Macroscope Archives - fisdom

Macroscope – Purchasing Managers’ Index (PMI) Services PMI for the month February 2021

What is the latest Services PMI reading?

India Services PMI increased to 55.3 in February from 52.8 in January, growing at its fastest pace in over a year. Growing for 5 months in a row, survey credited the uptick to improved demand and more favorable market conditions.

A reading above 50 denotes expansion and below 50 denotes contraction.

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The growing services PMI adds to expectations of strengthening of current economic recovery, with other high-frequency indicators such as IIP, auto sales, railway freight, power demand, and exports(declining at weakest rate in last 12 months) also exhibiting similar traits.

The active manufacturing and distribution of covid vaccine is expected to welcome expedited recovery and help with uncertainty regarding pandemic and input inflationary pressures (strongest inflation rate since February 2013). The same is reflected in increase in new orders and improving business confidence (at 1-year high).

Marketing efforts and increase in new client count welcomed increase in new orders for 5th straight month.

Worryingly, however, employment declined for the 3rd month in a row with companies recording the sharpest rise in overall expenses for 8 years

Covid-19 pandemic regulations and higher input costs in freight, and fuel put cost pressure on companies. However, competitive pressures prevented companies from lifting their own fees. February highlighted a broad stabilization of selling prices, following marginal declines in each of the prior 2 months.

In a sign of capacity pressure, services companies signaled a further increase in outstanding business halfway through Q4FY21. The pace of backlog accumulation was solid and quickened from January.

Sub-sector data highlighted Transport & Storage as the brightest spots recording the strongest increases in new business and output. Information & Communication was the only sub-sector to post contractions in sales and business activity. Companies in this category bucked the general trend of positive growth projections, signaling neutral output outlooks.

In the private sector, aggregate business activity hit a 4-month high, with their confidence for future growth at its highest since November 2019.

As is seen globally, manufacturing PMI continues to out-perform its services counterpart, courtesy of the latter being hit harder by Covid-19.

Coming out of technical recession in Q3FY21, and growth in key economic drivers can see sectors continue growth momentum in times to come. The same is reflected in agencies revising their growth estimates for India on the upside.

The key risks will continue to be unforeseen events resulting from the virus, and inflationary upticks (private sector inflation rose to its highest in over 7 years). Passing cost burdens to client via price hikes can see demand strength come under pressure.

Click here If you want to read the complete Services PMI HIS Markit press release

Macroscope – Purchasing Managers’ Index (PMI) Manufacturing PMI for the month February 2021

Macropcope PMI

What is the latest Manufacturing PMI reading?

India Manufacturing PMI recorded 57.5 in February vs 57.7 in January. In October, it recorded the highest figures in 12 years at 58.9. Remaining flat-to-positive, the index remained above its long-run average of 53.6. The PMI reading has maintained growth trajectory for 7th month in a row.

A reading above 50 denotes expansion and below 50 denotes contraction.


The Indian manufacturing sector continues to remain on the right path to recovery aided by recovering domestic demand and successful marketing campaigns which helped increase new orders in Feb 2021. Input inventories rose to the strongest pace in the survey’s history as companies reacted to rising production needs lifting purchasing

Robust demand for input goods led suppliers to hike their fees. The increase in the prices of products such as chemicals, metals, plastics and textiles led to overall rate of cost inflation to hit a 32-month high. Although factory gate charges increased, the rate of inflation was modest and eased from 13 month high in January.

Payroll numbers however fell for the eleventh straight month, due to government guidelines to contain the Covid-19 pandemic spread by implementing working in shifts.

Global PMI Manufacturing Index Summary:


Global manufacturing output rose a slightly quicker pace in Feb 2021, despite growth of new orders easing to a five-month low. Although the trend in international trade remained relatively subdued, the rate of expansion in new export business nonetheless gathered pace.

Optimistic growth projections reflected forecasts of an improvement in economic conditions and the lifting of restrictions as the vaccination programme expands.

Vaccination programme widening will be instrumental in printing healthier manufacturing in times to come. With business optimism at highest for 3 months in a row, expectations of gradual improvement in economic conditions can translate into output growth.

