Wednesday, 5 April 2017

Manufacturing Activity Recovers From Demonetisation Shock

India’s factory activity has fully recovered from the demonetisation setback with manufacturing sector expanding for the third straight month in March, taking activity back to the levels before demonetisation.

According to a Markit Economics report, Nikkei India Manufacturing Purchasing Managers’ Index, a gauge measuring activity in the manufacturing sector rose to 52.5 in March from 50.7 in February, rising at the fastest pace in five months, with a reading above 50 signaling expansion.

The manufacturers attributed the latest rise in production to solid growth in domestic as well as export work orders. The new orders index rose to a 5-month high of 53.6 from 51.3 the previous month.

The manufacturing PMI had declined sharply following the government’s decision to withdraw notes of Rs 500 and Rs 1,000 on November 8. The move caused huge trouble to daily life and businesses in the largely cash-based economy. In December, manufacturing activity levels hit a low of 49.6, indicating a contraction in the manufacturing sector. However, as the cash crunch eased, the world's fastest growing major economy has largely recovered from Prime Minister Narendra Modi's shock decision.

The survey also showed encouraging signs on the inflation front, which has come squarely back on the central bank's radar in recent months. Input prices grew at a slower pace compared to February, and there was a corresponding slowdown in the pace of output price rises as well, which likely helped increase demand.

Indian inflation picked up pace in February to 3.65 per cent, after slowing in the previous month to 3.17 per cent, its lowest in at least five years, but it was still below the central bank’s 4 per cent target.

The Reserve Bank of India shifted its policy stance from accommodative to neutral and kept the policy repo rate unchanged at 6.25 per cent in its February meeting, opting to wait for more clarity on inflation trends and the impact of demonetization. The experts believe the central bank is unlikely to cut interest rates in its monetary policy review on April 06, 2017.

Going ahead, the survey projected a bullish outlook as business confidence among manufacturers improved in March, with almost one-fifth of the panelists expecting output levels at their units to be higher in 12 months’ time.

Latin Manharlal Group

Wednesday, 15 March 2017

UP Elections Victory Likely to put Govt’s Reforms Agenda Back on Track

With the election verdict in Uttar Pradesh giving Bharatiya Janata Party (BJP) a landslide majority in the state, the Indian economy is expected to touch newer heights. The stunning victory of BJP is likely to give an added impetus to government’s reform agenda, boost stock markets up, and hasten the implementation of big-ticket measures such as the goods and services tax (GST).
The election outcome, which comes in the backdrop of demonetisation, signals that people want the Centre to take bolder 
steps to stem black money, root out corruption and bring back illegal money from abroad. 

The BJP’s triumph in the state of Uttar Pradesh will give added power to Prime Minister Narendra Modi to aggressively push his economic agenda. This has also raised hope among investors that the BJP will embark on new reforms to boost growth in Asia’s third biggest economy, and tackle the corruption and red tape that has dented India’s potential. Investors are also eying pro-business reforms in Uttar Pradesh, such as digitising land records and making permit applications easier.

The Indian economy clocked a faster-than-expected growth of 7 per cent in fiscal third quarter, notwithstanding the demonetisation of high-value banknotes in November and the resultant impact on output as well as the consumption. The Global ratings agency Fitch expects Indian economy to grow by 7.1 per cent in the current fiscal before stepping up to 7.7 per cent in the next two financial years.

Going forward, the Narendra Modi led government is expected to remain focused on measures that will help to improve the ranking in terms of ease of doing business,significantly and persistently in the period ahead. Implementation of the GST from July will simplify indirect tax structure, reduce geographical fragmentation and widen the tax base, which will prove to be transformational for the Indian economy in the medium term.

With Narendra Modi now firmly entrenched in power until at least 2019, and perhaps further ahead, the focus will be on whether Modi can deliver on his promises of rapid development.

Latin Manharlal 

Monday, 27 February 2017

Indian Consumers most Confident Despite Demonetisation

Despite the effects of demonetisation, consumer confidence in India soared to the highest level in 10 years in the fourth quarter of 2016, indicating that Indians are most confident about their jobs prospects, personal finances and ability to spend.

According to a report by market research agency, Nielsen, the consumer confidence index score for India in the fourth quarter of the calendar year 2016 was 136, three places ahead of the rank it achieved in the third quarter of 2016.

The Nielsen consumer confidence index measures perceptions of local job prospects, personal finances and immediate spending intentions in 63 countries. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively. 

The report suggests that demonetisation has not been able to dent the confidence of Indian consumers. The increase in consumer confidencecame at a time when the Government of India announced a ban on high-value notes, covered during the agency's survey period, stretching from October 31 to November 18, 2016. While the demonetisation move created short-term pains for consumers, the long-term outlook remains bullish.

Sentiment levels on local job prospects over the next 12 months have gone up by three percentage points to 84 per cent this quarter from 81 per cent in Q3, 2016. Over four in five online respondents (84 per cent) indicate increase in optimism on state of personal finance, same as the last quarter. In addition, 70 per cent urban Indians indicated that it's good time to buy things they want and need over the next 12 month for the quarter.

