In our previous newsletter dated 25 th March 2015, we looked at the regulatory requirements for two fund platforms - Alternative Investment Funds and Mutual Funds, and compared the same with the structure of IFMR FImpact Investment Fund. In this newsletter, we provide an update on the key macroeconomic indicators as part of our Macroeconomic Dashboard on the Indian Economy. Internal Sector Highlights The combined index of Eight Core Industries, which comprise nearly 3 of the weight of items included in the Index of Industrial Production (IIP), stands at 161.5 in February, 2015. This constitutes a year-onyear growth of 1., lowest since 16months. As per the revised (base=2011-12) series of national accounts, the growth rate of Gross Domestic Product (GDP) at market prices stood at 7.4 for Q3 of 2014-15. And the same is project to be at 7. for the year 2014-15 (advance estimates) Reserve Bank of India, in its bi-monthly policy meetings, reduced key rates under the liquidity adjustment facility by 25 basis points consecutively two times. Today, repo rate stands at 7. and reverse repo at 6. IIP for the month of January 2015 stood at 188.7, which is 2. higher as compared to the level in the same month of previous year Broad Money supply (M3) for 2014-15 (up to February 20, 2015) increased by 10. as compared to 13.1% during corresponding period of last year Annual Wholesale Price Inflation (WPI) for all commodities for the month of February 2015 decreased to (-) 2.1% from (-) 0. in January 2015. February 2015 marked the tenth consecutive month of decline in inflation, with WPI declining from 6. in May 2014 to -2.1% in February 2015. Consumer Price Inflation (CPI) (new base = 2012) for the month of February 2015 stood at 5. as compared to 5. in January 2015 All major inflation indices showed a decline in February 2015 with primary articles inflation at 1., fuel and power inflation at -14.7% and manufactured articles inflation at 0.3%. In primary articles, the largest decline was contributed by vegetables (month on month decline in prices of 12.1%), tea (month on month decline of -4.) and coffee (month on month decline of -1.3%). In the fuel and power segment, the largest decline was seen in light diesel oil (month on month decline of -16.), furnace oil (month on month decline of -14.), bitumen (month on month decline of -13.3%), and aviation turbine fuel (month on month decline of -12.9%). Primary articles and fuel/power contribute to 3 of the weight in WPI and acted as a significant drag for the overall index. The balance 6 of the index weight is contributed by manufactured products, where the year on year inflation has declined from 7.9% in February 2014 to 7.7% in February 2015.
Jan-12 Jan-12 Wholesale Price Inflation (Y o Y %) 2 10.0 1 5.0-1 0.0-2 -5.0 WPI - Primary Articles WPI - Manufactured Products WPI - Fuel,Power,Light & Lubricants WPI - Overall (RHS) Source: Office of Economic Affairs The Government of India has revised the base year for the calculation of consumer price index (CPI) from year 2010 to 2012. CPI as per revised series for the month of Feb 2015 stood at 119.7 as compared to 11 corresponding month previous year. And year-on-year inflation rate for the month of Feb 2015 is 5. as compared to 5. in the month of Jan 2015. This increase is CPI is contributed by meat and fish (month on month increase in prices of 1.1%), spices (month on month increase in prices of 1.1%), fuel and light (month on month increase in prices of 1.), and pan and tobacco products (month on month increase in prices of 1.). Consumer Price Inflation (Y o Y %) 2 1 1 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Food,Beverages & Tobacco Housing Miscellaneous Fuel & Light Clothing,bedding,Footware CPI - General (RHS) Source: MOSPI Note: Due to non-availability of revised CPI data, we are producing old series data till Dec 2014. With both the wholesale and consumer price inflation on a decline for more than two quarters and being within the control, the RBI has slashed its key policy rates by fifty basis points. It is mentioned in recenet monetary policy statement that uncertainties surrounding any inflation projection are, however, not insignificant. Strenghtening of oil prices due to unanticipated geo-political events and aggregate demand relative to available capacity may alter the inflation outlook. Given the scenario, the RBI s first bi-monthly monetary policy statement, 2015-16 would