Click here If you want to read the complete Manufacturing PMI IHS Markit press release

Debt Market Update

Debt Market

What’s happening in the debt market now?

Long Term yield: India’s 10-year g-sec yield hardened by 32bps YTD21 as on 25th February 2021 and 12bps post budget FY22(01st February till date as on 25th February 2021). This comes after an earlier softening of 59bps from 01st March 2020 till the end of CY20.

Short term yield: India’s 3-year g-sec yield hardened by 65bps YTD21 as on 25th February 2021 and 22bps post budget FY22 till 25th February 2021. Yields had softened by 135bps from 01st March 2020 till the end of CY20.

Reasons for recent YTD hardening in the yield curve:

– The Government announced a borrowing target of INR.12.05 lakh crore for FY22 while increasing the borrowing target for FY21 by INR.80,000 crore to 12.8 lakh crore. The Government targeting a fiscal deficit of 4.5% of GDP by FY 2025-26 through fairly steady decline over the period. Fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP.

Impact: Government securities need to be sold to meet the borrowing target for the current and next financial year. This will lead to more supply of government securities in the market. The supply will eventually result in bond prices moving down and consequently the yield harden. The roadmap of consolidation of the deficit is perceived bumpy by bond street.

– Reserve Bank of India has revised the inflation target to 5% in H1 FY22 and 4.3% in Q3 FY22, with risk broadly balanced. Core inflation remains elevated at 5.5%. Expectation of increase in commodity prices may add further upside pressure to the inflation.

Impact: RBI has maintained an accommodative stance for a while now, which may be difficult to sustain if inflation continues to rise. The governments intend to raise money from the market to make up the growth subdued because of Covid. Upside risks to inflation can be expected to tag along with growth.

With no attached scope for further easing, We do expect a major uptick demand for long term gsecs in the near term.


– US 10-year g-sec yield have gone up from 0.9% to 1.53% while inflation has risen to 2%. It is on track to exceed 2% for some time. Adding to this, the new US government is planning to announce a $1.9 trillion aid package.

Impact: Though the US Fed intends to maintain lower rates for longer, the US g-sec participants have reacted to news on the stimulus & transitionary inflation. We are yet to observe meaningful intent or directions on actions to cap yields. Till further clarity emerges, the yield can be expected to harden in the near term. India 10-year g-sec and US 10-year g-sec have been observed to exhibit a moderately strong positive correlation.

This further supports the case for hardening in India 10-year g-sec in the very near term. In such a case, we can expect foreign investors to sell off some Indian bond holdings as its premia becomes rich.

1.0: Correlation – India’s 10-year g-sec vs US 10-year g-sec


– Bond street worry of bumping at lower yield; central banker refuses to offer more.

Starting 05th February 2021 till 18th February 2021, the central bank ran four distinct auctions for long dated securities. Only one out four was executed successfully. While rest all rounds witnessed partial or very low subscription. Below mentioned are the list of auctions done in February 2021:

Macroscope 1

Macroscope 2

Debt Mutual Fund Analysis: Category Level Performance (Absolute/Category Average)

Macroscope 3

Longer maturity funds did well during the easing cycle and shorter durations performed relatively better during the hardening. However, the performance of categories can not be attributed only to the duration exposure but also to a variety of attributes including aggregate yield on underlying strategy and implementation of strategy. However, duration is the key contextual metric defining portfolio quality and expected performance.

In line with our aforementioned interpretation of the situation, we have observed fund categories with a flexible mandate and previously stretched duration are trimming exposures, albeit gradually with a bias towards accrual strategy in most cases.

Duration Change (In Years): Category Level

Macroscope 4

– 90% of the categories had trimmed the portfolio exposure to ~3 years. We have seen this trend across categories.
– Also, the funds have the flexible mandate to change the duration as and when needed.

Key Takeaways:

For Existing Investors:

Existing investors who have invested with a sound strategy and robust asset allocation need not react to the news flow and market dynamics as fund managers continue to optimize per evolving dynamics.

