Latest opinion polls suggest that the BJP-led opposition is consolidating itsposition ahead of the general election scheduled for April-May. For the first timesince April 2013, the BJP-led NDA coalition is leading not only the incumbent UPA inpolls, but also the consolidated tally of all of the smaller and regional parties.
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Emerging Markets Research Emerging Asia 24 March 2014 PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 18 India: What to watch Chartbook of key economic indicators • Latest opinion polls suggest that the BJP-led opposition is consolidating its position ahead of the general election scheduled for April-May. For the first time since April 2013, the BJP-led NDA coalition is leading not only the incumbent UPA in polls, but also the consolidated tally of all of the smaller and regional parties. • Investment by foreign institutional investors (FII) into equities remains steady (USD11.6bn FYTD). FII investment in Indian debt has seen large swings – outflows of USD10.3bn over April-December have swung to USD6bn of inflows since January. The INR, which has largely been in a 61-62 range since mid-September, will likely witness a pre-election rally towards 59, in our view. • Growth momentum remains weak, but we see emerging green shoots of recovery as bottlenecks in key industries such as power, mining and domestic services sector are easing at the margin. While this may not be a conclusive signal of stronger activity just yet, we think these improvements could facilitate a growth recovery in FY 14-15, especially in case of a favourable election outcome. • Inflation, after a late-2013 upsurge, has moved lower. Despite a likely uptick in the next 3-4 months, largely reflecting an adverse base, we expect inflation to soften in the coming fiscal year – we forecast WPI and CPI to average 5.4% and around 7%, respectively, in FY 14-15 (FY 13-14 average so far – WPI: 5.9%, CPI: 9.6%). • After its surprise January rate hike, we expect the Reserve bank of India (RBI) to stay on hold in April, while the new government’s economic policies and monsoon trends will likely have considerable influence on monetary policy in H2. Meanwhile, tight liquidity conditions have kept short-term interest rates high. Longer-term interest rates also stayed elevated and moved sideways (10y IGB: 8.8%). FIGURE 1 Trends in key economic indicators Note: For colour coding – dark Gray: within +/-1ppt of previous print, blue: > 1ppt than previous print, light gray: < -1ppt than previous print. For CPI and WPI, dark gray: within +/-0.5ppt of previous print. Source: Haver Analytics, SIAM, Reserve Bank of India, Bloomberg, Barclays Research Key indicators Latest period T-2 T-1 Latest print (T) 5-yr avg GDP growth Q4-13 4.4 4.8 4.7 6.6 IIP growth (%) Jan-14 -1.3 -0.2 0.1 3.3 Core industry growth (%) Jan-14 1.7 2.1 1.6 5.3 PMI - industry Feb-14 50.7 51.4 52.5 54.3 PMI - services Feb-14 46.7 48.3 48.8 54.3 Passenger car sales growth (%) Feb-14 -9.0 -9.3 -3.9 12.1 Commercial vehicles sales Feb-14 -27.9 -17.4 -23.8 12.0 Steel production growth (%) Jan-14 3.9 3.1 3.4 7.4 Cement production growth (%) Jan-14 4.2 1.1 1.5 6.9 Coal production growth (%) Jan-14 2.3 -0.6 -0.7 3.3 Electricity generation growth (%) Feb-14 6.7 5.7 10.4 5.8 Credit growth (%) Jan-14 14.7 14.8 14.9 17.5 WPI (%) Feb-14 6.4 5.0 4.7 7.1 CPI (%) Feb-14 9.9 8.8 8.1 10.6 Siddhartha Sanyal +91 22 6719 6177 [email protected]Rahul Bajoria +65 6308 3511 [email protected]www.barclays.com Major India publications Title Date India - Pre-election INR rally to continue 11-Mar-14 Inside India: Game of thrones 04-Mar-14 India: GDP - Green shoots or another mirage? 14-Feb-14 India: Fiscal firefighting continues 05-Feb-14 India Policy Tour - Season 4: Winds of change 28-Jan-14 India: Fiscal balance - A tense walk, but likely no slippage 08-Jan-14 India: Inflation: Narrow-based spike starts dissipating 09-Dec-13 India: BoP: Set for a surplus; supportive of INR 14-Nov-13 India: Dealing with fiscal concerns 18-Oct-13 India: Rajan's roadmap to confidence 05-Sep-13 Inside India: Focus on 'Realpolitik' 13-Aug-13 India: INR - Will import controls help? 06-Aug-13
Transcript
Emerging Markets Research Emerging Asia
24 March 2014
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 18
India: What to watch
Chartbook of key economic indicators • Latest opinion polls suggest that the BJP-led opposition is consolidating its
position ahead of the general election scheduled for April-May. For the first time since April 2013, the BJP-led NDA coalition is leading not only the incumbent UPA in polls, but also the consolidated tally of all of the smaller and regional parties.
