, it seems. Amidst all this, another topic which is doing the rounds is the resurgence of the agriculture economy on the back of better than expected monsoon (India experienced the wettest June since 2013 according to the India Meteorological Department). One can also look at some of the agri-related stocks like Escorts, M&M, and Rallis India, to get a sense of investor’s optimism on this theme.
But, what’s perplexing, is that the Rural economy (popularly known as ‘BHARAT’) is going to revive the Indian Economy. This theory has gain prominence owing to data like tractor sales and motorcycle sales, which have been robust. Agreed, these are some encouraging signs, reflecting the drive in the rural economy, however here is a catch!!! Most of us assume that the rural economy is equivalent to agriculture, and hence believe that India’s growth story hinges on the revival of agricultural sector. But that shouldn’t be the case!


So, we have emulated some of the points to understand why BHARAT alone isn’t going to put back India onto the growth path.

  1. Rural is much more than Agri: In a note dated 20th July, Credit Suisse pointed out that the agriculture forms only c.29 per cent of the rural economy. The rest is the non-agricultural rural economy consisting of construction, manufacturing, financial services among others. In the last two decades, a bulk of new factories have come up in rural areas leading to job creation, and a gradual movement of people from agriculture to manufacturing, a more productive sector.
  2. MSME Conundrum: 50 per cent of the 63 million Micro, Small and Medium enterprises(MSMEs), which contribute to c.30 per cent of India’s GDP, are located in rural areas . That said, the pandemic has taken a heavy toll on their business, and banks, which were cautious of lending to them earlier, have become even more prudent. Moreover, out of the government’s 3 lakh crore package, 43 per cent of the total amount was SANCTIONED within the first 2 months of the announcement while disbursements as a proportion of total amount was only 27.35 per cent as on July 23.

Additionally, MSMEs play an important role in job creation in the rural areas owing to their widespread presence. However, as per Reserve Bank of India’s latest systemic risk survey, the MSME sector has been badly affected because of lack of cash flow, stuck working capital, lack of manpower, thereby affecting employment. The third national multi-institutional survey on MSMEs in India estimates that 25-30 million jobs had been lost in the MSME sector by the end of June 2020. It further estimates that another 10-15 million jobs will be lost by August.

  1. The tractor sales puzzle: Tractor sales in June was robust and was widely cited as a sign of rural recovery. There’s a saying “We shouldn’t judge the book by its cover unless we delve deep into it”. Same goes with the tractor sales. Traditionally, April to June is a tractor buying season and since April and May barely saw any sales due to the lockdown, June sales could just be a display of pent up demand. Also, one must acknowledge that tractors are too expensive for a normal farmer. In FY20, a little over 7 Lakh tractors were sold in India. Assuming an average tractor costs INR 5 Lakh, this amounts to around ₹35,000 crore. The size of the entire agriculture economy was at ₹32.6 trillion in FY20. At 1.07 per cent, tractors are an insignificant part of the overall agriculture economy and the increasing sales could mean that rich farmers are doing well. They don’t reflect the overall state of the rural economy.
  2. Spread of Coronavirus – Until now, it has been said that rural has been much better off than urban amidst the pandemic. However, post-June Covid-2019 is now spreading beyond India’s big cities to Tier-3/4 cities. And if it spreads deeper into rural areas, it could very well be a speed-breaker to the rural momentum. Moreover, different states have different medical infrastructure and thereby a limit to which they can manage the pandemic effectively, and with state finances in a dwindling situation, the government will have no other option than to reinforce local lockdowns.
  3. Declining share of agriculture – The share of agriculture in the total GDP of the country has been on a long term downtrend; falling from the peak of 42.77 per cent in1967 to 21.61 per cent in 2000 to 15.96 per cent in 2019.

From the aforementioned points, one must acknowledge the fact that BHARAT alone isn’t going to revive our economy,. Rather, it should be a combined effort of all the major sectors to restart India’s new growth phase. And, amongst all, Service sector would play a very dominant role because of its lion’s share in India’s GDP at 49.88 per cent in 2019, rising from 45.98 per cent in 2009.

Source: Livemint, statista.com, theglobaleconomy.com

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