economy and markets presentation _ june 2020.pdfto provide rs 300 billion as refinance support to...
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Economy and Markets
June 2020
The world’s battle with COVID-19 continues
World-wide situation of the COVID-19
Source: WHO, as of 3rd June 2020
• Total number of confirmed cases stands at 62,87,771 as of 3rd June 2020.
• The mortality rate in June has declined when compared to the averages of May and April.
• Mortality rate stands at 6% as of 3rd June 2020 lower than. 6.7% in May 2020 and 6.3% in April 2020..
(Source : WHO)
6.28 million cases of COVID-19 as of 3rd June 2020 Mortality rate stands at 6% as of 3rd June 2020
Country-wise COVID-19 cases
Source: CEIC; World Bank; Cases as of 3rd June 2020; Population as of 2018; Data labels in the graph corresponds to
total number of COVID-19 cases
Country-wise spread of the disease
• United states account for highest number of COVID-19 cases (29%) followed by Brazil (8.3%), Russia (6.8%) and United
Kingdom (4.4%)
• India now has the seventh-highest number of COVID-19 cases. While, in absolute number, India ranks 7, in terms of total
cases (% of population) , the ranking is much below at 131.
• Qatar has the highest cases (as % of population) at 2.17%.
Medical research to combat COVID-19
Source: WHO, News reports; Data as of 30th May 2020
WHO has raised US$8.1 billion in pledges and implementing an access toCOVID-19 Tools Accelerator for global vaccine development.
The Coalition for Epidemic Preparedness Innovations (CEPI) is working withglobal health authorities and vaccine developers to raise US$8 billion in a globalpartnership between public, private, philanthropic, and civil society organizationsfor accelerated research and clinical testing of eight vaccine candidates.
The Global Alliance for Vaccines and Immunization (GAVI) is financing andorganizing clinical groups in under-developed countries with COVID-19vaccination preparedness.
The Gates Foundation, a private charitable organization dedicated to vaccineresearch and distribution, is donating US$250 million for research and publiceducational support, mainly in support of CEPI.
Several organizations have formed international alliances to expedite vaccine development :
Nearly 159 vaccine
candidates have been
developed so far for testing ,
of which 10 are in clinical
evaluation and 121 are in
Pre- clinical evaluation.
India continues to see sharp rise in COVID-19 cases; Recovery rate improves too
Source: WHO ; CEIC ; Data as of 3rd June 2020
Cases in India stands at 207,615 as on 3rd June2020 Testing in India continues to ramp up
• India continues to see exponential rise in number of cases , despite lockdowns.
• Testing now has increased to 0.14 million on a daily basis vs. an average of 0.07 million in April 2020.
• Total number of confirmed cases in India stands at 207,615 as of June 3, 2020.
• Even as the deaths have surpassed 5,000, the mortality rate in India continues to remain relatively low at 2.8%
compared with the global average (6%).
• The recovery rate in India is increasing. As many as 91,855 patients have been recovered in India, taking the recovery
rate to 48%. (vs. 24.9 as of April end and 8.9% as of March end)
(Source : WHO, CEIC)
Four states account for 70% of COVID-19 cases
Source: CEIC, *Data as of 27th May 2020
Maharashtra, Tamil Nadu, Gujarat and Delhi accounts for nearly 70% of the COVID-19 cases
GLOBAL ECONOMIC RESPONSES TO THE SITUATION
Global central banks have delivered sharp rate cuts
Source: Bloomberg, SBIMF Research; NB: * Indonesia had announced to use new policy benchmark i.e. 7-day reverse
report rate as its benchmark policy rate in April 2016;
• Host of global central banks reacted promptly by reducing rates in order to support growth
Other monetary measures undertaken by Global Central Banks
Source : IMF;
Focus areas of monetary stimulus rolled out by various countries :
Asset (securities) purchasesLowering of capital/reserve
requirementsSupport bank lending to small
and medium enterprises
Temporary forbearance on classification of past due
loans
Broaden the eligible collateral for open market operations
Long term refinancing operations
Providing liquidity to mutual funds
Fiscal measures rolled out by various countries to contain the slowdown
Source: IMF, SBIMF Research ; *As of 21st May 2020
Fiscal stimulus come in the form of combination of guarantees, delayed payables and direct impulse, hence does
not entail immediate spending in all cases2
1.1
13
.0
12
.0
10
.0
9.9
9.8
8.0
7.2
6.1
5.3
5.0
4.9
4.1
4.0
4.0
2.9
2.8
2.5
1.4
0.7
0.0
5.0
10.0
15.0
20.0
25.0
Jap
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Un
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Bra
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Fran
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Ger
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Fiscal stimulus as a % of GDP
Contours of fiscal stimulus rolled out by various countries
Source: IMF, SBIMF Research ; *As of 30th April 2020
Focus areas of fiscal stimulus rolled out by various countries :
Tax reliefBusiness
Loans/grantsHealthcare
Targeted industry support
Loan guarantees Jobs retention
schemes
Public investmentUnemployment
InsuranceDirect cash transfers
INDIA’S RESPONSE TO THE SITUATION
Govt of India’s response to COVID-19
Source:SBIMF Research
The government has decided to re-open the economy outside of containment zones in three phases and complete
lockdown to still continue in containment zones till 30th June 2020.
No. of confirmed cases
Timeline of social distancing measures by the government
From lockdowns to Unlocking
Source: MHA ;SBIMF Research
Activities allowed (Outside of containment zones)
Activities allowed
in Containment
zones
From June 1Phase 1
(from 8th June 2020)
Phase 2
(in July 2020)
Phase 3
(dates to be decided)
Only essential
services allowed
Inter and intra state
movement of persons
and goods without e-
pass
Religious places Schools and collegesInternational air travel, metro
rail services
Movement of
goods/cargo for cross
land border trade
Hotels, restaurants
and other hospitality
services
Educational/training/c
oaching institutions
Cinema halls, gyms,
swimming pools,
entertainment parks,
theatres, bars, auditoriums,
cinema halls
Night curfew timings
relaxed to 9 pm -5 am
(from 7 pm - 7 am
earlier)
Shopping malls
Social/political/sports/enterta
inment/academic/cultural/reli
gious functions
Government decides to relax the restrictions and re-open economic and social activities in a
calibrated manner
• Earlier classification of red, orange or green zones has been done away with. Now the whole country is divided into
containment zone and non-containment zone,
• Containment zones will continue to see earlier imposed lockdown guidelines at least until 30th June 2018.
