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Iceberg seeks to leverage monthly macroeconomic compass, scanning key motifs and boots on the ground to curate 'chops and changes'.
Real Sector: Consumption takes the lead
Our Real Sector indices continue to indicate a steady and healthy economy, led by gradual improvement in consumption. Rural consumption improved sequentially MoM, and the key monitorable here is a sustained run as the monsoons start. The industry and trade sectors witnessed some moderation sequentially as exports dipped and parts of the core industries witnessed some moderation. Infrastructure and capex indices too witnessed a sequential deceleration owing to election-related uncertainty, which we expect to subside June onwards.
RBI policy: At the cusp of 'rate cut' discussions?
The RBI Monetary Policy Committee (MPC) held onto the status quo, retaining both rates and 'withdrawal of accommodation' stance, with continued focus on returning inflation to the 4.0% target. FY25 growth projections were raised to 7.2% from 7.0% and inflation target retained at 4.5%. But the tide may be turning, given the surprise as regards vote distribution (on rate/stance). Both - retaining rate and stance - were agreed upon with a vote of 4-2 each. Note that the prior vote mix for stance was at 5-1, indicating that the MPC may be close to the discussion on 'rate cut'. We retain our first 'rate cut' expectation in Q4FY25. Normal monsoon with encouraging spatial and intertemporal distribution would encourage a stance change in Q3FY25.
India GDP: Upside surprise continues
The headline GDP grew by 8.2% YoY - the highest, barring base effect-led growth of 9.7% YoY in FY22. Domestically, the share of GFCF rose to 33.5% in FY24 - the highest on record and much higher than in FY04-07 investment cycle, when it averaged at a 26.8% share in GDP (29% on FY04 base time series). GVA grew by 7.2% YoY versus 6.7% in FY23, led by a 9.5% growth in the industrial sector. We retain our growth projection for FY25E/26E at 7% YoY/6.8% YoY, with a likely upside if private capex cycle gets firmly entrenched. The announcement of final Budget in July 2024 by the new government as also the 100-day plan may offer further policy clarity and direction as to next growth levers.
Global outlook this month
This months' outlook is dominated by US CPI data for May - Expect 3.5% CPI and 3.5% core CPI YoY (3.4% and 3.6% in April 2024). Also, all eyes will be on the Fed meet - Expect the FOMC to reduce rate cut guidance. For CY24E, we shift our first 'rate cut' expectation by the Fed to Sep-24 from Jul-24 previously and reduce the magnitude to 50bps from 75bps previously. Although we expect inflation to moderate incrementally, the labor market may not see any material downside for the Fed to cut in July. In Asia, much of the market chatter may be dominated by the BoJ meet. Expect BoJ to remain on hold owing to a slowing economy. Among EMs, India will release May CPI data - Expect 4.91% (4.83% in April). Market reaction to EU politics is also a key event this month that needs to be monitored; expect weakness in EUR in near term. |
