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Indian Economic Update
According to Indian firm’s executives, inflation remains the biggest concern for the consumer industry, such as household goods, apparel, lifestyle products... and electronics. Moreover, Clothing Manufacturers' Association of India (CMAI) said that advance booking for spring and summer clothing is down by 25-30% YoY over summer 2021, on account of higher prices

The government will move ahead with strategic sale of Shipping Corporation, BEML and BPCL in the next financial year, besides the initial public offering of three public sector companies. The budget has projected a disinvestment target of INR 650 billion, for FY23. The target would be met by a mix of minority stake sale in CPSEs, listing of CPSEs and strategic sale, according to the DIPAM Secretary Mr. Tuhin Kanta Pandey

India’s FY23 Budget focused on incentivising manufacturing through lower tax rates and ushering in private capex. Fiscal deficit for FY22 has been revised up to 6.9% of GDP (our estimate at 6.8%). Fiscal consolidation is underway with deficit estimated at 6.4% in FY23. However, gross and net market borrowings have seen a sharp increase in FY23 to INR 14.3 trillion and INR 11.2 trillion, respectively. Our gross and net borrowing projection was INR 13 trillion and INR 9.75 trillion, respectively

Finance Secretary Mr. TV Somanathan said that the borrowing programme of the central government is unlikely to crowd out private investment. He also said that any scaling down of borrowing for the next fiscal will depend on inflows into small savings and added that the budget has taken a conservative estimate for small savings, which resulted in a higher market borrowing

Fitch Ratings said that India has a limited fiscal space, given the high general government debt ratio for any BBB-rated EM at just under 90% of the GDP. The agency also said that the gradual pace of fiscal consolidation continues to place the onus on nominal GDP growth to facilitate a downward trajectory in the debt ratio, which is key to resolving the negative outlook on the sovereign rating

The Finance Secretary said that the Budget did not announce capital gains exemption for overseas settlement of government bonds, a demand from global settlement platforms, such as Euroclear, as the same would have compromised India's interests in international negotiations

According to CMIE, unemployment rate came down to 6.7% in January, against 7.91% in December; this is the lowest unemployment rate reading since March 2021. Rural unemployment came down significantly to 5.84% in January and urban unemployment came in at 8.16%

India’s Finance Minister, Mrs. Nirmala Sitharaman, on Tuesday said, the government would bring out a battery swapping policy and formulate interoperability standards for charging to facilitate large-scale adoption of Electric Vehicles (EVs). EV manufacturers hailed the announcement as a practical move to accelerate EV adoption

The Telecom Minister, Mr. Ashwani Vaishnaw on Tuesday said, that the Telecom Regulatory Authority of India's recommendation on 5G spectrum is expected to come by March, after which, the spectrum auction will be held expeditiously for the roll out of the next generation service

The Economic Survey 2022 projected 8-8.5% growth in FY23, given the backdrop of high exports and an expected revival in the private sector capex. This projection is based on the assumption that there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major Central Banks will be broadly orderly, oil prices will be in the range of USD 70-75/bbl and global supply chain disruptions will steadily ease, over the course of the year

India’s Core sector output accelerated to 3.8% YoY in December, compared to 3.1% YoY, in the previous month. The increase in output was led by a sharp improvement in cement, electricity and petroleum refinery products, while crude oil production remained in the contractionary territory and coal output decelerated.

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Global Update
The BoE provided a hawkish surprise to the market in response to a 30-year high inflation print and new forecasts that CPI inflation will top at 7.25%,... by April 2022. The policy rate was increased by 25bps to 0.5% on expected lines, with the UK MPC voting 5-4 for a decision. The four dissenting members voted for a much aggressive 75bps rate hike. The UK MPC also announced an introduction to QT by stating that it will not reinvest gilt securities and that it would both not reinvest and sell its holdings of corporate bonds. The guidance provided was that further rate hikes are expected along with possible sales of gilt securities later in 2022

The ECB maintained status quo and its accommodative framework on expected lines. However, the guidance provided by the ECB President, both in the post policy statement and in the press conference was hawkish, with a visible step up in concerns about the inflation outlook. The market is pricing in close to 40bps worth of rate hikes by the ECB, by December 2022