The surge in the consumer confidence is supported by the government’s vision to play the role of an enabler to ensure sustained growth. The government’s much campaigned ‘Make in India’ reform coupled with ‘start-up India’ campaigns are driving investments across sectors and propelling confidence in the business landscape.
Consumer confidence at global level moved modestly in 2016, rising three points between the first and fourth quarter to 101. The biggest increase was in the Philippines, where confidence rose 13 points from the first quarter to the fourth quarter. As per the report, the world's largest economy, United States came at the third position in the consumer confidence index, jumping 17 points as against the same quarter of 2015. 

Latin Manharlal Group

Thursday, 9 February 2017

RBI Maintains Status Quo as Inflation Risks Rise

India's central bank has refrained from tinkering with the key lending rates, opting to wait for more clarity on the uncertain inflation landscape and on how a radical crackdown on black money is affecting economic growth.

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept its benchmark repo rate (the rate at which banks borrow short-term funds from the central bank) unchanged at 6.25 per cent, during its third bi-monthly monetary policy review -the sixth and the final one for the fiscal 2016-17.

The monetary policy announcement marked a key shift in the central banks’ stance. The MPC decided to change its position from accommodative to neutral in order to assess the transitory effects of demonetisation on inflation and output gap (the gap between actual economic growth and potential economic growth).
The change in stance essentially marks an end to a period in which the central bank slashed interest rates by a total of 175 bps from January 2015 to October 2016, starting with previous Governor RaghuramRajan and continuing under Urjit Patel.
The central bank also lowered its economic growth forecast for 2016-17 to 6.9 per cent from the 7.1 per cent it had forecast in its fifth bi-monthly policy in December. Before the demonetisation exercise, RBI was expecting the economy to grow at 7.6 per cent.
Retail inflation, the RBI’s benchmark gauge for prices, decelerated to a two-year low of 3.41 per cent in December, but RBI seems more focused on non-food, non-fuel inflation. With this move, the RBI hints that it will now keep its eyes on the inflation target of 4 per cent.

The monetary policy committee further highlighted concerns around the global policy environment, impact of rising global commodity prices and strengthening of the dollar among others.

At the same time, the central bank is expecting a recovery in economic growth in the coming financial year, albeit its gross value added projections show only a 50-basis point rise to 7.4 per cent in 2017-18.

Latin Manharlal Group

Thursday, 26 January 2017

Union Budget to dictate trend in Equity Markets

As the Finance Minister Arun Jaitley prepares to present the Budget on February 01 post the big bang demonetisation move in November, Indian equity markets have picked up pace on the hopes of a positive budget.
The budget has traditionally been an important part of the financial year, with the government announcing exactly what it wants to do for the next year, and how it has performed last year. Any significant change in these announcements could induce a fear in the equity markets which may have a negative impact on traders and other market participants.
According to data compiled by, benchmark equity indices focused on large-cap, mid-cap or even small-cap stocks have always corrected up to 5 per cent every time the Budget countdown begins.
However, this time a ‘hope rally’ has already taken the Nifty index near the 8,500 level from the 7,900 level it quoted in December. The index is facing resistance near the 8,500 level and requires fresh triggers to rally higher. Meanwhile, the 30-share benchmark index has also performed well in January, partially owing to the expectations from the Budget and also due to the diminishing effects of demonetisation.
Though investors fear any populist measures as well as drastic changes in tax structures, an equity investor typically looks for tax sops in the Union Budget. Changes in personal income tax rates remain the most anticipated aspect in the Budget, followed by excise and service tax rates.
A nervous Dalal Street is pinning its hopes on the budget next week as an opportunity for the government to calm investors. According to the analysts, a small change in the long-term capital gains (LTCG) tax structure could drag the domestic equity market down by 5-10 per cent.
The general expectation is that the government will help the revival of the sectors that have succumbed to the demonetisation move. The Finance Minister is also expected to push policies that will help create jobs, affordable housing and infrastructure, besides taking care of the farmers and the agriculture sector. Additionally, there are expectations of a cut in tax rates for individuals and corporates alike. There are possibilities that the basic exemption limit for individuals will be pushed to Rs 5 lakh and the corporate tax rates will be brought down.
While most analyst remain optimistic on the road ahead for the equity markets from a long-term perspective, the markets are expected to be driven by more global events such as policy action by global central banks, policies adopted by the US under the new President and developments in the European Union (EU). Back home, outcome of the assembly elections is key for the overall market direction.
Latin Manharlal Group

Sunday, 15 January 2017

Budget 2017 likely to compensate for Demonetisation Pain

After the historic announcement of demonetisation in November, Union Budget 2017-18 is now seen as the silver lining.  The common man is expecting some relief with heightened anticipation of rebates, benefits and sops in the form of tax breaks to soothe the discomfort caused by the demonetization.

The expectation from the government this year are even more given the temporary slowdown expected in the economy on account of demonetisation. Apart from addressing the issues raised by demonetisation in the upcoming budget, there are two key changes which the Union Budget 2017 will witness. For the first time, the budget will be presented in the Parliament on 1 February 2017 as compared to the regular practice of presenting it on the last day of February. Defying the age-old tradition, the initiative of presenting the Union Budget in the parliament along with the Railway Budget is also a significant change this year.

