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Government Expands Capex, Keeps Deficit in Check
Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 20, 2024

Government Expands Capex, Keeps Deficit in Check

Government Expands Capex, Keeps Deficit in Check

As of July 24, 2024, the central government’s fiscal deficit has decreased to ₹1.41 lakh crore, down from ₹1.54 lakh crore in the same period last year. This positive trend reflects the government’s ongoing commitment to fiscal prudence and responsible economic management.

This reduction in fiscal deficit to two primary factors: a moderate growth in tax revenues and controlled government spending, according to a recent analysis by financial services firm Anand Rathi. The fiscal deficit for April-July 2024 was at ₹2.8 lakh crore, representing 17.2% of the annual target, indicating better budget control than the previous year. This marks a significant improvement from the previous year when the deficit had reached ₹6.1 lakh crore during the same period.

Interestingly, government expenditure during these initial months has been more restrained compared to the previous year. Capital expenditure, in particular, has seen a notable decrease of 17.6% year-on-year. This cautious approach to spending suggests that the government is carefully balancing its growth initiatives with fiscal responsibility.

Personal income tax collections have been a notable strength in the current financial environment, demonstrating resilience and outperforming expectations. As the deadline for annual tax returns approached in July 2024, these collections surged by an impressive 64% compared to the same month last year. This strong showing has resulted in personal income tax revenues reaching 33% of the budgeted target for the fiscal year 2024-25, indicating a healthy pace of collection.

The corporate tax situation is more nuanced and multifaceted compared to other areas of tax revenue. After briefly showing signs of recovery in June 2024, corporate tax collections have once again turned negative. This fluctuation is partly attributed to ongoing tax refunds, which have impacted the net collection figures. The volatility in corporate tax revenues highlights the challenges faced by businesses and the need for continued economic support and reforms.

On a more positive note, indirect tax collections have shown improvement, particularly in the realm of customs duties. Customs duty collections have significantly rose, posting a 29% increase compared to the same period last year. This increase could be indicative of recovering international trade volumes or changes in import patterns.

While divestment receipts have remained stagnant, suggesting potential challenges in the government’s asset monetization plans, there’s been a substantial boost in non-tax revenues. These have surged by 70% year-on-year, providing a welcome cushion to the government’s overall revenue position. This increase in non-tax revenues could be attributed to various factors such as dividends from public sector enterprises, fees, and other miscellaneous sources.

Government expenditure for the initial quarter of the fiscal year has reached 27% of the annual budget allocation, indicating a gradual recovery in spending patterns. This figure provides insight into the pace of government expenditure and its alignment with annual budgetary plans. July 2024 saw a mixed picture, with monthly revenue expenditure decreasing by 14% year-on-year, while capital expenditure rebounded strongly with a 108% year-on-year growth.

Despite this recent rebound in capital spending, it’s important to note that overall capital expenditure for the first four months of the fiscal year remains 18% lower than the previous year. This slower pace of capital spending can be partially attributed to the implementation of the model code of conduct during the first two months of the year, coinciding with the general elections. The subsequent recovery in spending after the elections has been limited, as the government awaited the full-year budget announcement.

The government expenditure is expected to accelerate in the coming months. This anticipated increase is likely to be triggered by the release of funds following the Parliament’s approval of the finance bill. As budgetary allocations are formalized and disbursed, we can expect to see a pickup in both developmental and welfare spending.

A significant boost to the government’s fiscal position has come from an unexpected quarter – the Reserve Bank of India (RBI). The government’s finances received a significant boost from the central bank’s unprecedented dividend payment, which amounted to ₹2.11 lakh crore. This windfall, combined with the strong performance of personal income tax collections, has created a more favorable fiscal environment. These positive developments may help offset potential shortfalls in other areas, particularly in divestment collections, which have yet to gain significant momentum this fiscal year.

The government’s ability to maintain this balance between fiscal prudence and necessary expenditure will be key to supporting India’s economic growth trajectory. Factors such as global economic conditions, domestic consumption patterns, and the pace of structural reforms will all play important roles in shaping the fiscal outcomes for the remainder of the year.