New investors:

New investors must approach debt investing basis a sound financial plan and robust asset allocation strategy. While fund managers continue to optimize funds, investors must refrain from taking aggressive duration calls and steer clear from taking exposure to securities rated below sovereign and AAA/A1 and equivalent.

Macroscope – GDP – Reading of GDP for 3rd Quarter of Financial Year 2021

Macroscope GDP

What is Gross Domestic Product (IIP)?

Gross domestic product (GDP) is the market value of all final goods and services produced within a country’s borders in a specific time period. It functions as a comprehensive scorecard of a country’s economic health.

GDP Computation (Method I) – The Factor Method:


GDP Computation (Method II) – The Expenditure Method:


Per Capita Data – Income, Product, & Final Consumption


GDP Reading – Quarter Ended October – December 2021

Indian economy returned to growth in Q3FY21 with GDP & GVA reporting 0.4% and 1.0% after 2 consecutive quarters of contraction. 6%+ growth in Construction, Financials, Real Estate and Services were key drivers for growth, marking return to pre-pandemic health and strengthening of V-shaped recovery.


Industry Study


Of all elements, fall in government consumption expenditure in latest quarter surprised on the downside, even when Centre’s revenue expenditure increased by 19% Y-o-Y in Q3. The data reads the possibility of rolling-back of expenditure by states and local bodies, potentially reducing volume of indirect demand in coming times.

If states are to not pick-up spending, public sector contribution to GDP can continue its declining trend from 16.4% in Q1Y21 to 9.8% in current quarter.

On the other hand, Govt championed its aggressive capex plans, reflected in investment growth of 2.5% (YoY) and 13% (QoQ). Signaling re-birth of capex cycle, the buoyed investment demand in infra/capital construction seeped into healthy IIP figures of 2.4% growth in Q3FY21.

Consumer demand, measured by Private Consumption Expenditure repeated contraction, falling by 2.3% vs 11% in last quarter. Second advance estimates of stronger fiscal support, normalizing of supply chains, vaccination drives and visible stability in labour market act as supporting arguments for demand to pick-up in times to come.

The agriculture sector, the only growing sector of the economy in prior 2 quarters, continued its up-run, registering a 3.9% rise in Q3.

Pseudo non-elastic demand in utilities like electricity, gas and water supply reported healthy growth on the unlocking of the economy and festive season in the quarter. High frequency data suggests modest growth in this segment even as demand is may taper off due to high-base effect of previous quarter.

On the external front, the current account grew into deficit in Q3FY21, after surplus in the previous quarter, for the 1
st time in more than 2 decades. Driven by imports correction (-4.6% YoY in Q3 FY21 v/s -18.2% YoY in Q2 FY21), it augurs well for domestic demand recovery. Exports, on the other hand, witnessed increased contraction to 4.6% from 2.1% YoY in prior quarter. This was a result of foreign demand being impacted by COVID resurgence and follow-on restrictions across major Indian export destinations.

GVA growth metrics for FY21 has been revised upwards to (-) 6.5% from (-) 7.2% earlier, courtesy of revival of Transport & Travel segment. Further, govt.’s flagship ‘Atmanirbhar’ policy and broadening PLI scheme will be instrumental in printing GDP growth for the near and short-term, with long-lasting effects on long-term growth.

Risks to micro-&-macro growth in India can come from uptick in covid cases, unexpected inflationary events, critical role of private play in demand-&-supply, and continued string of strong reform-rhetoric endorsed by public individuals and institutions.

Click here If you want to read the complete Manufacturing PMI HIS Markit press release

Macroscope – Inflation WPI Inflation For The Month January 2021


What is the latest WPI reading?

India’s wholesale inflation touched its highest figures in last 11 months, coming in at 2.03%. WPI Inflation increased again after seeing a fall post a 5-month rise in the month prior. WPI inflation stood at 1.22% in December 2020 and 3.1% in October 2019.


WPI maintained its record of positive figures, signaling producers regaining pricing powers. The rise in WPI is mainly due to price increases of manufacturing items as consumer demand, and industrial production marks a comeback.

Element Inflations

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It is not appropriate to compare WPI inflation in post pandemic months with months preceding the COVID 19 pandemic.

