FIIs show confidence in Indian Equities, pouring money for four consecutive months and investors are betting on India's stable macroeconomic profile and sturdy corporate earnings outlook says YES SECURITIES in their 'Charting India in perspectives- June 2023' report. YES SECURITIES' research also suggests that FDI flows have slowed in FY23 given the rising global interest rates. However, India's emphasis on domestic manufacturing will attract FDI inflows in the medium-long term.
According to the report, after experiencing robust pent-up demand in 2022, urban consumer discretionary spending has witnessed a slowdown. However, experts anticipate a strong rebound during the upcoming festive season, indicating positive momentum in this crucial sector.
In terms of rural India's recovery, rural India, which played a passive role in driving consumer spending last year, is now exhibiting signs of recovery. The report highlights the potential for increased rural spending, fuelled by latent pent-up demand following the income disruptions caused by the pandemic.
Despite higher interest rates and prevailing global headwinds, the report indicates that consumer confidence and business optimism remain stable with a steady growth from May 2020 to May 2023. This resilience reflects the underlying strength and resilience of the Indian economy. Credit flow is strong towards Services and Consumers, though demand from Industry has slowed down in the wake of rising interest rates.
The report additionally emphasizes that government initiatives are expected to safeguard the agrarian economy. Increased farm credit and improving agricultural wages are projected to enhance aggregate demand in rural India, providing a supportive environment for economic growth. On the other hand, higher direct and indirect tax revenues are providing government great comfort in their fiscal deficit target.
While the longer end of the yield curve has been effectively managed by the Reserve Bank of India's commitment to an orderly evolution of yields, the short end of the curve continues to experience elevated yields. This has resulted in a flat yield curve, reflecting the ongoing challenges in the interest rate environment. FY24 Current Account deficit is estimated to narrow to 1.2% of GDP from 2.2% in FY23 on account of slowing merchandise imports and stronger service exports along with a revival in capital flows.
Although real rates are expected to remain positive, the report does not anticipate any immediate interest rate cuts. The looming risks associated with El Nino and rising interest rates in the United States and Europe make it challenging to predict a change in the current interest rate environment.
On the employment front, YES SECURITIES states that jobs are being created by traditional sectors like hotels, tourism and construction, however, employment activity in the IT sector has moderated given the slowdown in the West. The rural employment situation is going through a seasonal lull but can improve in the wake of a normal monsoon and associated pick up in Agricultural activity. |
