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India’s economic landscape is showing signs of stability and optimism, with Chetan Ahya, Chief Economist, Asia, Morgan Stanley, expressing positivity about India’s macroeconomic stability and its strong position among emerging and developed markets.
India is poised for a 6% GDP growth in the upcoming quarter, with estimates of 6.4% for the fiscal year ending in March 2024 and 6.5% for the subsequent financial year. These forecasts are encouraging, but two key risks require attention.
The first risk centres on oil prices. While the base case anticipates stable oil prices, geopolitical tensions could trigger oil price surges, affecting India’s current account deficit, inflation, and possibly currency market turbulence if oil surpasses $110 per barrel.
The second risk involves political events. The outcome of the May 2024 elections, potentially resulting in a coalition-style government, may significantly impact India’s growth prospects and private investment sentiment, reshaping the nation’s medium-term outlook.
RBI’s Inflation Strategy:
The RBI’s inflation management aims to reach 4%, prioritising sustainable economic growth and employment. Globally, central banks, including the US Fed and the ECB, have pursued gradual approaches to achieve their 2% inflation targets, recognizing the challenges of swift adjustments.
Similarly, the RBI is expected to continue a balanced approach to address supply-side inflation for several months.
India’s Competitive Position:
India stands as one of the strongest performers among emerging markets and even compared to developed markets. It offers robust growth rates and maintains macroeconomic stability regarding inflation and the current account balance.
This positions India as an appealing destination for investors, presenting the potential for a sustainable nominal GDP growth of 10-11%. This backdrop is favourable for corporate sector profitability, drawing significant investment inflows.
Interest Rate Differentials:
The gap between nominal interest rates in the US and India has narrowed, although fundamental rate differences remain substantial.
However, India’s interest rates align well with its inflation and current account data, negating the immediate need for rate hikes to manage macroeconomic stability. Stable inflation and current account balances contribute to stable currency markets.
RBI’s Rate Policy:
Further rate hikes by the RBI appear unlikely. Any potential adjustments may depend on the US Fed’s actions, oil price movements, and India’s macroeconomic stability indicators.
Rate cuts may be considered once the US Fed signals the conclusion of rate hikes and the US dollar begins softening. Timing will be crucial to avoid currency management issues and imported inflation.
Fund Inflows and Currency Markets:
India’s inclusion in the JPMorgan index is expected to attract moderate fund inflows, which should not exert substantial pressure on the Indian rupee’s appreciation due to India’s current account deficit.
These inflows will, however, enhance the RBI’s control over foreign exchange, particularly in scenarios involving rising oil prices and geopolitical tensions, contributing positively to India’s macroeconomic stability.
In summary, India’s economic outlook is promising, marked by stability and growth, with a cautious approach to policy adjustments when necessary.
🧾In this Article
🔎Stocks in News
💼 Raymond Group acquired a 59.25% stake worth ₹682 crore in Maini Precision Products.
💱 UCO Bank received approval from RBI to onboard the bank for Central Bank Digital Currency.
🏗️ L&T will sell its 100% stake in subsidiary L&T Infrastructure Engineering to a French company.
🛍️ Reliance Industries: Reliance Retail will acquire the beauty retail business of Arvind Fashion.
💰 MRF announced an interim dividend of ₹3 per share.
🤝 Dixon Tech acquired a 100% stake in Dixtel Infocom.
🚗 Minda Corp signed an agreement to form a joint venture with Taiwan-based HSIN Chong Machinery Works to produce sunroofs for passenger vehicles.
💊 Lupin received approval from US authorities to market a generic medication.
🏦 Kotak Mahindra Bank will sell a majority stake in subsidiary Kotak Mahindra General Insurance to Zurich Insurance Company for ₹4,051 crore.
🧬 L&T will incorporate a fabless semiconductor chip subsidiary for ₹830 crore.
⛏️ NMDC reported a 19% increase in iron ore production for the April-Oct period.
🌐 Zydus Lifesciences acquired UK-based LiqMeds Group in an all-cash deal.