• The perimeters of a containment zone are decided based on number of positive cases in area, contact tracing history
and population density.
• States/UTs can prohibit certain activities based on their assessment of the situation and pose restrictions as deemed
necessary.
Fiscal response to COVID-19 by Government of India
Source: Ministry of Finance, SBIMF Research; * Liquidity injection of Rs 900 billion to DISCOMs via PFC and REC; NABARD
to provide Rs 300 billion as refinance support to rural co-op banks & RRBs and Rs 1 trillion for funding Agri infra projects Rs
400 billion to be incurred by quasi sovereign agencies for MSME fund of funds.
Fiscal measures
Total benefits
(Rs billion)
Fiscal cost
in FY21
Fiscal cost as
% of GDP
Round 1 1,928 1,548 0.74
Round 2 - Tranche 1 5,946 940 0.45
Round 2 - Tranche 2 3,100 100 0.05
Round 2 - Tranche 3 1,500 240 0.11
Round 2- Tranche 4 81 81 0.04
Round 2- Tranche 5 400 400 0.19
RBI measures 8,016 - -
Total 20,971 3,308 1.58
1512
8
3 3 3 3 42 2 2 1 1 1 1 1 1 1 1 1
0
5
10
15
20
Ru
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oo
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igra
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Agr
icu
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MSM
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Civ
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Co
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Aff
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Hea
lth
Tax
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EPFO
Min
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FCs/
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FIs
Po
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En
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Co
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De
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stat
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Re
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Soci
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ove
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No. of measures announced (Sector-wise)
1715
11 12
4 4 3
0
5
10
15
20
Ref
orm
(e
nta
ilin
glo
ng
term
be
nef
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Exec
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(en
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ost
)
Liq
uid
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Sup
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Rel
ief
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on
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Farm
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/Bu
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/wea
ker
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s
Cre
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on
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elax
atio
ns
Fisc
al s
up
po
rt (
inte
rms
of
incr
ease
dex
pe
nd
itu
re)
No. of measures announced
Relief measures for weaker sections of the society takes
front seat
Government unleashes key structural reforms, entailing
long term benefits
Government of India announced stimulus measures to the
tune of Rs 20.97 trillion (~10% of GDP) • The measures announced contained a set of temporary
compliance relaxations to tide over COVID situation,
liquidity support to businesses (primarily MSME, NBFC),
relief measures to rural population and migrants,
and certain executive and legislative reforms/actions with
medium to long term structural benefits. Government has
been swift to act and the follow-on steps with regards to
certain measures (such as MSME credit guarantee,
NBFC and banning of select defence goods imports).
• Nearly 15 measures of the total 66 measures were
towards weaker section of society followed by agriculture
(12) and MSMEs (8).
Fiscal burden from COVID-19 to be spread over multi-year period
Source: Ministry of Finance, SBIMF Research
• While the package announced is for Rs. 20.97 trillion ,fiscal impact in FY21 is Rs. 3.3 trillion (1.6% of GDP, inclusive of
revenue forgone). Fiscal outlay over the next 3-4 years is estimated to be Rs. 1.27 trillion.
• Another Rs.3.39 trillion worth of support comes in the form of credit guarantees which are essentially contingent liabilities
and may hit the government fiscal after 4 years. Rs. 8 trillion of liquidity support by RBI has also been included in this
package. And remaining support comes in the form of expenditure incurred by the quasi-government agencies (Rs. 2.9
trillion) and bank credit (Rs. 2 trillion). Thus , the fiscal burden from COVID has been spread over multi- year period.
Measures Amount (Rs. billion) % GDP
Cost borne by Government in FY212,731
1.3
Cost borne by Government in next 3-4 years1,272
0.6
Credit Guarantee (hence contingent liability)3,394
1.6
Cost incurred by Quasi sovereign agencies on behalf
of Government* 2,980 1.4
RBI support8,016
3.8
Revenue Foregone578
0.3
Bank credit2,000
1.0
Total 20,970 10
Green shoots on reforms, but a miniscule fiscal cost in FY21
Details of Rs. 20.97 trillion packages –Round 1
Source: Ministry of Finance, SBIMF Research
Round 1 Amount (Rs billion)
Free provision of food grains (rice, wheat and pulses) 393
Free cooking gas 137
MGNREGA wage hike 256
Ex-gratia transfer to vulnerable population 28.2
Ex-gratia transfer to JAM registered woman 300
EPF support 28
PM Kisan frontload payments 178
Construction workers' assistance 310
Usage of funds in district mineral fund for medical
testing/screening/prevention of Covid-19. 71
Revenue loss due to tax concessions on advanced tax,
TDS,TCS, STT etc78
Emergency health response package 150
Total Benefits (Rs billion) 1,928
Fiscal cost in FY21 (Rs billion) 1,548
% of GDP 0.74
Round 1 was mainly targeted towards weaker sections of the society
Details of Rs. 20.97 trillion package- Round 2
Source: Ministry of Finance, SBIMF Research
Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5
Emergency credit guarantee fund
and subordinate debt assistance to
MSMEs
Special credit facility for
street workers
Financing facility by NABRAD for
funding agriculture infrastructure
projects
Make in India for defence
sectorIncreased allocation towards
MGNREGA – Rs. 400 billion
Funds of funds equity infusion for
MSMEs ; E-market linkage for
MSMEs ; Receivables of MSMEs
to be cleared by Government in
next 45 days
Free food for migrant
workers
Scheme for formalization of micro
food enterprises, PM Matsya
Sampada Yojana scheme launched
for fisheries
Reforms for Airport sector ,
mining, power and space
sector (mostly to do with
privatization in these
sectors)
Health sector reforms that
mandated all districts to have
infectious diseases hospital
blocks and integrated public
health labs .
Extended EPF support and
reduction in EPF rates
Housing credit subsidy for
middle income
Creation of Animal husbandry
development infrastructure
Efficient air space
management to be allowed
by easing restriction on
utilization of Indian airspace
Ease of doing business :
Minimum threshold to initiate
insolvency proceedings raised
from 0.1 million to Rs. 10
million.