The rise in WPI recorded mild uptick due to high base-effect. Element study breakdown shown below:

❖ Primary Articles (Weight – 22.62%)

  1.  Index value decreased to 143.9 from 146.5 in prior month, recording fall at 2.2%
  2.  Fall in prices of vegetables, potatoes and, onions were key contributors in deflating Primary Article Inflation
  3.  While Food article prices softened, Non-Food articles jumped significantly, recording inflation contributions at 4.2% from 3.1% last month

❖ Fuel & Power (Weight – 13.15%)

• Index value increased to 99.7 from 94.2 in prior month, with WPI element softening from -8.7% inflation of last month
• Price for crude petroleum and natural gas increased in January vis-à-vis last month figures

❖ Manufactured Products (Weight – 64.23%)

• Index value increased to 124.9 from 123.0 in prior month, with WPI element recording 5.1% inflation
• Majority of sub-elements witnessed an increase in prices, thus making category price key reason for WPI uptick

❖ WPI Food Index

• The Food Index consists of ‘Food Articles’ from Primary Articles and ‘Food Product’ from Manufactured Products
• While index value decreased from 154.4 to 151.8, WPI inflation rate fell to -0.3%

Investor Takeaway

WPI can see minimal lifts on the upside before normalization of “New Normal” as higher base effect comes into play.
Momentum of pick-up in vegetable prices, with higher demand and unlockings will keep core inflation at elevated levels.

The exceptionally low base related to the crash in fuel prices in January-March 2020 quarter, juxtaposed with the hardening of crude oil as well as other commodity prices in the ongoing month, can see the headline WPI inflation record large upticks over the course of the next few months

It is likely to remain on pause in next meet and consider rate-cuts only after efficacy in transmission of prior rate-cuts.

It is likely for RBI to lean towards out-of-the-norm practices to continue to channelize Demand-&-Supply behaviour in the country.

Click here If you want to read the complete WPI Inflation press release.

Macroscope – Inflation CPI Inflation For The Month January 2021

Macroscope Inflation 2021

What is the latest reading?

India’s retail inflation eased for 3rd straight month, registering 16-month low figure.

Inflation came in at 4.06% in January 2021 vs 4.59% in December 2020, thus staying in-line with RBI tolerance level for 2nd consecutive month. Core CPI remained unchanged at 5.34% after rising to its highest in ~2 years at 5.51% in Nov’2020.

Inflation 1

Inflation has seen significant downfall over the last few months, considering it registered its highest ever levels in October 2020, and was above RBI tolerance level for 8 consecutive months up to November 2020. With inflation reducing & IIP expanding, economy is finally emerging from the long shadow of coronavirus pandemic.

Element Inflations

inflation 2

Investor Takeaway

The fall in inflation can be credited to continuous fall witnessed in vegetable prices which slipped 15.8% YoY and 10.4% in last 2 months respectively.

High base-effect came into play too in seeing inflation picture a softer print. The base play can misguide real inflation figures in H1CY2021, courtesy of extraordinary inflation seen in comparison figures.

The continued downtrend in veggie prices were countered with broad-base increase in other food items. The after-effect of unlockings has translated into higher oil prices as prices follow an upward trajectory, thus posing as risk to inflation metric in coming times.

The rate of price rise in the food basket was 1.89% in January, significantly down from 3.41% in December.

As pressures on perishable food prices ready for a go on the downside, other factors such as increased input and output costs, higher labor charges and rising oil prices can dampen hopes of drop in inflation in coming times.

Core-inflation is expected to chart a similar trajectory as demand-side factors continue to battle the covid brunt.

In last bi-monthly monetary policy meeting, the central bank kept its key interest rates unchanged while maintaining its accommodative stance. Continuing to focus on growth via polices and packages, RBI is to use an arsenal of unique liquidity and similar supportive strategies to maintain current pace of expedited growth.

Broad-based domestic and global economic recovery should improve aggregate demand, posing an upside risk to inflation. Favorable base effect, appreciating rupee and any risk of new covid-strain led slowdown, will be a tailwind for CPI inflation.

