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THIS WEEK'S HIGHLIGHTS

The current week was heavy on data releases that mostly pointed to positive developments in the economy: i) India recorded its 2 nd largest balance of payments surplus in 1QFY22, ii) manufacturing PMI in Sep’21 saw an uptick, iii) Sep’21 GST collections recorded a stronger 2- year CAGR, and iv) non-food credit growth by SCBs in Aug’21 picked up by c.50bps to 6.7% YoY. However, the all-time high preliminary trade deficit for Sep’21 at USD 22.9bn raised eyebrows, with almost flat exports MoM but 18% surge in imports vs. Aug’21.

On the fiscal front, i) Centre’s spending exhibited a step-up in Aug’21 after the 2-digit contraction in Jul’21, ii) the Union govt. announced its 2HFY22 borrowing programme that hinted at broadly meeting its FY22 fiscal deficit target of 6.8% in FY22, and iii) the Cabinet approved the stockmarket listing of ECGC Ltd. via an initial public offering.

Other highlights of the week included- i) hike in natural gas prices by 62%, ii) unchanged small savings scheme rates in 3QFY22, iii) likely conclusion of India-Australia free trade agreement by end of 2022, and iii) launch of Swachch Bharat Mission Urban 2.0 and AMRUT 2.0. Globally- i) US bond yields came off to 1.47% after crossing 1.55% for the first time since Jun’21, ii) China’s Evergrande reportedly missed its 2 nd offshore bond payment, and iii) power shortages in China widened.

Meanwhile, i) forex reserves moderated further to USD 638.6bn on 24Sep’21 vs. the record highs of USD 642.5bn on 3Sep’21, ii) the INR weakened to 74.12/USD vs. 73.7 last week, and iii) Brent Crude rose to USD 78.8/bbl, the highest since Oct-18. In the coming week, we eagerly look forward to the RBI monetary policy especially amid the recent surge in energy prices, FED’s latest commentary on tapering and existing surplus banking system liquidity.

MACROECONOMIC INDICATORS

* S&P has retained India's real GDP growth projection at 9.5% for 2021-22. However, S&P has cautioned against the impact of fasterthan-expected tapering, as monetary policy in India remains highly accommodative with real interest rates in negative territory.

* Centre’s cumulative fiscal deficit until Aug’21 stood at 31% of the budgeted deficit (2.1% of BE GDP) vs. 109% last year (4.4% of GDP) due to better receipts realisation (41% of BE vs. 17% last year), relative to lower expenditure realisation (37% of BE vs. 41% last year). Centre’s FYTD22 receipts stand 2.1x of last year; 14% on a 2-year basis.

* Total expenditure spending picked up 41%YoY in Aug’21 taking the FYTD22 spending growth ex-interest payments to -1.2% YoY, and capex growth to 28% YoY.

* Manufacturing PMI in Sep’21 rose to 53.7 from 52.3 in Aug’21: i) raw material purchase continued in light of the rising sales, ii) there was little change to manufacturing sector employment, iv) rising fuel, raw material and transportation prices pushed the overall rate of input cost inflation to a five-month high, and v) output prices increased at a slower and only moderate rate.

* GST collections in Sep’21 stood at INR 1.17trn, higher than- i) INR 1.12trn in Aug’21, and ii) INR 955bn in Sep’20. On a 2-yr basis, collections grew 12.8%, with domestic collections expanding 12.1% and import GST growing by 15%. The Centre has also released GST compensation worth INR 220bn to States to meet their GST revenue gap

* According to preliminary data, India’s merchandise trade deficit stood at USD 22.9bn, the highest ever vs. i) USD 13.8bn in Aug’21, and ii) 2.9bn in Sep’20. Exports climbed 21%YoY in Sep’21, while imports grew 85% to USD 56.38 bn.

* Outstanding non-food credit growth by scheduled commercial banks improved to 6.7%YoY by end Aug’21 vs. 6.2% in Jul21- i) Industry grew by 2.3%YoY, up 1ppt than Jul’21, ii) services sector too improved to 3.5% vs. 2.7% until Jul’21, iii) personal loans expanded 12.1%YoY akin to last month, and iv) agricultural loans, rose 11.3YoY.

* Core industries index rose by 11.6%YoY in Aug’21 vs. the contraction of 6.9%YoY in Aug’20, as all industries’ output expect crude oil and fertilizers expanded.

* India recorded its 2 nd highest balance of payments surplus in 1QFY22 worth USD 31.9bn. The current account surplus stood at USD 6.5bn (0.9% of GDP) as against a i) deficit of USD 8.1bn (1.0% of GDP) in 4QFY21, and ii) surplus of USD 19.1bn (3.7% of GDP) in 1QFY21. This was driven contraction in trade deficit and increase in net services receipts. Private transfers (mainly remittances) grew 15% YoY.

* On the financial account, i) net FDI inflow stood at USD 11.9bn vs. USD 0.5bn outflow last year, ii) net FPI was USD 0.4bn, lower than USD 0.6bn in 1QFY21, and iii) net external commercial borrowings recorded inflow of USD 0.5bn vs. USD 0.6bn outflow last year. Overall, there was an accretion of USD 31.9bn to forex reserves vs. USD 19.8bn in 1QFY21.

* India's external debt rose by 2.9% YoY to USD 571.3bn by end Jun’21. Long-term debt increased by 4.1% to USD 468.8bn, while short-term debt fell 2.4% to USD 102.5bn.

* The Central govt's public debt increased by 8.2% to INR 110.8trn as of 30Jun’21 vs. INR 102.4trn as on 31Mar’21.

* India’s total coronavirus cases rose to 33.8mn on 1Oct’21 vs. 33.6mn on 24Sep’21. About 890mn Covid-19 vaccine doses have been administered in India as on 1Oct’21 (47% of population with at least 1 st dose).

* Brent Crude rose to USD 78.8/bbl vs. USD 77.7/bbl last week.

* The INR closed at INR 74.12/USD vs. 73.7/USD last week.  Forex reserves stood at USD 638.6bn on 24Sep’21 vs. i) USD 639.6bn on 17Sep’21; and ii) record highs of USD 642.5bn on 3Sep’21.

* Net market borrowings of the Centre and States stood at INR 5,321bn and INR 2,188bn respectively as on 24Sep’21 (vs. INR 6,054bn and INR 2,725bn respectively, last year).

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