With less than a month to go for the Union Budget 2017-18, there is a lot of expectations and speculations about what it has in store.  Following are some of the expectations that the industry has from this years’ budget.
The top expectation from the Budget is lowering of Income tax for the individual tax payers as well rationalizing the tax structure for the corporates. For individual tax payers, the government is expected to increase the tax exemption slab from Rs 2.5 lakh to Rs 3 lakh. The finance minister is also expected to bring down the corporate tax rate in the range of 27-28 per cent. A lower tax rate would bring some cheer for India Inc as it would help neutralise any short-term slack in growth due to demonetisation.
The Finance Minister is expected to focus more on farmers and on those sectors, which can create more jobs in the economy. The rural economy is crucial for India as over half of rural households depend on agriculture as their primary means of livelihood. According to Economists, the forthcoming budget will focus more on lifting the rural economy, which is badly hurt by the demonetisation drive.
Real estate industry also has high expectation from the upcoming Budget 2017-18. The government is expected to provide clarity on GST, raise House Rent Allowance (HRA) deduction and announce policies to standardize construction materials in order to uplift the real estate industry.
Further, auto industry is pinning its hopes on the upcoming Budget to lift consumer sentiment and looking for concrete incentives to promote fleet modernisation as well as electric vehicles. The automobile industry expects concrete policy on commercial vehicles and passenger vehicles.
With a vision to move towards a cashless economy and reduce the black money generation after the demonetization, the government is expected to announce further measures to encourage digital payments. Additional benefits to those opting for cashless transactions through credit cards, debit cards and mobile wallets are expected to be part of the Union Budget 2017-18.

As a result of the merger of the Rail Budget with the Union Budget, a lot of new measures focused on further development of infrastructure are expected. The modernization of railways is long overdue and the recent accidents are expected to give further impetus to increased government spending on railways’ modernization.
While there is a lot of buzz around the 2017 Union Budget, let’s wait and watch the upcoming events and hope that it will bring the smile back on the faces of the Indian citizens.
Latin Manharlal Group

Friday, 30 December 2016

Last Day of Demonetisation: Final Goodbye to Rs 500 & Rs 1,000

As the year comes to an end, it is also time to bid adieu to the high value bank notes. Today is the last day to deposit old Rs 500 and Rs 1,000 notes in banks after 50 days of the announcement of demonetisation by the Prime Minister Narendra Modi on November 08, 2016. From December 31, 2016, onwards, anyone holding Rs 500 or Rs 1,000 notes could be levied hefty fines.

Even though the 50 days deadline now comes to an end, the daily struggle for lakhs and lakhs of people so far to get their money back from the ATMs or bank branches is not likely to end soon. Let's take a look at the positives and the weaknesses of demonetisation of notes on the people and the economy at large.

Since the decision to ban high value currency notes was taken in early November, the government has showed the sunnier side of the note ban and its benefits on the economy in the long run. From declaring war on black money to terror funding, from fake currency to corruption, and finally becoming a cashless economy, multiple reasons have been cited since the announcement of scraping Rs 500 and Rs 1,000 notes.
With this move, the government planned to keep a tight leash on the corruption front. This decision came in as a blow for the black money holders having trucks of money undeclared and who are enjoying life without paying any tax. The move has also emerged as a blow to funding of terror in Jammu & Kashmir as well as Left-wing extremist violence across several states. With this move, the hawala cash transfers to terrorists and separatist elements based in Kashmir, have come to an abrupt halt.
Through the demonetisation exercise, the government has been working hard to become a cashless economy and is inspiring more and more people to adopt the digital payments system for their transactions. Usage of cards – both credit and debit – has grown four-fold since the announcement of demonetisation on November 8. Also, average ticket size of card transactions has fallen, signalling that many Indians have started using cards for their daily purchases.
Impact of demonetisation is also clearly visible with tax collection figures witnessing double-digit growth. According to Finance Minister Arun Jaitley, there has been a 26.2 per cent increase in central indirect tax collection till November 30. This included robust growth in excise duty of 43.5 per cent, services tax 25.7 per cent and customs duty 5.6 per cent. Meanwhile, net direct tax collections till 19 December had increased 13.6 per cent.
While numerous advantages of demonetisation rolling into the economy could still be long way away, there are immediate challenges the economy is already gazing upon. Even though new currency notes have reached almost all parts of the country, bank branches are still not able to quench the cash requests of customers. Most banks have set withdrawal limits much below the mark prescribed by RBI which is Rs 24,000 per week.
Economic growth has also come off on account of low liquidity in the system. Inadequate currency supply, in an economy which is predominantly cash-driven, has reduced the buying power of people, and at a macro level, their consumption pattern.

However, the Modi Government’s bold gamble with note-bandi in the long run is expected to propel growth capital as large swathes of informal economy becomes formal. It is expected to significantly transform the domestic economy in due course in terms of greater inter-mediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments.
Latin Manharlal Group