It is likely for RBI to remain on pause in April meet and consider rate-cuts in near future after efficacy in transmission of prior rate-cuts.

Click here If you want to read the complete CPI Inflation press release

Macroscope – IIP – Reading Of IIP Index For The Month December 2020


What is index of industrial production data (IIP)?

IIP measures the industrial production on a monthly basis, highlighting state of 3 growth driving verticals. It is a key indicator of the manufacturing sector of the economy.

Its Economy based are as follows:


Its Use based are as follows:


What does IIP Index data mean for Financial Markets?

It serves as an indicator of corporate earnings, influencing equity & debt investors alike.

It is also a good parameter to understand the industrial activity in the country.

IIP Reading – December 2020

What is the latest reading?

IIP increases by 1.0% in Dec’20 vs decline of -2.1% in Nov’20 and 0.4% in Dec’19 .

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Investor Takeaway

IIP recorded modest growth of 1% after degrowth in the month of November 2020. Improvement in IIP is due to recovery which can be seen in other high frequency indicators like manufacturing PMI, core sector output, auto production, and cargo traffic.

IIP during April -December 2020 recorded contraction of 13.5% from year ago period, as disaggregated data continues to question sustainability in recovery in very near periods.

Element Trajectory

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Revival of consumption is visible by significant uptick in Consumer Durables and Consumer non durables segment, courtesy of gradual improvement in rural demand.

Capital goods (indicating investments) — maintained its growth in December 2020 as well. Even after recording positive growth, said element is sitting 8% below its pre-Covid level.

Among three key sectors, manufacturing and electricity reported growth whereas mining continued to stay in the red, albeit with lesser intensity. Budget FY22 has further bolstered upside potential of future readings due to enhancements in agri credit, higher allocation to Rural Infra Development Fund, and doubling outlays to Micro Irrigation Fund.

With demand gradually getting back on track, mobility returning to normal levels amidst falling COVID infection curve and collaborative growth-oriented efforts of the RBI and the government, India can look to become the global growth engine of the ensuing decade.

Click Here If you want to read the complete IIP Index press release

Macroscope – Reading Of IIP Index For The Month November 2020


What is index of industrial production data (IIP)?

IIP measures the industrial production on a monthly basis, highlighting state of 3 growth driving verticals. It is a key indicator of the manufacturing sector of the economy.

Its Economy based are as follows:


Its Use based are as follows:


What does IIP Index data mean for Financial Markets?

It serves as an indicator of corporate earnings, influencing equity & debt investors alike.

It is also a good parameter to understand the industrial activity in the country.

IIP Reading – November 2020

What is the latest reading?

IIP contracts by 1.9% in Nov’20 vs growth of 3.6% in Oct’20 and 2.1% in Nov’19 .


Investor Takeaway

IIP recorded leakage in growth after 2 consecutive months of expansion, with growth rate touching an 8-month high in month prior. Highest IIP in CY20 was in Feb’20 when IIP grew by 5.2%.

The fall in IIP can be attributed to declines seen in manufacturing & mining sectors.

IIP during April -November 2020 recorded contraction of 15.5% from year ago period, as disaggregated data continues to question sustainability in recovery in very near periods.

Element Trajectory


Revival of demand and consumption took a big dent as is reflected in dampened consumer durables, non-durables and electricity elements.

Consumer durables is the only production element to surpass its pre-covid levels.

Capital goods (indicating investments) — maintained its growth trajectory for 2nd straight month after 21 months of contraction.

Even after recording positive growth, said element is sitting 12.5%+ below its pre-covid level.

Manufacturing has enjoyed a uphill climb with its peers in contact-intensive services, such as hospitality, transport and tourism yet to see signs of green shoots. The next 2-3 months will be pivotal in charting country’s production health & wealth and build confidence into commentary on the upside.

Click here If you want to read the complete IIP Index press release

Macroscope: An assessment of Open Market Operations by RBI

Macroscope: An assessment of Open Market Operations by RBI

What is open market operation (OMO)?