Jan-12 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 significanlty involve keeping the inflation rate with in the target level rather than slashing the key policy rates further. With new GDP series in place, India s GDP recorded the highest growth of 8. in second quarter of 2014-15. However, the quarter-on-quarter GDP growth declined to 7. in third quarter of 2014-15. (Overview of new series and methodology for GDP computation is discussed here) RBI's Repo Rate (%) Real GDP growth (% YoY) 9% 7% 3% 1% Repo Reverse Repo 9% 7% 3% 1% 8.1 7.49% 7.4 7.0 6.41% 6.73% 6.51% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014 2015 Source: RBI (last date point March 27, 2015) Source: RBI Index of Industrial Production (IIP) for the month of January 2015 stood at 188.7, which is 2. higher as compared to the level of 184.0 in month of January 2014. There has been month-on-month positive growth recorded by capital goods, consumer goods, and basic goods. However, intermediated goods declined by -1.3% in January 2015 over its previous month. Manufacturing operating conditions in India continued to improve in February 2015, but at weakest pace. HSBC s PMI for Indian manufacturing stood at 51.2 down from 52.9 in January 2015. This is due to softening of growth of output and new orders, as well as decline in the employment levels. (a reading of above 50 in the PMI indicates an expansion while a reading below 50 indicates decline in manufacturing activity). Index of Industrial Production HSBC - PMI Manufacturing 1 - - 56 54 52 50 48 46 44 Source: MOSPI Source: HSBC
Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Feb-15 Mar-15 External Sector Highlights Indian Rupee continues to hover around the range of 62-63 per US dollar. Foreign exchange reserves continues its upward trend and provides sufficient cover for more than three times the short term external debt FII flows continued to play a major role and their investments declined for two months continuously to USD 3.5bn in March 2015 from USD 5.65bn in January 2015. FDI flows for the month of January 2015 stood at USD 4.6bn as compared to 2.3bn in December 2014. Current account deficit for the second quarter of 2015 rose to 2.0 percent as compared to 1.7 percent in first quarter of 2015. India s external debt stood at USD 461.9bn as on December 2014, an increase of 3.5 percent over the level at March 2014. Even though India have sufficient forex reserves, a strong selling activity from foreign portfolio investors coupled with strong FDI inflows led to some volatility in the Indian Rupee which is range bound between 62 and 63. Even though US dollar appreciated among other currencies, Indian Rupee was resilient to this. Foreign Exchange Reserves (USD bn) 350 340 330 320 310 300 290 280 270 INR-USD Exchange Rate (INR per USD) 65 64 63 62 61 60 59 58 Source: RBI (Last Data Point March 06, 2015) Source: RBI (Last Date Point is for March 19, 2015) Foreign investment, in terms of both portfolio flows (FPI) and direct investments (FDI), are in contrarian view with one being in buying activity and the other in selling. FII flows in to equity have marginally decreased from a USD 2.2bn in January 2015 to USD 2.0bn in March 2014, while FII flows in to debt have decreased from USD 3.4bn in January 2015 to USD 1.4bn in March 2015. But, FDI flows recorded its highest levels in January 2015, which is USD 4.6bn.
Q42013 Q12014 Q22014 Q32013 Q42014 Q12015 Q22015 Q32015* 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Apr-13 Jun-13 Aug-13 Oct-13 Feb-15 Apr-13 Jun-13 Aug-13 Oct-13 FII Flows into India (net, USD bn) 1.8 4.7-3.0-2.6 1.2 0.4 0.4 2.2 2.1 5.3 0.1 5.6 5.1 6.0 3.7 2.8 4.2 2.0 5.6 4.1 3.5 FDI Equity Flows into India (USD bn) 2.1 1.5 1.4 1.7 1.5 4.4 1.7 1.3 1.1 2.3 2.1 1.7 1.9 3.5 1.3 2.7 2.7 1.6 2.3 4.6-7.4 Source: SEBI (Monthly FII Investments) Source: DIPP On a quarter-over-quarter basis, India s current account deficit (CAD) narrowed to US$ 8.2 billion (1.5 per cent of GDP) in Q3 of 2014-15 from US$ 10.1 billion (2.0 per cent of GDP) in Q2 of 2014-15; and on a year-on-year basis, however, the CAD doubled (from US$ 4.2 billion or 0.9 per cent of GDP in Q3 of 2013-14). The rise in external debt was due to long-term debt such as commercial borrowings and NRI deposits. Long-term debt was placed at US$ 376.4bn at end-december 2014, reflecting an increase from 79. of total external debt at end-march 2014 to 81. at end-december 2014. However, Short-term debt stood at US$ 85.6bn at end- December 2014, accounted a decline of 6.7% over the level at end-march 2014. Current Account Deficit (% of GDP) External Debt (% of GDP) -3.9% -5.1% 3.7% Short Term 3.9% 3.7% 3.7% Long Term 5.1% 5. 4. 4.7% 4. 4. 4.3% -1. -0. -0.3% -1.7% -2. -1. 14.3% 16. 14. 14. 16.1% 16. 18. 18.7% 17.3% 18.1% 18.9% Source: RBI (* Preliminary data) Source: Ministry of Finance & RBI We hope you found this overview useful. We welcome your feedback and suggestions at contact.investments@ifmr.co.in