Special liquidity window for NBFCs
and Partial credit guarantee
scheme for NBFCs
National portability of ration
cards and Credit facility to
farmers through Kisan
Credit Card
Promotion of Herbal cultivation ,Bee
keeping initiatives and Extension of
operation green to all fruits and
vegetables
Investments towards Social
sector infrastructureDecriminalisation of Companies
Act defaults
Liquidity injection to DISCOMs via
quasi-sovereign entities
Interest subvention for
MUDRA-shishu loans
Amendments to Essential
Commodities Act
Streamlining the public sector :
by allowing only 4 PSUs per
sector.
Liquidity reduction via reduction in
TDS and TCS and Extension of
due dates for tax returns
Special liquidity facility
through NABARD to rural
cooperative banks and
Regional RBs.
Agriculture marketing reforms ;
Agricultural produce price and
quality assurance
Increased borrowing limit for
state governments from 3% of
GDP to 5% of GDP, linked to
reform actions
Details of Rs. 20.97 trillion package- RBI support
Source: Ministry of Finance, SBIMF Research
RBI liquidity support
Measures Amount (Rs. billion) Stimulus as % of GDP
From Feb 2020 - till 27th March 2020 2,800 1.33
LTRO 1,250 0.59
USD-dollar swap 203 0.10
OMO purchases 925 0.44
SLF available to primary dealers 100 0.05
Others 322 0.15
Measures announced on 27th March 2020 3,740 1.78
TLTRO 1,000 0.48
CRR cut 1,370 0.65
Increased accommodation under MSF 1,370 0.65
Measures announced on 17th April 1,000 0.48
TLTRO 2.0 (for NBFCs) 500 0.24
Refinancing facility to NABARD, SIDBI,
NHB500 0.24
Measures announced on 27th April
Special liquidity facility for MFs 500 0.24
Total monetary stimulus 8,040 3.83
RBI provided Rs. 8 trillion (of the total Rs. 20.97 trillion package announced by the Government)
RBI’s response to COVID-19: Sharp easing of monetary conditions
Source : RBI, SBIMF Research; *Data as of June 3, 2020.
RBI reduced the repo rate by another 40 bps to 4.0%
in May 2020
CRR reduced from 4% to 3% in Apr 2020 for one year,
applicable till Mar 2021
5
6
4
32
6
10
May
-09
May
-10
May
-11
May
-12
May
-13
May
-14
May
-15
May
-16
May
-17
May
-18
May
-19
May
-20
CRR (%)
RBI has injected primary liquidity worth 3.8% of GDP*
Regulatory measures by the RBI in latest monetary policy
Source : RBI , SBIMF Research.
Moratorium on term loans and deferment of interest on working capital facilities extended for another three months (till 31st Aug 2020)
Refinancing facility to SIDBI extended for another 3 months
Extension of 3 months to meet 75% utilisation of investment limits norm under the VRR scheme for FII investors.
Interest accumulated on term loan to be converted into funded interest term loan
Increased group exposure limits for banks from 25% to 30%. Uptil June 2021
Withdrawal guidelines from State’s Consolidated Fund have been relaxed
Rs. 150 billion line of credit extended to EXIM bank for a period of 90 days from the date of availment
Period for completion f outward remittances against normal imports into India extended from six months to twelve months.
Enables the businesses to tide over the
COVID-19 related issues
To ease liquidity stress for SIDBI and
FPIs
To push repayment cycle on term
loans by a couple of months
To facilitate flow of resources to
corporates
This will entail a monetary support of
Rs. 130 billion, accounting for ~10% of
FY21 redemption for states
Greater flexibility to importers to
manage their operating cycles.
To enable EXIM Bank to avail a US
dollar swap facility to meet its foreign
exchange requirements
Other monetary/regulatory measures by the RBI
Source : RBI , SBIMF Research.
• Introduction of Target Long term repo operations (LTRO and TLTRO)
• Increased borrowing under MSF
• Moratorium on term loans for three months
• Deferment of interest on Working capital facilities
• Increase the WMA limits to 60% for all the states
• Deferment of Net Stable Funding Ratio (NSFR) and Last tranche of Capital Conservation Buffer
• Not necessary to activate countercyclical capital buffer for a period of one year
• Permitting Banks to Deal in Offshore Non-Deliverable Rupee Derivative Markets
• Special liquidity facility for mutual funds to the tune of Rs. 500 billion
• Refinancing facility of NABARD, NHB, SIDBI to an extent of Rs. 500 billion
• Reduction in cash reserve ratio to 3% from 4% earlier till March 2021
• Reduced Liquidity coverage requirement for banks to 80% from 100% till 30th Sep 2020
• Resolution period for stressed assets increased from existing 210 days to 300 days.
• Restructuring of loans given by NBFCs to real estate allowed.
• Regulatory benefits announced under the SLF-MF scheme to be extended to all banks, irrespective of whether
they avail funding from the RBO or deploy their own resources under this scheme.
• RBI extend the timings for fixed rate Reverse repo and MSF window to provide greater flexibility to market
participants in their liquidity management
A host of unconventional measures have been announced by the RBI since February 2020
Global Economic Situation
IMF projects lower growth rate
Source :IMF
Global growth is projected to contract by 3% in 2020 vs. growth of 2.9% growth in the previous year
WTO projects sharp contraction in 2020 trade activity
Source : , WTO, CMIE Economic outlook , SBIMF Research.
India’s export growth could contract by between 4%-24% in FY21
World trade to contract by between 13%-32% in 2021
29
12
-3
41
22
-2
5
-2 -15
5
10 9
-5
-24
-40
-20
0
20
40
60
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
India's Exports (% y-o-y) Optimisitc scenario Pessimistic scenario
2.2
-12
.8
14
.3
5.5
2.5 2.8 2.5
2.3
1.3 4.7
2.8
-0.2
-35
-25
-15
-5
5
15
25
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
Pessimistic scenario
Optimistic scenario
-32
24 World trade is expected to contract
by 13% in 2020 under optimistic
scenario and 32% in optimistic
scenario.
