Between the fading of the first wave of the pandemic till now, we have seen a promising performance on almost all macro-economic indicators. This February saw a continuation of a strong economic recovery across all sectors. Demand conditions have remained buoyant and activity levels have reached pre-COVID levels in most industries. High-frequency indicators across a wide range of activities continue to show good growth prospects.

The Indian economy came out of recession with a growth of 0.4% in Q3-FY21, which is a sharp improvement from -24.4% and -7.3% in the preceding two quarters. The gains in the economy were broad-based with agriculture growth at 3.9%, manufacturing at 1.6%, electricity, gas, water supply and other utility services at 7.3%, construction at 6.2% and financial, real estate and professional services at 6.6%. Government expenditure grew 7.2% through fiscal measures during lock-down and that helped the revival to a large extent. Private consumption expenditure growth was, however, more tepid at 1%. Investment activities grew at 5.9% as many stalled projects resumed. The investment rate stood at 27.7% during Q3 of FY 21. The full-year GDP estimate for FY21, however, has been revised downwards from the earlier estimate of -7.7% to -8%.

Industrial production, as measured by IIP (Index for Industrial Production), grew by 1% YoY in December 2020 as against -2.1% in the previous month. This recovery has been supported by a manufacturing growth of 1.6% and the electricity segment at 5.1%. Cumulatively for the year so far, IIP growth has contracted by -13.5% compared with 0.3% in the in the previous year.

GST collections for January 2021 increased to an all-time high of INR 1.19 lakh crores, up 8.2% YoY and 4.1% in a month on month comparisons. Total GST collections so far this fiscal year (April-January 2021) has been INR 9 lakh crores, understandably a -12% YoY. GST collections have now been above INR 1 lakh crores for four consecutive months. April-January 2021 fiscal deficit of the government stood at INR 12.3 lakh crores, which is up 24% YoY and is at 66.8% of the revised estimate for FY21.

Revenue receipts of the government during this period remained almost at the same level as last year with the shortfalls in the case of CGST, personal income tax and corporate income tax being cancelled out by the gains in excise and customs collection. In the case of the expenditure, total expenditure rose by 8% during this period, with a growth of 6.3% in revenue expenditure and 20.9% in capital expenditure. The growth in capital expenditure has been on account of higher government spending towards roads, transport, highways, food and public distribution, and higher transfer to states. Total subsidies during this period was INR 2.5 lakh crores, a 4% low on YoY, with a 16% decline in food subsidies being the key factor. For the full year FY21, the government has estimated the fiscal deficit at INR 18.5 lakh crores, which is 9.5% of the GDP while the deficit for FY22 is budgeted at INR 15.1 lakh crores, 6.8% of the GDP.

The January 2021 trade deficit came at $14.5 bn, almost 5% lower YoY, on the back of positive growth in exports, which were up 6.2% YoY. Imports grew slower at 2% YoY. The trade deficit in January has narrowed from the previous month. Exports growth was primarily led by robust growth in electronic goods (16%), engineering goods (18.8%) and drugs and pharmaceuticals (16.4%). Total exports for fiscal 21 (April-Jan) have been around $229 bn, -13.4% YoY. Imports for Jan were $41.9, up 2% YoY primarily on account of higher imports of electronic goods (17.4%), gold (154%), pearls (50%) and coal, coke (10%). Total imports for fiscal 2021 (April-Jan) have been $303 bn, down by - 25% YoY.

Nifty (+6.6%) had a good run in February as the growth-oriented Union budget pushed the index to record all-time high (~15.4k) but a sudden reversal in declining COVID cases trend in India and a global sell-off triggered by a rise in US treasury yields pulled the benchmark down from the monthly highs. The budget announcement was cheered by the market as it didnʼt raise or introduce any new taxes (as was feared) and at the same time, increased allocation for capital expenditure, improving the outlook for job creation, investment cycle and medium-term sustainable growth. Also, the governmentʼs focus and commentary on privatization/divestments led to renewed interest in PSU stocks. A much improved Q3 FY21 result also boosted investor sentiment.