Monthly macro dashboard: IIFL Capital Services

23 Jun 2023 , 11:40 AM

Highlights: 

• Weak signs for rural (especially agri) – flat tractor volumes, weak fertilizer consumption, discouraging start to monsoon and high MNREGA job demand. 
• Post recording a 20-month low of $15 billion in April 2023, trade deficit in May 2023 surged to $22 billion indicating some normalization. Service balance of $12 billion for the 2^nd straight month is lower than previous 4-month average of $14 billion. 
• Current commodity prices reflect a slight rise (~5-7% MoM) from their lows in May 2023; global wheat prices rise by 18%.
• US money supply has been contracting since 7 consecutive months, while in Europe it has decelerated to 1.8%. Real retail sales continue to show contraction in both US and Europe.

 

April 2023 IIP surprised positively with 4.2% YoY growth versus a meagre 1.7% in March 2023. Manufacturing & Mining grew at around 5% YoY, while Electricity de-grew by 1.1%. Sectorally, the growth was driven by Infra (12.8%) and Capital Goods (6.2%) – major state government accounts indicate high capex spend in April 2023 versus last year (almost 2x), while central government capex was almost flat on high base of last year. Non-durables posted a strong growth of 10.7% YoY while growth in durables continue to struggle at -3.5% (5^th month of YoY contraction).

PV sales growth came in at 13.5% YoY in May (versus 12.9% in April) on a favorable base, which will turn adverse from June onwards. 2W sales also grew at a strong 17.4% YoY in May versus 16.5% in April. At 15%, domestic air passenger traffic growth in May slowed from last month; but was still strong. Fuel consumption growth rebounded to 9% YoY in May versus a flat growth in April.

For rural (especially agri) – Tractor volumes stayed almost flat, 1% YoY growth in May versus decline of 11% in April. Fertilizer consumption de-grew by 14% YoY in April (versus 19% growth in March). Progress of South-West rainfall has not been very encouraging. At country level, it is currently trending at only 6% below normal, but has mainly been driven by heavy rainfall in Rajasthan, Gujarat and the North-East. Other states show a deficit from normal, ranging from -50% to -90%.

Although down 2.1% YoY, MNREGA job demand at 43mn in May is still high vs pre-pandemic levels. However, strength in agri credit growth holds steady, rising further to 16.1% YoY in April versus 15.4% in March.

M3 grew by 10.1% YoY in May and CD ratio came in at 75.6. Deposits went up by 10.9% YoY, while credit growth stayed strong at 16.1% YoY. Sectorally, industry credit growth continues at the slowest pace of 7% YoY, but shows some pick-up from 5.7% in March. Other sectors have been seeing buoyant credit growth of ~20% YoY.

Surveys continue to indicate strong activity levels – Manufacturing PMI expanded further to 58.7 in May (versus 57.2 in April), while Services PMI continues to stay above 60 for the 2^nd straight month. Steady improvement seen in CMIE consumer sentiment that is currently at 94.5 — at its highest since the pandemic began. Both urban and rural sentiments improve to 92.7 and 95.1 respectively.

Post recording a 20-month low of $15 billion in April 2023, trade deficit in May 2023 surged to $22 billion indicating some normalization. Overall exports declined 10% YoY, while imports declined 7%. Core exports fell by 4% YoY (6^th straight month of decrease) while core imports grew 2% after declining for 4-straight months. Service balance of $12 billion for the 2^nd straight month is lower than the previous 4-month average of $14 billion.

India inflation cooled further to 4.3% YoY in April, with core CPI also cooling to 5%. US & Euro CPI fell to 4% & 6% respectively, but core remains sticky at 5% levels. US retail sales continue to grow at a meagre 1.6% YoY in May (0.3% MoM), remaining negative in real terms similar to Euro area retail volumes. US money supply has now seen contraction for 7 months in a row (-4.1% YoY in May), while in Europe it has slowed to 1.8%.

Nifty Index rose 2.6% MoM in May, outperforming both DMs and EMs. In terms of flows, FIIs saw a net inflow of US$5 billion while MFs flows were relatively subdued at $0.3 billion; other DIIs withdrawing $0.7 billion.

Current commodity prices reflect a slight rise from their lows in May 2023. Oil is at $76/bbl versus May closing of $72bbl, LME at 3,800 versus 3,600, while CRB Food Index is at 560 versus 530 levels. Wheat prices have surged from $590/bu to $706/bu, possibly due to concern about the fate of the Black Sea grain deal following its July 17 expiration date.