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Indian Economic Update
PM Modi launches Gati Shakti plan to streamline infra development and urged all state governments to be associated with the plan...

Government cuts import duty, agri cess on key edible oils, in a bid to check the rising prices

India’s headline CPI further softened to 4.35% YoY in September (4.30% our estimate) compared to 5.30% in August, driven by benign food inflation. A high base was also a contributing factor. Core inflation remained sticky at 5.75% YoY (5.8% our estimate) vs. 5.77% in August. We expect headline inflation to remain benign till November on the back of a high base before it starts to inch up from December onwards. We expect CPI inflation to average 5.4% in FY22

India’s Industrial Production (IIP) increased by 11.9% YoY in August 2021 compared to 11.5% YoY in July 2021. During April-August 2021, Industrial Production has increased by 28.6%, on a low base. This tailwind will not be present from September 2021 onwards. Even so, strong exports and underlying domestic recovery bode well for industrial activity in coming months

GoI, in its latest monthly economic review, commented that CPI inflation is expected to sustain its downward trajectory in the coming months which would support a swift economic revival even as the recent volatility in international crude oil prices, along with high edible oil prices, continue to be concerns

Union Government has released INR 98.71 bn as the seventh monthly instalment of the post devolution revenue deficit grants to 17 states for FY2022. With the release of the latest instalment, the Center has shared a total of INR 690.97 bn as post devolution revenue deficit grants to states in the first seven months of FY2022 totaling 58.33% of the total recommended revenue deficit grant of INR 1.18 tn

The Monetary Policy Committee (MPC) voted unanimously to maintain status quo on policy rate. As was the case in the last policy, accommodative stance was maintained with a 5:1 vote. Given the liquidity backdrop, RBI decided to discontinue with GSAP purchases. On the other hand, variable rate reverse repo auctions will be gradually stepped up from INR 4 tn today to INR 6 tn in early December. Going forward, we expect the RBI to keep the repo rate unchanged over FY22. However, we maintain our projections of a normalisation in the Liquidity Adjustment Facility (LAF) corridor with a two-step hike in the reverse repo rate starting December 2021.

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Global Update
Federal Reserve officials broadly agreed last month that they should start reducing emergency pandemic support for the economy in mid-November or mid-December amid increasing concern over inflation. “Participants... generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” minutes of the September 21-22 Federal Open Market Committee meeting released Wednesday said

Singapore's Central Bank unexpectedly tightened monetary policy on Thursday, saying the move would ensure medium-term price stability amid mounting cost pressures caused by supply constraints and the global recovery. It adjusts its policy through  three levers: the slope, mid-point and width of the policy band. The Monetary Authority of Singapore (MAS) said on Thursday it would raise slightly the slope of the policy band, from zero percent previously. The width of the band and the level at which it is centered will be unchanged, it said

A further developer downgrade hit China’s embattled real estate sector, as S&P Global Ratings cut Greenland Holding Group Co., saying impaired funding access will limit its ability to weather the slump. While S&P still expects the company to manage upcoming maturities, it lowered the long-term issuer rating to B+ from BB with a negative outlook and said cash could continue to deplete over the next 12 months due to weaker sales and cash collection

The European Union and the U.K. braced for a new round of negotiations over trade barriers in Northern Ireland, after a British challenge and fresh concessions from the bloc signaled glimmers of progress in defusing tensions

The IMF lowered its global growth projections on the back of supply-chain disruptions and ongoing concerns about COVID-19. Global growth projections were lowered from 6% YoY to 5.9% YoY for 2021 but were kept unchanged at 4.9% YoY for 2022. Downward revisions were made to both US and Chinese growth forecasts. However, the IMF kept its India growth projections unchanged at 9.5% YoY for FY2022 and at 8.5% for FY2023. The IMF also warned about the risk of sudden and steep declines in global equity prices and home values as the Federal Reserve and other central banks withdraw the support they’ve provided during the pandemic

Federal Reserve Bank of Atlanta President Bostic said that price pressures could be broadening and may not be temporary. At the same time, Federal Reserve Vice Chairman Clarida said that conditions for tapering has been met but downplayed risks of a stagflation environment

Federal Reserve of St. Louis President James Bullard played down the risks posed to economic growth by the delta variant and stated that tapering should commence as early as November

Chinese authorities are kicking off an inspection of the nation’s financial regulators, biggest state-run banks, insurers and bad-debt managers for the first time in six years as Beijing steps up efforts to root out corruption in the USD 54 trillion financial system

Thermal coal futures surged to a record for a second day in China as another key mining region suffered flooding, complicating efforts to boost supply and halt an escalating energy crisis

A one-off shift in workers’ pay in response to recent price spikes wouldn’t be a sign of sustainably higher inflation, European Central Bank Chief Economist Philip Lane said. “Differentiating between transitory and persistent shifts in the growth rate of wages” will play an important role in assessing the progress of underlying inflation, he said at a conference on Monday. Single shifts in the level of wages do “not imply a trend shift in the path of underlying inflation.”

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Equity
Benchmark indices are likely to open high, supported by gains in IT stocks and the overall upbeat domestic underlying sentiment are likely to aid further gains....

During the week Sensex gained 2.07% to close at 61305.95 while Nifty advanced 2.47% to close at 18338.55

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Debt
Government bond prices may open steady ahead of the weekly gilt auction to be held today even as US treasury yields on their 10-year benchmark dipped. Market is expected to remain cautious on a ...truncated week.

The 10Y benchmark yield ended at 6.32% same as compared to the previous week.

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Oil
Global crude oil prices are trading higher, reversing previous losses, on expectations that high natural gas prices as winter approaches may drive a switch to oil to meet heating demand needs.... Prices were also supported by concerns about supply tightness after the U.S. Energy Information Administration (EIA) said on Wednesday that crude oil output in the United States, the world’s biggest producer, is going to decline in 2021 more than previous forecast. Brent crude prices are trading at USD 83.60/barrel.

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Gold
Gold prices are trading flat, post overnight rally as benchmark U.S. 10-year Treasury yields pulled back from a more than four-month high, reducing the opportunity cost of holding non-interest bearing gold.... Minutes from the Federal Reserve’s September meeting showed the central banks could start reducing its crisis-era support for the U.S. economy by mid-November, but policymakers remained split over how big of a threat high inflation represents and how soon they may need to raise rates in response. Gold is trading at USD 1790.00/oz.

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Currency
Indian Rupee may open higher against the dollar as the US dollar index fell sharply in early Asian trade today against a basket of major currencies and US treasury yields on the 10-year benchmark note dipped.... Any sharp appreciation in the Rupee may be limited by persistent RBI interventions. The Indian Rupee closed lower at the 75.29 level against the US dollar in the previous trading session.

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Sensex
61305.95
2.07%
During the week Sensex gained 2.07% to close at 61305.95 while Nifty advanced 2.47% to close at 18338.55
 
Bond Yields
6.32%
0 bps
The 10Y benchmark yield ended at 6.32% same as compared to the 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.