The Signal: The Week Highlights
1. Spending, Not Being Spent Is The Solution
The sharpest economic contraction on record and across the world has investors worried about India’s promise as an investment-favorite destination. October’s Stimulus 2.0 of Rs.46,700 Cr (0.2% of GDP), inclusive of direct cash payments and interest-free loans are to provide limited comfort to India’s contracted economy. In total, 2 rounds of stimulus bring direct spending on fiscal support to 1.2% of GDP vs avg of 2.5% of GDP for Baa-rated peers!
Covid 19, now in 2020, and in 2021 in 3 months, continues to be bearer of bad news. Causing shockwaves across the world, India’s GDP correction reflects economic infections. Like before, reforms are being merited as economical vaccine, with individuals and institutions awaiting govt.’s possible Relief package 2.0 announcement between October-November 2020.
2. A Robust Recovery But A Coup In Re-Coup-e
Economy to fall -13.5% in Q2FY21, and -9.5% in FY21 unless govt. takes immediate recovery initiatives. Improving PMI, GST collection, PV sales Railway freight activity, and rebound in exports is in contraction to declining capex, credit disbursals, high inflation and reduced imports to lead the country to adopt the new normal at expedited pace. Govt. policy is going to be instrumental in deciding next wave of short-term positives.
India’s economy has adorned the qualities of a phoenix, as it gears up to rise from the ashes. India’s potential and promises are just as alive as they were before the virus hit, albeit with few hiccups. Think of it as a race, in which India tripped cause of untied shoelaces. As the laces get tied and we less tired, the finishing line is about to come in sight. Its all Go from here..
3. An Investment In DisInvestment
Centre to divest Rs.1 Lakh Cr. via divestments vs all-time high Budget target of Rs.2.1 lakh Cr. from strategic sales in BPCL, ConCor IDBI Bank, LIC, Air India, and Hind Copper. Staying on decided Borrowing for H2, and 2.0 Stimulus requirements, govt. has accounted for Rs. 1 lakh Cr. slippage in divestments.
As those who finance, find themselves in similar waters as those they lend to, puts Govt. in a “Big Need – Small Feed”. As situations calls for stimulus, govt. policy endorses the adage, “Can’t have cake and eat it too”, looking to be hunted rather than be the hunter through its stake-sale attempt.
4. The Perks Of Potential – FDI’s Favor The Fevered India
Total Indian FDI inflow of $35.73 Bn is the highest in 1st 5 months, growing 13% more than year-ago period. FDI equity inflow followed suit recording highest ever 1st 5 months inflow of $27.10 Bn, registering 16% more growth on YoY basis. Measures such as FDI policy reforms, investment facilitation, and ease of doing business resulted in increased FDI inflows into country
Amidst a corona-filled year, distraught with lockdowns and recessionary fears, India got clout when world was in doubt. The increased investor-friendliness, coupled with Investment potential of India has helped it record 55%+ growth between 2008-2014 and 2014-2020
5. RBI’s Long-Term Action By Short-Term Lending
RBI to conduct an on-tap Targeted Long-Term Repo Operations (TLTRO) of up to 3 years for ₹1 Lakh Cr at floating rate linked to repo rate. Liquidity availed by banks under this will be deployed in Loans, Corp. Bonds, CPs and NCDs in Agri, Agri-Infra, and Secured Retail MSMEs. Remaining operational from October 22 till March 31, 2021, the scheme will address crunch seen in current credit climate.
RBI has been at the forefront in tackling the virus and teasing and testing the economy. As Covid breaks the long-standing economic shackles, so does RBI, by adopting a foot-loose approach. In bidding adieu to the old, RBI has donned a 2020 Meme, “Modern times require modern solutions!