🥤 Tata Consumer will merge its 3 wholly-owned subsidiaries – NourishCo Beverages, Tata SmartFoodz, and Tata Consumer Soulfull.
📰 Quick Bites
📈 GST collection in Oct 2023 rose by 13.4% year-on-year to reach ₹1.72 lakh crore.
⛽ Sale of petrol saw a 3% increase in Oct, while diesel sales rose by 5%.
🚆 India and Bangladesh jointly inaugurated the Agartala-Akhaura project, expected to reduce the distance between Agartala and Kolkata from 1,600 km to 500 km.
🛢️ LPG prices have been increased by around ₹100 per 19 kg cylinder.
✈️ Jet fuel prices have been reduced by around 6%.
🤝 Shiv Nadar donated ₹2,042 crore, equivalent to ₹5.6 crore a day, in 2023. Azim Premji followed with an annual donation of ₹1,774 crore, and Mukesh Ambani was third on the list with ₹376 crore in donations.
💷 The Bank Of England left interest rates unchanged at 5.25%.
📵 WhatsApp banned 71.1 lakh accounts in India in September.
💼 The Walt Disney Company will acquire NBC Universal’s 33% stake in Hulu’s streaming platform for $8.61 billion.
💹 BSE has increased transaction charges for Sensex equity derivatives, effective 1 Nov 2023, and applicable only to nearest expiry contracts.
🧅 The average onion price in Delhi has reached ₹78/kg, while the all-India average price stands at ₹50.35/kg, according to the Department of Consumer Affairs.
📱 Wistron Corp has approved the sale of its Indian manufacturing factory to Tata Group, paving the way for Tata Group to start assembling iPhones in India.
🛢️ India’s net natural gas production rose 6.65% year-on-year to 2,976.01 million metric standard cubic meters per day in Sept 2023, as reported by the Petroleum Planning and Analysis Cell.
🌱 Sustainability Corner
📈 India Inc. to invest ₹7 lakh crore in energy transition over the next 5 years, focusing on renewable energy, electric vehicles, and energy storage, according to a report by the Rocky Mountain Institute (RMI).
💼 The energy transition is expected to create 2.5 million new jobs in India over the next five years, promoting a more sustainable and inclusive economy.
🌱 India aims to reduce the emissions intensity of its GDP by 45% by 2030, with investments in renewable energy, electric vehicles, and energy efficiency.
💰 India plans to launch a ₹10,000 crore green bond program to finance green projects like renewable energy, energy efficiency, and sustainable transportation.
🌍 India is set to establish a national carbon trading market by 2024 to reduce greenhouse gas emissions and promote clean energy technologies.
☀️ India’s renewable energy capacity has surpassed 160 GW, making it the fourth-largest producer of renewable energy globally, with ambitious targets of achieving 500 GW by 2030.
🚗 India’s electric vehicle (EV) sales increased by 200% in October 2023, driven by rising fuel prices, government incentives, and growing EV awareness.
⚡ The Indian government plans to invest ₹10,000 crore in EV charging infrastructure over the next five years and establish a national EV battery manufacturing program to attract investment and become a global leader in EV battery production.
🔋 Customs duty on EV imports has been waived in India until 2025 to make electric vehicles more affordable, coupled with reduced customs duty on EV components. 🇮🇳🌿
💡🍬 Knowledge Candy: How do I compute the capital gains tax for shares bought a decade ago?
Capital gains tax on shares bought 10 years ago has a straightforward calculation. Back then, there was no long-term capital gains tax on shares. This tax was introduced in the financial year 2018-19, levying a 10% tax on the gains or profits made.
So, if you invested in shares a decade ago, you won’t encounter any tax liability until the financial year 2018-19. Only gains made after this fiscal year will be subject to a 10% tax.
It’s important to note that shares are only taxed when you sell them. Merely holding shares in your portfolio does not trigger any taxes.
Additionally, there’s a tax benefit for investors. In every financial year, up to Rs 1 lakh in gains from equity investments, which includes both shares and mutual funds, is entirely tax-free. This provision offers some relief to small investors, shielding a portion of their gains from taxation.