India’s exports is expected to
contract in FY21 by 4% under
optimistic scenario and 24% in
pessimistic scenario
Some resumption in global economic activity
Global PMI inched upwards in May 2020, remained below
March
US unemployment claims declined to 2.1 million in May vs 3.8
million in Apr, but remined much above compared to March
Germany Zew Economic Sentiment Index improves in May
after declining by 49% in March 2020 World trade volumes declined by 3.5% in Mar 2020 vs. 0.8%
growth in March 2019
;Source : Bloomberg ; World trade volumes as per CPB World trade monitor
Indian economic Activity
COVID-19 disruptions start to show in India’s Q4 GDP
Q4 GDP came in at 3.1% (lowest since the inception of
new GDP series)
Moderation in Q4 GDP was consumption led
Trade activity has also contracted for three consecutive
quarters
8.77.6
4.8
3.0
2
5
8
11
Sep
-12
Feb
-13
Jul-
13
De
c-1
3
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
De
c-1
8
May
-19
Oct
-19
Mar
-20
Real GVA (% y-o-y) Real GDP (% y-o-y)
11.2
4.9
6.7
8.8
5.5
2.7
-2
0
2
4
6
8
10
12
Sep
-12
Feb
-13
Jul-
13
De
c-1
3
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
De
c-1
8
May
-19
Oct
-19
Mar
-20
Consumption (% growth)
-4.9
8.9
15.2
-5.8-10
0
10
20
Sep
-12
Feb
-13
Jul-
13
De
c-1
3
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
De
c-1
8
May
-19
Oct
-19
Mar
-20
Gross Capital Formation (% growth)
Gross capital formation contracted for three consecutive
quarters
3.2
2.1
-7.0-15
-10
-5
0
5
10
15
20
25
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
Mar
-16
Sep
-16
Mar
-17
Sep
-17
Mar
-18
Sep
-18
Mar
-19
Sep
-19
Mar
-20
Exports of goods and services Imports of goods and services
% y-o-y
Government spending and agriculture supported the overall growth
Government spending: A key driver of GDP growth Gap between nominal and real Agriculture GDP
improved, bodes well for farm income
Private sector output moderated significantly to 1.1% in March 2020
High frequency indicators weakened considerably in April
Source: CMIE economic outlook, SBIMF Research; NB: 1. Green denotes improvement in the growth and Pink indicates a
moderation. 2. We use some subjectivity in categorizing the data by looking at both the trends in the recent months as well as
trends relative to long term average. 3. We have shifted to steel consumption data from steel production data since Jan 2019.
% growth Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 5 yr avg
Consumption
Domestic air traffic 10.5 1.9 1.5 9.8 -32.9 -99.9 13.0
Domestic sale of two-wheelers -14.3 -16.6 -16.1 -19.8 -39.8 na 2.5
Domestic sale of passenger Cars -10.8 -8.4 -8.1 -8.8 -53.3 na -0.9
IIP: Consumer durables production -1.4 -5.6 -3.8 -5.8 -33.1 na 1.1
IIP: Consumer non-durables production 1.1 -3.2 -0.3 1.5 -16.2 na 5.3
International air traffic 4.0 2.0 0.2 -3.4 -56.2 -99.1 4.0
Rural
Domestic Tractor sales -12.8 4.0 3.3 19.6 -50.2 -80.1 4.9
Fertilizers production 13.6 10.2 -0.1 2.9 -11.9 -4.5 2.1
Rural wage growth 3.1 3.2 3.8 na na na 4.6
Industrial
Bank industrial credit 2.4 1.6 2.5 0.7 0.7 1.7 2.0
Cargo traffic - ports -1.5 5.6 2.4 4.1 -4.0 -21.1 3.6
Cargo traffic - rails 0.9 4.3 2.8 6.5 -13.9 -35.3 1.4
Consumption of Industrial Fuel 9.7 0.8 0.5 8.6 -14.8 -49.7 3.8
IIP: Manufacturing production 3.0 -0.3 1.6 3.1 -20.6 na 3.0
IIP: Mining production 1.9 5.7 4.3 9.7 0.0 na 3.2
Power generation -4.9 0.0 3.2 11.7 -8.2 -22.8 4.2
Total frieght activity 0.0 4.7 2.7 5.6 -10.5 -30.1 2.2
Export-Imports
Merchandise exports -0.4 -1.7 -1.7 3.0 -34.6 -60.3 0.1
Services exports 7.9 11.6 7.0 6.9 1.2 na 6.9
Investments/Construction
Bitumen consumption 18.2 1.6 -9.7 3.8 -35.9 -71.7 5.7
Cement production 4.3 5.5 5.1 7.8 -25.1 -86.0 3.2
Domestic sale of commercial vehicles -15.0 -12.3 -14.0 -32.9 -88.1 na 6.2
IIP: Capital goods production -8.9 -18.3 -4.3 -9.5 -35.6 na 0.3
Imports of capital goods -4.1 -4.2 8.4 35.1 na na 7.3
Steel consumption 6.7 9.2 4.1 -6.5 -29.2 -87.3 4.0
Financial sector
AUM of MFs 12.5 16.1 19.2 17.6 -6.4 -3.4 19.6
Real bank credit growth 7.2 3.4 3.0 4.8 5.5 na 8.3
Bank personal loans 16.4 15.9 16.9 17.0 15.0 12.1 16.9
Currency in circulation 12.8 11.9 11.9 11.5 14.5 15.7 12.5
Marginal recovery seen in May as lockdown conditions get relaxed
Source : CMIE Economic outlook ,Vahan, POSOCO, GSTN; SBIMF Research.; E-way bill data till 25th May 2020
Vehicle registerations seems to be picking up but still
79% lower (y-o-y) in May 2020 vs. May 2019
30
.7
31
.7
32
.7
33
.5
33
.5
24
.3
6.2 11
.8
22
.2
21
.7
22
.7
23
.5
23
.7
16
.4
2.4
5.6
52.9 53.4 55.4 57.0 57.2
40.7
8.617.4
0
20
40
60
80
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
No. of E-Way bills generated per month (millions)
Intra-state
Inter-state
E-way bill suggest pick up in goods transport activity
May 2020
1.9
1.7
2.0
1.9
2.1
1.9
1.7
1.9
1.7
0.8
1.8
1.7
2.3
0.4
0.2
-
0.5
1.0
1.5
2.0
2.5
Jan
Feb
Mar
Ap
r
May
No. of vehicle registerations (in millions)
201820192020
Power consumption inched upwards with easing of
lockdown restrictions
8.6
-12.2
11.7
-22.8
-14.9
-30.0
-20.0
-10.0
0.0
10.0
20.0
May
-18
Jul-
18
Sep
-18
No
v-1
8
Jan
-19
Mar
-19
May
-19
Jul-
19
Sep
-19
No
v-1
9
Jan
-20
Mar
-20
May
-20
Electricity generation (% y-o-y)
Google mobility trends too corroborate with improving activity in May
Source : Google Mobility report, SBIMF Research.