In conclusion, the latest fiscal data presents a picture of cautious optimism. While challenges remain, particularly in areas like corporate tax collections and divestment proceeds, the overall trend suggests that the government is making strides in its fiscal consolidation efforts. The coming months will be critical in determining whether this positive momentum can be sustained and translated into long-term economic benefits for the nation.

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India's Manufacturing Growth Slows in August, PMI Hits 3-Month Low at 57
Business, Equities, Market News, Markets - September 16, 2024

India's Manufacturing Growth Slows in August, PMI Hits 3-Month Low at 57

India’s Manufacturing Growth Slows in August, PMI Hits 3-Month Low at 57

In August, companies reported weaker growth in output and new orders, which brought the expansion of India’s manufacturing sector to a three-month low. According to HSBC’s most recent data, which was made published on Monday, the Purchasing Managers’ Index (PMI) fell from 58.1 in July to 57.5 in August. Even if the sector’s growth is still good, this fall signals that it is losing some of its movement. Increase is indicated by an index number higher than 50.

Softer Growth in New Orders and Output: The August report makes clear that the rate of growth in new business and production for Indian manufacturers decreased. When compared to historical averages, the expansion rates are still substantial despite this slowdown. The poll indicates that while companies are still growing, the rate of growth has slowed. Some businesses have blamed the slower pace on intense competition, which has been linked to this in part. Regarding output, although production levels remained elevated, the growth rate decelerated to its lowest point since January of this year. While demand wasn’t as high as it had been in prior months, some businesses pointed out that technological investments and increased sales volumes helped maintain production levels.

Impact on the International Market and Reduced Demand: According to the poll, the two main measures of demand output and new orders reached their lowest points in seven months. While still healthy overall, international demand grew at its slowest rate since January. This implies that although the industry is still growing, it is not doing so as quickly as it formerly did on a national and worldwide level.

Focussing on the current situation, HSBC Chief India Economist Pranjul Bhandari noted that output and new order patterns closely followed the PMI’s overall trend. According to Bhandari, the industry is still performing well by historical standards, but several companies blamed the decline on intense competition.

Price inflation remains despite easing cost pressures: A moderating of cost pressures was one of the report’s good observations from August. The rate of inflation for input prices decreased to its lowest level in five months, enabling businesses to expand their purchasing. The rapid inflation of output prices faced by manufacturers persisted, almost matching the 11-year peak reached in July, even with the slower increase in expenses. This indicates that, mainly as a result of consistently high demand, businesses were still charging more to their customers even if it was cheaper for them to create the items.

Although there was an obvious decrease in input costs, Bhandari clarified that the inflation of output prices slowed down considerably less sharply. Because of this, producers were able to raise their profit margins by charging customers for extra expenses.

Effect on the RBI’s Interest Rate Outlook and Employment: According to the poll, employment growth in the manufacturing sector has slowed for the past two months. In spite of this, businesses kept adding new employees for the sixth consecutive month, propelled by high demand and hope for the future of their businesses. Nonetheless, when several businesses lowered their headcounts at the middle of the second fiscal quarter, the labour market appeared to be tightening.

The main cause of India’s July inflation rate drop, which was nearly five years below the previous record of 3.54%, was a substantial base impact.  Due to the decline in inflation, economists forecast that the Reserve Bank of India (RBI) would cut interest rates by 25 basis points in the upcoming quarter. A rate reduction is anticipated to contribute to economic stimulation and partially overcome the manufacturing sector decline.

Prospects for the Manufacturing Industry in the Long Run: Considering the difficulties encountered in August, the Indian manufacturing sector has grown for 38 months running since July 2021. The industry is still growing, but there are underlying issues that need to be resolved, as seen by the PMI’s drop from the flash estimate of 57.9 to 57.5.

Softer demand, increased competition, and rapid price inflation all point to the reality that manufacturers will face challenging conditions in the months to come. But with the possibility of an RBI rate decrease as well as ongoing investments in efficiency and technology, the industry might be able to maintain growth even in more difficult economic times.

