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Spurt In Demand, Gradual Recovery And Buoyant Stock Markets

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  • December 14, 2020

Welcome to the 15th Edition of our Weekly Musings!

India’s economic activities continue to witness a V-Shaped recovery as the nation’s index of Industrial Production (IIP) swings upwards by 3.6%, thus beating all the market estimates. As outlined in our previous blog, the manufacturing activity showed a classic turnaround in its activities by cutting on costs. The manufacturing sector significantly contributed to the upswing in IIP as the activities grew by 3.5% YoY in October 2020.

Within the manufacturing space, the 7 sub-industries, namely – Pharmaceuticals, basic Metals, non-metallic mineral products, chemicals, food products, leather, and food products that account for 40% weight in the IIP index, showed modest growth in October 2020, Mining continued to contract, however, power generation on the back of higher electricity consumption grew in double digits.

The drivers of India’s manufacturing activity, mainly the capital goods production surprised the street with a 3.3% YoY growth in October 2020, the first of its kind growth seen in the last 2 years. The second most important driver, the infrastructure and the construction activities grew at a faster pace of 7.8%, the highest in 22 months.      The durables and non-durables threw their weight behind the consumer goods production as the sub-sector reported a 2-year high growth of 11.6% YoY.

India IIP 300x186 - Spurt In Demand, Gradual Recovery And Buoyant Stock Markets

A better-than-anticipated growth of 3.6% in the IIP in October 2020 could well be on the backdrop of pent-up and festive demand. It will be crucial for the capital goods and the infrastructure segments to continue with their momentum of upswings.

IIP Components – % Year on Year Performance

Sector/Activity

Weight in IIP (%)

FY18

FY19FY20Oct’19Aug’20Sep’20

Oct’20

Classification on the basis of Industry

Mining14.42.32.81.5(8.0)(9.0)1.4(1.5)
Manufacturing77.64.73.8(1.4)(5.7)(7.9)(0.2)3.5
Electricity8.05.35.20.9(12.2)(1.8)4.911.2
IIP100.04.43.8(0.8)(6.6)(7.4)0.53.6

Other classifications

Capital Goods8.24.02.7(13.9)(22.4)(14.8)(1.3)3.3
Infrastructure/Construction12.35.67.3(3.7)(9.7)(1.6)2.57.8
Consumer Goods28.26.24.6(3.7)(10.3)(5.3)2.811.6

Source: MOSPI, Tavaga Research

Meanwhile, India’s major stock indices continue crossing their lifetime highs due to the rising FPI flows and a buoyed sentiment signaling the worst is finally over for emerging stock markets around the world. Although fears continue to grow around the second wave of the Covid-19 pandemic, the recent commentary by Indian vaccine makers along with Pfizer, the supplier to UK and US markets, has uplifted the sentiments globally, giving a sigh of relief to central bankers who are pumping in the liquidity.

In a sudden turnaround for India’s real estate sector, the city of Mumbai showed a solid rebound in the sales of residential properties as the state government reduced the stamp duty for a period of three months up to December 2020. Moreover, the festive season played a crucial role in bringing cheer to the real estate sector which was under severe stress due to a rising inventory. By recording a 67% YoY growth in residential sales, November 2020 was the best November for Mumbai’s residential real estate market in the last nine years.

Residential sales 300x186 - Spurt In Demand, Gradual Recovery And Buoyant Stock Markets

The drop in active Covid-19 cases, the unaltered state of rural India, and the continuous improvement of India’s high-frequency indicators only lead to one inference: India is set to take off again and emerge as the fastest growing economy in FY22!

Happy Investing!

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Trade Smart has tied up with Tavaga Advisory Services, a SEBI Registered Investment Adviser (RIA).
Through the Trade Smart-Tavaga partnership, both companies intend to democratize investment advisory and cater to investors’ goals and needs through more transparent and efficient investing.
Tavaga & Trade Smart has issued this report for information purposes only. This is not an investment document. Please refer to https://tavaga.com/terms.html for disclaimers.

 

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