.
Mobility trends in India
• Essential goods sales continues to ramp up , as reflected in grocery and pharmacy related mobility.
• Visits to and fro workplaces too is inching up with easing down of mobility restrictions by the government.
• On the other hand, non-essential sales/activity remains relatively weak with retail and recreation mobility inching up
only modestly
State-wise mobility trends show improvement but remains sporadic
Source: Google Mobility report, SBIMF Research.;
States February
March Pre lockdown
(1st -23rd March)
Lockdown 1.0
(24h Mar -17th Apr)
Lockdown 2.0
(18th Apr-3th May)
Lockdown 3.0
(4th May-17th May)
Lockdown 4.0
(18th May-25th May)
Maharashtra -2.6 -17.9 -81.5 -87.3 -82.9 -80.3
Tamil Nadu -0.4 -8.3 -78.3 -86.7 -77.1 -68.1
Gujarat -1.6 -12.7 -80.1 -87.7 -84.7 -77.4
Karnataka 0.0 -12.9 -80.7 -85.1 -72.9 -68.4
Uttar Pradesh 2.2 -9.3 -69.5 -82.1 -76.4 -70.8
West Bengal -3.7 -11.5 -69.6 -85.5 -82.8 -81.1
Rajasthan 1.9 -13.1 -74.0 -82.0 -76.6 -70.1
Telangana 0.6 -11.7 -82.7 -89.2 -83.9 -76.5
Andhra Pradesh -0.9 -8.1 -74.9 -84.7 -78.7 -73.1
Kerala -3.9 -19.6 -77.8 -85.0 -77.1 -68.4
Madhya Pradesh 0.9 -12.1 -75.0 -83.7 -78.6 -75.1
States February
March Pre lockdown
(1st -23rd March)
Lockdown 1.0
(24h Mar - 17th Apr)
Lockdown 2.0
(18th Apr-3th May)
Lockdown 3.0
(4th May-17th May)
Lockdown 4.0
(18th May-25th May)
Maharashtra -1.6 -7.0 -61.7 -53.3 -42.0 -36.5
Tamil Nadu 0.1 2.2 -55.8 -48.8 -25.1 -12.4
Gujarat -0.7 -5.1 -65.1 -56.3 -49.1 -31.0
Karnataka 0.9 -1.1 -56.8 -45.9 -19.9 -16.1
Uttar Pradesh 4.5 -1.7 -55.4 -36.7 -20.9 -8.0
West Bengal -0.7 -3.4 -54.8 -42.7 -31.8 -34.9
Rajasthan 2.4 -5.8 -59.8 -37.8 -21.4 -6.9
Telangana 2.3 0.4 -56.9 -50.5 -33.8 -21.8
Andhra Pradesh -1.0 -0.4 -54.6 -43.9 -28.4 -18.5
Kerala -3.3 -6.5 -56.5 -32.4 -12.7 4.5
Madhya Pradesh 0.4 -7.7 -66.1 -48.5 -34.1 -24.8
State-wise mobility tracker for retail and recreation
State-wise mobility tracker for grocery and pharmacy
• Although mobility data from Google corroborates some acceleration in activity in states , it is still below the pre-lockdown
levels (Feb and March 2020)
• Among states, Kerala seems to be back on track with respect to mobility trends in grocery and pharmacy.
Source : CMIE, Economic outlook, SBIMF Research.;
6.7
8.4
23.8
24.0
24.3
23.6
0
5
10
15
20
25
30
15
-Mar
-20
20
-Mar
-20
25
-Mar
-20
30
-Mar
-20
04
-Ap
r-2
0
09
-Ap
r-2
0
14
-Ap
r-2
0
19
-Ap
r-2
0
24
-Ap
r-2
0
29
-Ap
r-2
0
04
-May
-20
09
-May
-20
14
-May
-20
19
-May
-20
24
-May
-20
29
-May
-20
Unemployment rate (%)
Unemployment levels continue to remain above pre-
lockdown levels of 6%
PMI manufacturing and services, although improved in
May 2020, still reflects weakness in the economic activity
Activity will take time to return to pre-COVID levels
57.5
5.4
12.6
27.4
30.8
2
17
32
47
62
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
PMI Services PMI Manufacturing
Few more roadblocks that can be deterrent to economic activity
Source: SBIMF Research
Likelihood of rise in number of COVID-19 cases with
higher number of migrants returning to their respective
states
Locust Attack – Damage to standing crops Cyclone Amphan – Damage to infrastructure, crops &
livelihood
COVID-19 disruptions to lead to significant economic shock
Source: CMIE Economic outlook , SBIMF Research.
Indian economic growth could further moderate in
FY21
• We expect India’s growth to moderate significantly in FY21 from 4.2%
growth in FY20.
• Lockdown spread over March/April results in output loss of ~5.7% of the
total annual output. The limited human contact required to contain the
spread of the virus is hindering economic activity. Given elevated
infection rates, the public fear may result in below-normal activity for a
few more months. Even if demand for durable goods picks up,
consumption of services may stay weak.
• As corporate profits are squeezed (weakening operating leverage) they
are likely to delay capex plans, lower salaries and cut jobs, which in turn
will weaken consumption demand. As corporates struggle, banking
sector GNPAs are likely to deteriorate.
• Other factors that will weigh on growth are a) increased risks of a global
recession, b) grim domestic employment situation for nearly a decade, c)
high leverage in government and household balance-sheet, d) weakness
in financial sector health and e) erosion of wealth due equity price fall.
• On positive side, as per RBI estimates, the impact of the 10% fall in
crude oil price is expected to increase growth by 15 bps. But it is
contingent on benefits being passed on and leading to higher demand.
• The agriculture sector and government spending will be crucial for
supporting economic activity in FY21.