In summary, the development trajectory of the Indian manufacturing sector has slowed, but it is still growing. The months ahead will be critical as businesses adapt to shifting market conditions and authorities think through ways to encourage sustained economic growth.

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Sugar Industry Fears New Norms May Stifle Growth and Innovation

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Global Rate Cuts and its Implication’s on Indian Markets
Business, Equities, Market News, Markets - August 26, 2024

Global Rate Cuts and its Implication’s on Indian Markets

Global Rate Cuts and its Implication’s on Indian Markets

The Indian stock markets are on the brink of significant gains as global central banks are expected to initiate a cycle of rate cuts. This optimistic outlook is driven by a convergence of favorable domestic and international factors, including robust economic growth, a stable political environment, and, most notably, the anticipated easing of monetary policy across major economies. As global financial markets brace for lower interest rates, India’s equity markets are likely to be among the key beneficiaries.

After years of strict monetary policies meant to contain inflation, central banks all over the world are indicating rate decreases, which is a significant change in the global economy. The main causes of this change in attitude among investors are the economy’s slowing growth, ongoing inflationary pressures, and geopolitical unpredictability.

Interest rate cuts are a tool used by central banks to encourage borrowing and investment. By lowering the cost of borrowing, central banks aim to stimulate economic activity, increase consumer spending, and ultimately drive economic growth. The expectation is that lower interest rates will lead to increased investment by businesses, more spending by consumers, and, consequently, higher demand for goods and services.

The transfer of capital across national boundaries is one of the most direct consequences of global rate reduction. Investors frequently look for better returns in developing markets when interest rates in established economies decrease, which increases capital inflows into nations like India. When foreign investors buy Indian bonds and stocks, asset values rise and stock markets benefit.

For emerging markets like India, lower global interest rates are a boon. Rising capital flows into developing countries are usually the consequence of rate reductions in developed economies, as investors seek greater profits.
India, with its strong economic fundamentals and attractive growth prospects, is well-positioned to attract a significant share of these inflows. This influx of foreign capital is expected to provide a substantial boost to Indian equity markets, driving up stock prices and enhancing market liquidity.

Investor sentiment in India has been increasingly bullish, driven by a confluence of factors. The consistent performance of Indian equities, particularly in sectors like technology, pharmaceuticals, and consumer goods, has instilled confidence among both domestic and international investors.
Many Indian companies have reported better-than-expected quarterly results, reflecting robust demand and effective cost management. This trend is expected to continue, especially in sectors that are poised to benefit from global rate cuts, such as real estate, infrastructure, and financial services.

While global rate cuts can provide short-term boosts to the Indian economy through increased capital inflows and stock market rallies, there are long-term implications to consider. For instance, excessive dependence on foreign capital can make the Indian economy vulnerable to external shocks. If global investors suddenly withdraw their investments due to changes in global monetary conditions, it could lead to a sharp correction in Indian markets, potentially destabilizing the economy.

While the outlook for Indian stock markets is largely positive, investors should remain cautious of potential risks and challenges. Global economic conditions, while improving, remain fragile. Any unexpected developments, such as a sudden escalation in geopolitical tensions or a resurgence of inflationary pressures, could disrupt financial markets and dampen investor confidence.
While global rate cuts are expected to benefit Indian markets, they could also lead to increased volatility. Rapid inflows of foreign capital, while beneficial in the short term, could create asset bubbles if not managed carefully.

In conclusion, Rate reductions throughout the world have mixed effects on the Indian economy. They can have short-term advantages like capital inflows, stock market gains, and the possibility of domestic rate reduction, but they can also have drawbacks like instability in the currency, inflationary pressures, and susceptibility to outside shocks. India has to be cautious about the dangers and maintain a balanced approach in order to take advantage of the possibilities presented by the global rate decreases. To guarantee sustained economic growth, India’s authorities must continue to be proactive in regulating these dynamics as the world’s monetary circumstances change.

