India Q2FY23 GDP growth came in at 6.3%, lower than Q1, but better than street estimates. It had grown by 13.5% in Q1, but that was on a much lower base and without the overhang of global tightening. Agriculture was the leader at 4.6% while manufacturing remained under pressure due to tightening and also due to supply chain constraints. Within service, trade, tourism and travel saw a sharp bounce back as it grew in double digits. GVA (excluding indirect tax and subsidy impact) grew by 5.6% in second quarter.
In an interesting move, Fed Chair Jerome Powell signalled that the Fed would now slow its pace of rate hikes starting December. A likely trajectory could be a 50 bps hike in December and a few hikes of 25 bps after than in 2023. The Fed meets on December 13th and 14th for the last time in this year. This come in the aftermath of 4 successive rate hikes of 75 bps each. However, the Fed has not spoken much about its terminal rate target, although the reading of the CME Fedwatch is that it could be slightly above 5% mark.
For the first 7 months ending October 2022, the central government reported that fiscal deficit had touched 45.6% of the full year target. This is higher than last year, but then commitments have also been much higher in the current year. The fiscal deficit for the first 6 months of FY23 stood at 4.7% of GDP, but a lot of outlays tend to get back-ended so India may end the year at around 6.4% of GDP, which would be good enough. This is despite the fact that the rupee fiscal deficit may overshoot by more than Rs1 trillion.
The core sector or the infrastructure growth for the month of October 2022 was tepid at just 0.1%, which represents a 20-month low. Core sector is a combination of 8 core sectors of the economy including coal, electricity, oil extraction, oil refining, natural gas, steel, cement and fertilizers. Even in September 2022, the core sector had grown 7.8%. Negative growth was seen in crude oil, refining, cement and natural gas. Fertilizers recorded the best growth at 11.8% followed by steel at 4%. Core sector is 40.27% of IIP basket.
On 30th November, Foreign portfolio investors (FPIs) infused Rs9,010 crore on a net basis, the third best single day flow in history. The other records are Rs28,739 crore on 24th February 2021 and Rs17,489 crore on 21st April 2015. This surge in flows cold be largely attributed to the MSCI India semi-annual adjustment. That apparently accounted for half of the flows during the day. Such adjustment flows typically come from passive index funds and ETFs. Buying was seen in VBL, TVS Motors, Bajaj Holdings, IHCL, ABB and TI India.
Tata Group is in advanced talks to buy out Wistron Corp’s sole manufacturing facility in India for an overall consideration of $613 million or about Rs5,000 crore. Wistron is Apple’s top vendor in India and Tata has been eyeing this outsourcing space for some time now. It is also open to the idea of a JV. Tata Electronics already supplies components to Apple from its Hosur unit. Currently, iPhones are assembled in India by 3 global suppliers; Wistron, Foxconn and Pegatron. Apple is big on India and on reducing China dependence.
It looks like hardening interest rates have taken a toll on the debt servicing capacity of Indian companies, even as input costs continue to pose a threat to companies. The interest coverage ratio (ICR) of all listed companies in India fell for the first time in 3 years in H1FY23. The September quarter was the first full quarter after RBI had aggressively started hiking rates. It was 7.1X in September 2021 quarter but fell to 6.1X in the current quarter. ICR is ratio of EBITDA to interest costs and has been applied to non-financials.
The US economy has shown firm growth in the third quarter amidst high interest rates and chronic inflation. The US economy reportedly grew at 2.9% in the September 2022 quarter, which his 30 bps more than the first advance estimate of 2.6% for Q3. There were upward revisions to consumer spending and business investment. In the third quarter, the PCE inflation came in at 4.6%. With inflation tapering and with growth picking up, the Fed can now afford to experiment with slower trajectory of rate hikes ahead.