• Both government and RBI policy support in terms of fiscal spending, rate
cuts and regulatory actions will have to continue. They will need to on
standby to step in with regulatory and liquidity measures in case of any
early signs of financial sector dislocations.
The projections of growth and inflation for FY21
would be heavily contingent on the intensity ,
spread and duration of COVID-19
8.8
3.8
4.8
3.8
7.9 7.9
7.9 8.1
7.7
3.1
7.9 8
.5
5.2 5.5
6.4
7.4 8
.0 8.3
7.0
6.1
4.2
0
3
6
9
12
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0Real GDP growth (in %)
Several economists are now expecting FY21
growth to be between -2% to -12%.
EQUITY MARKET
Global equity market snapshot : May 2020
Source: Bloomberg, SBIMF Research
Performance in May 2020 (local currency returns) Performance Year-to-Date (local currency returns)
Performance in May 2020 (US$ returns) Performance Year-to-Date (US$ returns)
-7
-3 -2-1 0 0
1 12 3 3
4 4 56 7 8 8 9
-10
-5
0
5
10
HA
NG
SEN
G
IND
IA N
IFTY
MSC
I In
dia
PA
KIS
TAN
TAIW
AN
CH
INA
MSC
I EM
IND
ON
ESIA
PH
ILIP
PIN
ES
FRA
NC
E
UK
KO
REA
DO
W J
ON
ES
S&P
50
0
SRI L
AN
KA
GER
MA
NY
MSC
I EM
- E
UR
OP
E
JAP
AN
BR
AZI
L
% m-o-m (local currency terms)
-25 -25 -25 -24-21 -21 -21
-19 -19 -18-17 -17
-13-11
-9 -8 -8 -6 -6
-30
-15
0
PH
ILIP
PIN
ES
MSC
I EM
- E
UR
OP
E
IND
ON
ESIA
BR
AZI
L
FRA
NC
E
IND
IA N
IFTY
SRI L
AN
KA
UK
HA
NG
SEN
G
MSC
I In
dia
PA
KIS
TAN
MSC
I EM
GER
MA
NY
DO
W J
ON
ES
TAIW
AN
KO
REA
JAP
AN
CH
INA
S&P
50
0
% YTD (local currency terms)
-44
-29-26 -25 -25 -25 -23 -23 -22 -21
-18 -17-14 -13 -11 -9 -9 -7 -6
-50
-40
-30
-20
-10
0
BR
AZI
L
IND
ON
ESIA
IND
IA N
IFTY U
K
PH
ILIP
PIN
ES
MSC
I EM
- E
UR
OP
E
SRI L
AN
KA
MSC
I In
dia
FRA
NC
E
PA
KIS
TAN
HA
NG
SEN
G
MSC
I EM
KO
REA
GER
MA
NY
DO
W J
ON
ES
TAIW
AN
CH
INA
JAP
AN
S&P
50
0
% YTD (US$ returns)-7
-3 -3 -2 -1 -1
1 12 2 3 4 4 5
7 7 8 8 9
-10
-5
0
5
10
15
HA
NG
SEN
G
IND
IA N
IFTY
MSC
I In
dia
PA
KIS
TAN
TAIW
AN
CH
INA
MSC
I EM UK
KO
REA
PH
ILIP
PIN
ES
IND
ON
ESIA
FRA
NC
E
DO
W J
ON
ES
S&P
50
0
SRI L
AN
KA
JAP
AN
MSC
I EM
- E
UR
OP
E
GER
MA
NY
BR
AZI
L
% m-o-m (US$ returns)
Source: Bloomberg, SBIMF Research
Indian equity market snapshot : May 2020
Performance Year-to-Date (local currency returns) Performance in May 2020 (local currency returns)
• Nifty and Sensex were down by 3% and 4% respectively on a monthly basis. Banking stocks witnessed the highest decline
(10%) followed by consumer durables (8%). Telecom sector delivered the highest positive returns (11%) followed by auto
(6%)
• Performance across the capitalization curve was also similar with mid cap and small cap delivering 1% and 2% m-o-m
negative returns respectively.
• On YTD basis, Nifty and Sensex were down by 21% each. On sectoral basis, all sectors (barring healthcare and telecom)
delivered negative YTD returns.
• Concerns around growth erosion due to continued prevalence of COVID-19 weighed on markets.
-10-8 -6
-4 -3 -3 -3 -3 -2 -2 -2 -1 -1 -1
1 1 1 26
11
-20
-10
0
10
20
BA
NK
EX
CO
NSU
MER
DU
RA
BLE
S
PSU
SEN
SEX
NIF
TY
REA
L ES
TATE
LAR
GE
CA
P
BSE
10
0
BSE
50
0
OIL
& G
AS
SMA
LL C
AP
MID
CA
P IT
PO
WER
MET
ALS
FMC
G
CA
P G
OO
DS
HEA
LTH
CA
RE
AU
TO
TELE
CO
M
% m-o-m
-40 -38 -35 -35-27 -24 -24 -23 -21 -21 -21 -21 -21 -21 -20 -20
-9-4
13 17
-50
-40
-30
-20
-10
0
10
20
BA
NK
EX
REA
L ES
TATE
PSU
MET
ALS
CA
P G
OO
DS
CO
NSU
MER
DU
RA
BLE
S
AU
TO
PO
WER
SEN
SEX
NIF
TY
LAR
GE
CA
P
MID
CA
P
BSE
50
0
BSE
10
0
SMA
LL C
AP
OIL
& G
AS IT
FMC
G
TELE
CO
M
HEA
LTH
CA
RE
% Year-to-Date
NIFTY 4Q FY20 Earnings: Mid-Season Review
Source: Capitaline, Bloomberg, SBIMF Research
• 30 of the 50 NIFTY companies had reported results as of
4 June 2020
• Nifty PAT growth for 4QFY20 has been -20% y-o-y, with a
very weak breadth (miss to beat ratio at 3:1)
• Among key sectors which have done worse than
expectations is financials led by asset quality
deterioration in the MSME, CV, Unsecured Retail and MFI
portfolios. Overall demand commentary is weak with
uncertainty around size and timing of recovery. However,
pent up demand in rural India can surprise- tractor
companies that strong procurement and good monsoons
buoy rural sentiments.
• Labor shortages and movement restrictions are emerging
as issues in select pockets, like infra and metals,
although larger companies seemed to have managed it
better.