• Investment by foreign institutional investors (FII) into equities remains steady (USD11.6bn FYTD). FII investment in Indian debt has seen large swings – outflows of USD10.3bn over April-December have swung to USD6bn of inflows since January. The INR, which has largely been in a 61-62 range since mid-September, will likely witness a pre-election rally towards 59, in our view.
• Growth momentum remains weak, but we see emerging green shoots of recovery as bottlenecks in key industries such as power, mining and domestic services sector are easing at the margin. While this may not be a conclusive signal of stronger activity just yet, we think these improvements could facilitate a growth recovery in FY 14-15, especially in case of a favourable election outcome.
• Inflation, after a late-2013 upsurge, has moved lower. Despite a likely uptick in the next 3-4 months, largely reflecting an adverse base, we expect inflation to soften in the coming fiscal year – we forecast WPI and CPI to average 5.4% and around 7%, respectively, in FY 14-15 (FY 13-14 average so far – WPI: 5.9%, CPI: 9.6%).
• After its surprise January rate hike, we expect the Reserve bank of India (RBI) to stay on hold in April, while the new government’s economic policies and monsoon trends will likely have considerable influence on monetary policy in H2. Meanwhile, tight liquidity conditions have kept short-term interest rates high. Longer-term interest rates also stayed elevated and moved sideways (10y IGB: 8.8%).
FIGURE 1 Trends in key economic indicators
Note: For colour coding – dark Gray: within +/-1ppt of previous print, blue: > 1ppt than previous print, light gray: < -1ppt than previous print. For CPI and WPI, dark gray: within +/-0.5ppt of previous print. Source: Haver Analytics, SIAM, Reserve Bank of India, Bloomberg, Barclays Research
Key indicators Latest period T-2 T-1 Latest print (T)
FIGURE 5 Victory margins were relatively small in a large number of seats in 2009
Slim victory margins point to a large number of close contests
FIGURE 6 In most major states, NDA coalition has decent momentum, according to recent opinion polls
Seats Nielsen February 2014 CSDS March 2014 Hansa NDTV March 2014
NDA UPA Others NDA UPA Others NDA UPA Others
Uttar Pradesh 80 40 11 29 45 7 28 40 12 28
Maharashtra 48 28 14 6 27 19 2 33 12 3
Andhra Pradesh 42 0 4 38 0 9 33 9 6 27
West Bengal 42 0 2 40 1 7 34 0 1 41
Bihar 40 21 7 12 26 8 6 23 11 6
Tamil Nadu 39 0 2 37 5 2 32 0 0 39
Madhya Pradesh 29 26 3 0 25 4 0 24 4 1
Karnataka 28 17 8 3 8 14 6 20 6 2
Gujarat 26 22 4 0 23 2 1 23 3 0
Rajasthan 25 20 5 0 22 1 2 19 5 1
Remaining 144 62 32 50 39 56 49 38 69 37
Total 543 236 92 215 221 129 193 229 129 185
Source: CSDS, Nielsen, NDTV Hansa Research, Barclays Research
0
20
40
60
80
100
120
140
< 3% 3-5% 5%-8% 8%-10% 10%-15% > 15%
Margin of win in 2009 election (%)
Barclays | India: What to watch
24 March 2014 4
INR – Stability maintained despite Fed tapering
FIGURE 7 INR has outperformed EM basket since the Fed announced tapering in December
The INR has appreciated significantly since late August, and has outperformed its EM peers since the start of Fed tapering in December
Note: Currency values indexed to USD/LCY = 100 as of 1 January 2013.