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Nykaa’s Innovation and Expansion Fuel Impressive Q1FY25 Results

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Anticipation Grows as Experts Suggest Bank Privatization Unlikely in Upcoming Union Budget Vote on Account
Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - December 8, 2023

RBI Charts Course for Sustainable Growth: Inflation Control as the Key

RBI Charts Course for Sustainable Growth: Inflation Control as the Key

Introduction:

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) conducted its review on December 2023-2024, assessing both global and domestic economic conditions. The committee made decisions pertaining to key interest rates and provided insights into the outlook for the economy.

KEY DECISIONS:

In response to the prevailing and evolving macroeconomic conditions, the Monetary Policy Committee (MPC) convened on December 8, 2023, and arrived at several key decisions. The committee opted to maintain the policy repo rate at 6.50 percent within the liquidity adjustment facility (LAF). Additionally, the standing deposit facility (SDF) rate was held steady at 6.25 percent, while both the marginal standing facility (MSF) rate and the Bank Rate remained unchanged at 6.75 percent.

The MPC’s strategic focus is on gradually eliminating accommodation to ensure that inflation steadily approaches the set target. At the same time, the committee intends to offer the essential assistance for economic growth. These actions are consistent with the broader goal of meeting the medium-term target for Consumer Price Index (CPI) inflation, which is set at 4% within a +/-2% band, and thereby contributing to the development of sustainable growth.

GLOBAL ECONOMIC LANDSCAPE:

1. Global Growth: The committee acknowledged a varied deceleration in global growth among economies.
2. Inflation: Global inflation showed a downward trend but remained above target levels, with persistent underlying inflationary pressures.
3. Market Sentiments: Positive developments were noted since the previous MPC meeting, marked by declining sovereign bond yields, US dollar depreciation, and strengthened global equity markets. However, emerging market economies faced ongoing challenges with volatile capital flows.

DOMESTIC ECONOMIC OVERVIEW:

1. Economic Resilience: The domestic economy demonstrated resilience, evidenced by a robust 7.6 percent year-on-year growth in real GDP in Q2:2023-24. This growth was supported by strong investment and government consumption, mitigating the impact of net external demand.
2. Prospects for Consumption and Investment: Continued strength in manufacturing, buoyant construction, and a gradual rural sector recovery are anticipated to brighten household consumption prospects. Healthy balance sheets of banks and corporates, normalized supply chains, and rising public and private capital expenditure are expected to bolster future investments.
3. GDP Growth Projection: Taking into account various factors, the MPC projected real GDP growth for 2023-24 at 7.0 percent, with Q3 at 6.5 percent and Q4 at 6.0 percent. Projections for Q1:2024-25 are 6.7 percent, Q2 at 6.5 percent, and Q3 at 6.4 percent, with risks evenly balanced.

INFLATION OUTLOOK:

1. CPI Inflation: Headline inflation fell to 4.9 percent in October 2023 due to corrections in vegetable prices, fuel deflation, and broad-based moderation in core inflation. Risks include uncertainties in food prices, base effects, and volatile crude oil prices.
2. Inflation Projection: CPI inflation is projected at 5.4 percent for 2023-24, with Q3 at 5.6 percent and Q4 at 5.2 percent. Q1:2024-25 is expected at 5.2 percent, Q2 at 4.0 percent, and Q3 at 4.7 percent, with risks evenly balanced.

MPC DECISIONS AND RESOLUTIONS:

1. Policy Rates: The MPC unanimously voted to keep the policy repo rate unchanged at 6.50 percent.
2. Focus on Inflation Alignment: The majority of the MPC expressed commitment to withdrawing accommodation to align inflation progressively to the target while supporting growth. One member, Prof. Jayanth R. Varma, expressed reservations on this aspect.

FORWARD GUIDANCE:

The MPC emphasized the need for sustained disinflation, monitoring food price pressures, and remaining vigilant to potential challenges in crude oil prices and financial markets. The current policy stance is actively disinflationary, with preparedness for timely policy actions if warranted.

CONCLUSION:

In conclusion, the RBI’s Monetary Policy Review for December 23-24 reflects a cautious approach, balancing the need for inflation control with support for economic growth amidst a dynamic global and domestic environment.

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Beyond boundaries: G20 Influence elevates Indian markets to new peaks

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