• Downgrades continue at a very sharp pace. Market
expectations for Nifty earnings have been cut by 25% y-
o-y for both FY21 and FY22. Key sector to track would be
financials where earnings downgrade risks are higher.
Considerable moderation in Q4 FY20 top-line and PAT
Earnings will be revised lower for yet another year
Source: Bloomberg, SBIMF Research
-9.4
-7.6
-8.1
-4.4
-21.8
-16.8
-9.7
-12.6
-11.0
-25 -20 -15 -10 -5 0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Earnings upgrade downgrade- %chg
• There could be material downward revision to earnings as growth and demand gets impaired due to COVID-19
Downgrade in NIFTY earnings during the fiscal year
Valuations gained some attractiveness back in May 2020
Source: Bloomberg, CMIE Economic outlook , SBIMF Research
Nifty 12M trailing PE ratio declined to 22.2 in May’20 vs.
22.9 in Apr’20
Nifty 12M trailing PB ratio is at 2.5 in May’20 vs. 2.6 in
Apr’20
Market capitalization/GDP (%) declined in May but
remained above March
India earnings yield look attractive vs. Government Bonds
10
15
20
25
30
35
No
v-0
2
Sep
-03
Jul-
04
May
-05
Mar
-06
Jan
-07
No
v-0
7
Sep
-08
Jul-
09
May
-10
Mar
-11
Jan
-12
No
v-1
2
Sep
-13
Jul-
14
May
-15
Mar
-16
Jan
-17
No
v-1
7
Sep
-18
Jul-
19
May
-20
NIFTY 12M Traling PE Ratio
Mean
+1 SD
-1 SD
0
2
4
6
8
10
No
v-0
7A
pr-
08
Sep
-08
Feb
-09
Jul-
09
De
c-0
9M
ay-1
0O
ct-1
0M
ar-1
1A
ug-
11
Jan
-12
Jun
-12
No
v-1
2A
pr-
13
Sep
-13
Feb
-14
Jul-
14
De
c-1
4M
ay-1
5O
ct-1
5M
ar-1
6A
ug-
16
Jan
-17
Jun
-17
No
v-1
7A
pr-
18
Sep
-18
Feb
-19
Jul-
19
De
c-1
9M
ay-2
0
India 10 year Gsec yield (in %)
India earnings yield (%) - 12 M trailing
1
2
3
4
5
6
No
v-0
2
Sep
-03
Jul-
04
May
-05
Mar
-06
Jan
-07
No
v-0
7
Sep
-08
Jul-
09
May
-10
Mar
-11
Jan
-12
No
v-1
2
Sep
-13
Jul-
14
May
-15
Mar
-16
Jan
-17
No
v-1
7
Sep
-18
Jul-
19
May
-20
NIFTY 12M Traling PB Ratio
Mean
+1 SD
-1 SD
Nifty 12M trailing PE ratio declined to 22.2 in May’20 vs.
22.9 in Apr’20
Liquidity : FIIs turned buyers of Indian equities in May 2020
Source: Bloomberg, SBIMF Research
FIIs purchased US $1.72 billion in May 2020 billion vs.
outflows of US $0.03 billion in April
DIIs sold US$ 0.13 billion in May 2020 vs. US$ 0.11 billion in
April
Mutual Fund sold US$ 0.26 billion in May vs. US$ 1.05 billion in April
2020
-10
-5
0
5
10
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
May
-17
Sep
-17
Jan
-18
May
-18
Sep
-18
Jan
-19
May
-19
Sep
-19
Jan
-20
May
-20
FII Investment - Equity (US$ billion)
-2
-1
0
1
2
3
4
5
Sep
-15
No
v-1
5Ja
n-1
6M
ar-1
6M
ay-1
6Ju
l-1
6Se
p-1
6N
ov-
16
Jan
-17
Mar
-17
May
-17
Jul-
17
Sep
-17
No
v-1
7Ja
n-1
8M
ar-1
8M
ay-1
8Ju
l-1
8Se
p-1
8N
ov-
18
Jan
-19
Mar
-19
May
-19
Jul-
19
Sep
-19
No
v-1
9Ja
n-2
0M
ar-2
0M
ay-2
0
Net Domestic MF Investment (US$ billion)
-4
-2
0
2
4
6
8
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Sep
-16
De
c-1
6
Mar
-17
Jun
-17
Sep
-17
De
c-1
7
Mar
-18
Jun
-18
Sep
-18
De
c-1
8
Mar
-19
Jun
-19
Sep
-19
De
c-1
9
Mar
-20
Net DII Investment (US$ billion)
SIP inflows to mutual fund industry broadly resilient
Source:AMFI, SBIMF Research
Monthly SIP inflows declined marginally in April, but broadly resilient
Equity Outlook
Source:Bloomberg, SBIMF Research
10
15
20
25
30
35
No
v-0
2Se
p-0
3Ju
l-0
4M
ay-0
5M
ar-0
6Ja
n-0
7N
ov-
07
Sep
-08
Jul-
09
May
-10
Mar
-11
Jan
-12
No
v-1
2Se
p-1
3Ju
l-1
4M
ay-1
5M
ar-1
6Ja
n-1
7N
ov-
17
Sep
-18
Jul-
19
May
-20
NIFTY 12M Traling PE Ratio
Mean
+1 SD
-1 SD
Nifty 12M trailing PE ratio at 22.2 in May’20
vs. 22.9 in Apr’20
Nifty fell 3% in May 2020 turning out to be a relative EM under-performer during
the month. The under-performance was perhaps led by rising number of COVID
cases, concerns on financial sector and lesser than expected demand support in
the latest fiscal announcement. That said, recent signs of the economy opening
up have led to a rally for Indian equities over last 10 days helping reverse some
of the underperformance.
Banking stocks witnessed the highest decline (10%) followed by consumer
durables (8%). Telecom sector delivered the highest positive returns (11%)
followed by auto (6%). Performance across the capitalization curve was also
similar with mid cap and small cap delivering 1% and 2% m-o-m negative returns
respectively. On YTD basis, Nifty and Sensex were down by 21%.