Geo-political tensions increased after the US Government moved an additional 2000 troops into Eastern Europe to the Russia-Ukraine border, while 1000 troops who were deployed in Germany, were moved to Romania. At the same time, media reports indicate that the Biden administration and European allies are searching the world for surplus natural gas to send to Europe, in the event a conflict erupts over Ukraine

The J.P.Morgan Global Manufacturing PMI posted a 15-month low of 53.2 in January, down from December's five-month high of 54.3. The PMI has signalled growth for 19 successive months. January saw 22 out of the 27 nations, for which data were available, register an improvement in the overall operating performance. However, of those countries seeing expansions, 13 also recorded a weaker rate of increase compared to the prior survey month (including the US, the UK, France, Italy and India). China, Mexico, Brazil, Kazakhstan and Myanmar all contracted. Japan was among the countries bucking the global trend, with its PMI rising to a 95-month high

Comments from the FOMC officials would seem to suggest a limited appetite to hike rates by 50bps in the March 2022 policy meeting. St. Louis Federal Reserve President, James Bullard, on Tuesday said, he favours starting the turn to tighter U.S. monetary policy with a possible quantum of 125bps over 2022 and QT to commence from Q2-2022 onwards, but he pushed back against the idea of kicking off the tightening cycle with a 50bps hike in March. At the same time, Federal Reserve Bank of Philadelphia President, Patrick Harker, favours four 25 basis-point interest-rate increases this year starting next month, but does not back a 50 basis-point move unless there’s an inflation “spike”

Several officials from the ECB’s Governing Council spoke, which reflected a fairly divided opinion among the members about the inflation outlook. However, it appears that the majority, such as Lagarde and Visco, emphasised the need to maintain an accommodative framework. Other members such as Knot said that, policy rates could rise in early 2023

U.S. senators are very close to reaching a deal on legislation, to sanction Russia over its actions on Ukraine, including some measures that may take effect before any invasion. At the same time, the Pentagon added that, Russia continued to boost troop levels at the border

The Biden administration reiterated that it’s ready to hold talks with North Korea without preconditions, a day after Kim Jong Un’s regime fired an intermediate-range ballistic missile for the first time since 2017.

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Equity
Benchmark indices are trading higher amidst mixed Asian markets, as Investors digest the hawkish comments from ECB president and BOE’s decision... to hike the interest rate. Domestic indices are likely to trade in a range ahead of MPC, which will meet earlier than usual and decide the future course of monetary policy action.

During the week Sensex gained 2.52% to close at 58644.82 while Nifty advanced 2.42% to close at 17516.30

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Debt
Government Bond prices may open steady ahead of the weekly debt sale worth INR 240 billion. Moreover, participants may trim their holdings given a lack of... appetite for gilts, after the budget projected a record high gross market borrowing for FY23.

10Y benchmark yield ended at 6.87% as compared to 6.77% of previous week.

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Oil
Global crude oil prices traded higher extending sharp gains, in the previous session. Brent crude prices are trading at USD 91.6 per barrel....

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Gold
Gold prices are trading higher and set for a weekly gain, as; a weaker Dollar concerns over stubborn inflation and tensions surrounding Ukraine, lifted... demand for the safe-haven bullion. Gold is trading at USD 1807.2 per ounce.

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Currency
INR may open higher against USD as DXY fell against the major currencies, after the hawkish comments from major Central Banks. However, rising crude... oil prices will limit the gain in the local unit. RBI’s intervention may curb any sharp movement in the pair. The Indian Rupee appreciated to 74.69 level against the US Dollar, in the previous trading session.

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Sensex
58644.82
2.52%
During the week Sensex gained 2.52% to close at 58644.82 while Nifty advanced 2.42% to close at 17516.30
 
Bond Yields
6.87%
10 bps
10Y benchmark yield ended at 6.87% as compared to 6.77% of previous week.
 
Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.
Disclaimer: The information set out herein has been prepared by ICICI Bank in good faith and from sources deemed reliable. ICICI Bank does not provide any assurance as regards the accuracy of such information. ICICI Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any direct or indirect loss / claim/ damage caused to any person, arising out of or in relation to the use of information communicated herein.