Open market operation is the sale and purchase of government securities and T-bills by Reserve Bank of India. The objective of OMO is to regulate the money supply in the economy and minimise the impact on the interest rate and inflation

When does RBI come up with open market operations?

When RBI wants to inject the liquidity in the system or increase the money supply, it purchases the government securities from the market and sells government securities when it wants to suck out the liquidity from the market.

OMO Announcement – August 2020

What is the latest Open Market Operation (OMO) announcement?

RBI has decided to conduct simultaneous purchase and sale of government securities under OMO for an aggregate amount of INR.20,000 Crores in two tranches of INR.10,000 crores each.
The auctions will be conducted on August 27,2020 and September 03,2020.

Details of OMOs are as follows:

1. The RBI will purchase following securities through Open Market Operation:


2. The RBI will simultaneously sell following securities through Open Market Operation:

table 2

Let us understand the reason:

1. Long term G-sec yields hardened by ~20-25 bps in last week

MPC has signal led its concern in its stance by resolving to ensure that inflation remains within the target going forward. MPC also believes that the available space for policy space should now be used prudent. With no further rate cuts hope till next MPC meet in October 2020, traders turned bearish on G-sec and resulted in lowering demand for sovereign papers at time when both central and state governments are borrowing large sums.

This move by RBI will help ease the pressure on long term yields.

Table 3

2. Short end rates have fallen, but long -end sticky

The spread between the 10Y and 3-month G-sec has widened to more than 250bps to a ten-year high and hence RBI’s move of buying long term paper will reduce the spread henceforth.

Table 4

Investor Takeaway

A benign global monetary cycle, weak growth and rising inflation may not give the RBI more room to cut rates in near term. We expect RBI to come up with such bold measures henceforth to manage liquidity and evolving market conditions. It will take measures as appropriate to ensure the orderly functioning of financial markets.

Click here If you want to read the complete RBI press release.


Macroscope: Assessment of CPI-based inflation for the month July 2020

CPI based inflation for month July 2020

What is Consumer Price Index (CPI) Inflation?

The CPI Inflation is a macroeconomic indicator of inflation, tracking the change in retail prices of goods and services which households purchase for their daily consumption.

Helping ascertain the country’s economic health, central banks actively design monetary policies to keep inflation under control.
India’s target inflation range is 4 (+/-2) %.

Its weighted components are as follows:

Data table

How to Calculate & read the CPI inflation data?

CPI Inflation is calculated as a weighted average of the prices of commodities.
Mathematically, it can be written as: (Price of basket in current period / Price of basket in base period) x 100
Currently, 2012 is used as base year for inflation calculation and reading purposes.

What does CPI Inflation data mean for Financial Markets?

It serves as an indicator of purchasing power of a nation’s currency, and shines light on the broader demand-supply situation in said country. It is also a good parameter to evaluate the invest potential of a country by foreign and domestic investors alike.

CPI Inflation Reading – July 2020

What is the latest reading?

India’s retail inflation exceeds MPC Target For 4th month in a row, rising to 6.93% in July from 6.23% in June.

Inflation 2020

CPI inflation july 2020

It may not be appropriate to compare the CPI inflation in the post pandemic months with the CPI for months preceding the COVID 19 pandemic. Hence not comparing with pre-pandemic numbers.

Investor Takeaway

At over 6%, inflation remains just above the MPC’s tolerance band of 4 (+/-2) %, creating a stagflation-like scenario where inflation is high despite a collapse in growth (GDP estimates point towards contraction).

The CPI print is along expected lines and justifies in retrospect the RBI’s decision to take a pause in the rate reduction cycle. Clearly, supply chain issues have been feeding through the food prices, especially vegetables and partly from higher fuel prices. Supporting the system with tools like liquidity measures and restructuring facility, will propel economic drive in coming times.

As virus cases continue rising impeding opening of economies, we expect supply challenges to sustain over the short-term, with central bank vouching for rate-cuts only after effective transmission of previous cuts and outcome of other liquidity and other similar measures. Hence, it is likely to remain on pause on the October meet and consider rate-cuts in the December meeting.

Click here If you want to read the complete CPI Inflation press release.