DSP TATHYA - February 2024

Consumer sentiment index dropped for the first time, after showing a consistent rise for a year. There seems to be a significant recovery in the sale of passenger cars, after having suffered a major dip in the delayed festive season of 2023. The rural wage growth, however, comes in as a major disappointment, and coupled with a rising food inflation, it only makes it worse.

The lowest CPI core inflation recorded is 3.44% in Oct'19. The latest reading is only a few bps away from this low. The constant drag in the core number also speaks of a slowing consumption economy, indicating a normalization of post-covid demand rush.

The slowed production does validate the subdued demand. For the past few months, the IIP number was being defended around high bases or lower production days due to festive season. However, with these factors no longer in play, the new year did not bring positive changes. Input prices are still decreasing due to lower oil prices, which may eventually lead to lower commodity prices.

The services trade surplus recorded a new high of USD16.8 Bn. With no surprise, therefore, Services PMI also recorded an uptick, on the back of resilient US economy. The overall economic activity remains decent, though some are at a disadvantage of a very high base.

Credit to deposit shows marked strength, while money supply also made a decent rise. With RBI fixating on hiked interest rates to curtail inflation, the yields might hover in the current range for quite some time.

On fiscal front, considering elections are underway, there was not a significant uptick in revenue expenditure, establishing an average on 2.6Tr, similar to that of 2023, a non-election year.

Despite dollar depreciating, INR’s appreciation has been rather muted. A moderation in trade balance is helped by a significant rise in the services surplus.

Debt investments from FIIs and ECBs have seen a notable uptick, attributed to India's inclusion in Bloomberg EM index after JP Morgan Bond Index. There has been greater traction towards managed money, thus, a significant rise in MFs and SIP books.