FIGURE 8 Equity inflows have strengthened, debt market outflows in H2 2013 have turned into sizeable inflows since January 2014
While equities continue to receive FII inflows, bonds have also enjoyed sizeable inflows since January 2014
FIGURE 9 Portfolio flows improved of late, contributing to INR stability
Overall, FII flows (equity and debt combined) have been positive in recent months; INR remains steady largely in 61-62 range; we anticipate a pre-election rally towards 59
Source for all charts on the page: Bloomberg, Barclays Research
Gross fixed capital formation, % y/yAverage growth (last 7 years)
%
Barclays | India: What to watch
24 March 2014 16
Balance of payments – Source of optimism
FIGURE 45 INR has stabilised as the trade deficit continues to narrow rapidly…
The rapid improvement in the current account continues to support the INR
Source: Haver Analytics, Barclays Research
FIGURE 46 Trade deficit falls further, led by adjustments in gold and non-gold, and non-oil side
Trade deficit showing a huge improvement
* indicates assumption for Gold imports and petroleum exports for February 2014; Source: CEIC, Barclays Research
FIGURE 47 Our monthly tracking estimate shows significant improvement in the current account
We forecast a current account deficit in FY13-14 of 2.1%
Note: Barclays tracking estimate uses official goods and services trade balance, and assumptions on other transfers. Source: RBI, Barclays Research
35
40
45
50
55
60
65
70-25
-20
-15
-10
-5
0Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14
Trade balance (LHS) USD-INR (RHS, Reverse Axis)
$ bn
-22
-18
-14
-10
-6
-2
2
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14
Trade balance Trade balance ex oil* Trade balance ex oil, gold*
USD bn, 3mma
-35
-30
-25
-20
-15
-10
-5
0
5
May-11 Apr-12 Mar-13 Jan-14 Dec-14
Barclays tracking estimate of current account deficit (USD bn)
Barclays | India: What to watch
24 March 2014 17
Capital flows remain supportive
FIGURE 48 Services surplus hit an all-time high in January 2014 (latest data available)
Services growth recovering on the back of better growth in US and Europe
Source: Haver Analytics, Barclays Research
FIGURE 49 Net FDI inflows in first 10 months have risen above the full year amount in FY12-13
FDI inflows have been impressive in FY13-14
Source: GoI, Haver Analytics, Barclays Research
FIGURE 50 Portfolio flows have rebounded strongly in past three months
Debt flows of ~USD6bn have supported portfolio inflows
Source: CEIC, Barclays Research
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
Apr-11 Mar-12 Feb-13 Jan-14
Trade balance: Services (USD bn) 3mma
0
5
10
15
20
25
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FDI, YTD, USD bn
FY12 FY13 FY14
-10
-5
0
5
10
15
20
25
30
35
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
USD bn
FY11 FY12 FY13 FY14
Barclays | India: What to watch
24 March 2014 18
Fiscal health remains a concern for the market
FIGURE 51 Fiscal deficit stays high, but the government says it will avoid a slippage in FY 13-14
Government has reduced the fiscal deficit target for FY13-14, which requires surpluses in last two months of the fiscal year
Source: Haver Analytics, Barclays Research
FIGURE 52 Reduction in expenditure remains the name of the game
Revenue collection remains modest, but expenditure growth is now easing in order to meet fiscal targets
Source: Haver Analytics, Barclays Research
0
1,000
2,000
3,000
4,000
5,000
6,000
Apr Jun Aug Oct Dec Feb
(Fiscal deficit, INR bn, YTD)
FY10-11 FY11-12 FY12-13 FY13-14
-80
-60
-40
-20
0
20
40
60
0
500
1,000
1,500
2,000
2,500
Jan-13 May-13 Sep-13 Jan-14
Rs bn
Revenue Expenditure
y/y growth in revenues (%, RHS) y/y growth in expenditure (%, RHS)
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