Economic Monthly Macro Dashboard: IIFL Capital Services

24 Jan 2024 , 11:07 AM

Nov/Dec HFI data shows: 1) Industrial data (coal, steel, cement output and IIP) look weak in Nov, impacted by a shift in festive holidays, and show signs of further slowdown in Dec (electricity and freight traffic). 2) Dec consumption trends also show weakness after a strong festive Nov – weak retail PV sales in Dec, moderation in GST collections as well as air traffic. 3) Slowdown in govt expenditure (revex & capex) in the past two to three months. 4) Global yields rise moderately from the recent lows, due to sticky inflation, buoyant jobs & consumption data, as also the hawkish comments by FOMC members. 5) International indicators remain weak; crude and commodities remain soft despite the indication of monetary easing and several ongoing geo-political tensions, underscoring sluggish global demand. 

• Industrial activity weak in Nov; bitumen consumption recovers in Dec – Coal/Steel production growth decelerated, relative to recent 3-4 months with 11/9%YoY growth in Nov. Cement production slowed to -3.6%YoY in Nov vs +17.4% in Oct. Electricity consumption growth slowed further to 1.6%YoY, while Bitumen consumption showed a strong pickup of 11%YoY in Dec after contracting 20% in Nov. IIP grew by a meagre 2.4% in Nov. However, Oct/Nov trends are impacted by a shift in festive period this year vs last year. However, PMIs in both Mfg. & Services stay strongly in the expansion zone, at 55 & 59 respectively.
• Freight traffic very weak – Railway freight traffic in Dec rose marginally to 6.4% YoY growth v/s 4.3% in Nov. Port cargo traffic witnessed a significant decline to 0.7%YoY in Dec v/s 17% in Nov. Port container traffic has further slowed to 0.7%YoY in Dec vs 7% in Nov. Aggregate traffic for two months combined, still seems reasonable.
• Consumption trends weak PV sales grew +2.1%YoY, while 2Ws grew 27.5% in Dec. Air traffic further moderated to 8.4% YoY in Dec vs 9% in Nov (down from the high-teens growth of past many months). Fuel consumption grew by 2.6%YoY in Dec after contracting 1.1%YoY in Nov. GST collections in Dec also moderated to 10% YoY vs 15.1% in Nov. CMIE consumer sentiment rose to 106.7 in Dec (near pre-Covid levels of 105-106) with advances both in urban and rural.
• Rural (especially agri) continues to remain weak – Wholesale tractor volumes contracted by 20%, whereas retail tractor volumes remained almost flat at +0.5% in Dec. Fertiliser volumes contracted at 3.1% in Dec (v/s -5.5% in Nov). But MNREGA demand contracted for the second-consecutive month at -7%YoY in Dec, even as rural unemployment remains elevated at 8%; though improved from 8.7%/9.8% in Nov/Oct. Agri credit continues to grow at a solid 18.2% YoY in Nov. Rural consumer sentiment is at 109.1 despite weak rural trends remains puzzling.
• Strong FII flows in Dec, pickup in FDI & FX reserves – Net FDI into India was at $3bn in Nov vs $6bn in Oct, showing some pickup after a series of weak flows – FDI has been weak YTD – only $13.5bn in FY24 vs $20bn in FY23. ECB flows for Nov was $1.1bn, but strong YTD $31bn vs $18bn in FY23. FPI equity flows jumped to $7bn in Dec, even as MF inflows remained steady at $2.8bn in Dec. FX reserves are at a 22-month high of $623bn.
• Govt expenditure slows down – Govt. capex has slowed down in the last two months (-15/+1.6% in Oct/Nov) after growing at 53%YoY in 1H of the current fiscal year. Similarly, revenue expenditure also slowed in the last three months (-4/-14/-16% in Sept/Oct/Nov), after growing at 9%YoY in the first five months of the current fiscal year.
• Trade deficit steady at $20bn run-rate – Trade deficit for Dec remained at a normalised $20bn run-rate – similar to the Nov level. Overall exports grew by 1%, whereas imports declined YoY in Dec. Core exports show a growth of 5.4%, while core imports remained almost flat YoY. Services surplus continues to expand slightly on a MoM basis, coming in at $14.6bn in Dec’23; while being down on a YoY basis from $15.4bn in Dec’22.
• Rising global yields amidst growing uncertainties – After bottoming out in Dec’23 on Fed’s dovish stance of three rate cuts in CY24, yields have risen up. Sticky Dec inflation in the US and EU, buoyant economic data w.r.t. jobs and consumption as well as the hawkish stance taken by several state governors of Fed w.r.t. the timing and number of rate cuts — all have led to yields retracing upwards. US 10yr yield has risen to above 4%, after hitting a low of 3.8% in Dec. EU yields have risen to 2.2% from 1.9% in Dec’23. However, Indian 10yr yields stay below 7.2%. DXY has hardened a bit to 103.5 from the recent lows of 101, but lower than the Oct peak of 108 levels.
• International indicators wobbly – M2/M3 growth in the US/ EU is running negative, while for China at 10% YoY. Inflation in the US/ EU picked up slightly in Dec, after easing at a gradual pace; and is at 3.4/2.9% YoY respectively (v/s 3.1/2.4% in Nov). Exports and imports have been declining since past many months for the US, EU and China (China exports/imports show marginal growth of 4/1% in Dec). Consumer confidence is struggling to pick up as the PMI for USA and China remains near the baseline of 50; while for EU, it is in contraction zone since the last few months.
• Demand weakness continues in Commodities – Brent is still trading < $80/bbl, despite the rate-cut signals from Fed, multiple supply cuts and new geo-political tensions in Middle East. LME metals index have also cooled down to near 3600 level currently, after firming slightly to around 3800 levels. CRB food index also continues to weaken – currently at 460 levels, down from 540 levels seen in Oct.