COVID-19 is expected to have an adverse impact on the economy and corporate
earnings. Results of 4QFY20 earnings season and management commentaries
suggest more volatility and disruption in earnings ahead with several Nifty
companies seeing fresh double-digit EPS cuts for FY21
Lockdown norms have been relaxed in June. But, economic recovery will be
slow given the sharp income loss in last two months. Labor availability could be
a significant challenge, and limited demand support from government will keep
the overall growth prospects weak. The government announced a slew of
stimulus and reform measures in a bid to seize the crisis as an opportunity and
fight for a position of strength in the changed world order. Overall, it prioritized
structural supply side reform over near-term demand boost. On the positive side,
significant monetary policy support, government’s measures to protect rural
economy and agri-income will be a positive support to the growth.
Implications: As outlook for forward earnings stays uncertain, we stay bottom-up in our approach by focusing on resilientbusinesses that should emerge stronger on the other side.
FIXED INCOME MARKET
Global Bond Snapshot: May 2020
Source: Bloomberg, SBIMF Research
10 Year Gsec
Yield (% mth
end)
2017 end 2018 end 2019 end Jan-20 Feb-20 Mar-20 Apr-20 May-20m-o-m
(in bps)
YTD change
(in bps)
Developed market
US 2.41 2.68 1.92 1.51 1.15 0.67 0.64 0.65 1 -126
Germany 0.43 0.24 -0.19 -0.43 -0.61 -0.47 -0.59 -0.45 14 -26
Italy 2.02 2.74 1.41 0.94 1.10 1.52 1.76 1.48 -29 6
Japan 0.05 0.00 -0.01 -0.07 -0.15 0.02 -0.03 0.01 4 2
Spain 1.57 1.42 0.47 0.24 0.28 0.68 0.72 0.56 -16 9
Switzerland -0.15 -0.25 -0.47 -0.73 -0.82 -0.33 -0.52 -0.46 6 1
UK 1.19 1.28 0.82 0.52 0.44 0.36 0.23 0.18 -5 -64
• Bond yields across countries presented mixed picture on m-o-m with yields increasing in the US , Japan and Germany on
m-o-m basis while declining in Italy, Japan and Spain.
• Increased concerns of higher government borrowings to finance COVID-19 packages along with rebound in stock
markets exerted upward pressure on yields on a monthly basis.
• On Year-to-Date basis, bond yields continue to remain low.
• 10-year US Treasury yields have fallen by 126 bps on YTD basis. Increased safe- haven assets buying by investors on
account of growth concerns and ultra-loose monetary policy amidst coronavirus scare helped the rally in US yields..
US bond yields at historic lows
Source : Bloomberg, SBIMF Research.
US 10 Year at historic low and 30 year inched marginally upwards
0
1
2
3
4
5
6
Jan
-07
Jun
-07
No
v-0
7
Ap
r-0
8
Sep
-08
Feb
-09
Jul-
09
De
c-0
9
May
-10
Oct
-10
Mar
-11
Au
g-1
1
Jan
-12
Jun
-12
No
v-1
2
Ap
r-1
3
Sep
-13
Feb
-14
Jul-
14
De
c-1
4
May
-15
Oct
-15
Mar
-16
Au
g-1
6
Jan
-17
Jun
-17
No
v-1
7
Ap
r-1
8
Sep
-18
Feb
-19
Jul-
19
De
c-1
9
May
-20
US 10 year Gsec yield (%) US 30 year Gsec yield (%)
Emerging Market Bond yields: Snapshot for May 2020
Source: Bloomberg, SBIMF Research
10 Year Gsec
Yield (% mth
end)
2017 end 2018 end 2019 end Jan-20 Feb-20 Mar-20 Apr-20 May-20 m-o-m (in bps)YTD change
(in bps)
Emerging Market
China 3.90 3.31 3.14 3.00 2.73 2.59 2.52 2.69 18 -45
India 7.33 7.37 6.56 6.60 6.37 6.14 6.11 5.76 -35 -79
Indones ia 6.29 7.98 7.04 6.65 6.91 7.85 7.83 7.30 -53 26
South Korea 2.47 1.96 1.67 1.56 1.33 1.55 1.52 1.37 -15 -31
Malays ia 3.91 4.08 3.31 3.13 2.83 3.36 2.87 2.81 -6 -51
Russ ia 7.49 8.70 6.36 6.27 6.48 6.75 6.12 5.55 -57 -81
Thai land 2.32 2.48 1.48 1.29 1.06 1.40 1.14 1.15 0 -33
Turkey 11.67 16.42 12.21 10.23 13.00 13.55 11.69 13.21 152 100
Mexico 7.66 8.66 6.91 6.63 6.87 7.12 6.61 6.16 -45 -76
Poland 3.30 2.83 2.12 2.14 1.79 1.68 1.46 1.18 -28 -94
South Africa 8.72 8.72 9.03 8.98 9.12 11.00 10.30 8.93 -137 -10
Colombia 6.48 6.75 6.34 5.95 5.80 8.42 7.09 6.06 -103 -28
Hungary 2.02 3.01 2.01 2.07 2.17 2.65 1.95 1.91 -4 -10
• Bond yields rallied in most of the emerging economies on YTD basis barring Indonesia and Turkey.
• Aggressive rate cuts by central banks to help stem the fallout from the pandemic helped the rally in yields across
countries.
Movements in EM FII portfolio
Source: Bloomberg; SBIMF Research;
India witnessed highest amount of debt outflows compared with the other key economies on
YTD basis
Commodity prices fall on the fear of low demand
Source : Bloomberg, SBIMF Research.
-54-51 -50
-46 -46
-21 -21 -20 -19 -17 -17 -15 -14 -14 -13 -12 -12 -11 -11-6 -5
1
8
16
33
-60
-45
-30
-15
0
15
30
45
Gas
Oil
Hea
tin
g O
il
WTI
Gas
olin
e
Bre
nt
Suga
r
Co
ffee
Co
al
Co
rn
Co
tto
n
Alu
min
ium
Co
pp
er
Lead
Pla
tin
um
Nat
ura
l Gas
Nic
kel
Zin
c
Soyb
ean
s
Tin
Wh
eat
Silv
er
Pal
lad
ium
Iro
n O
re
Go
ld
Ura
niu
m
Average
commodity prices
(% YTD change)
Increase in safe haven demand led to rise in gold prices
Source : Bloomberg, SBIMF Research.
India Rates Snapshot: May 2020
Source: Bloomberg, PPAC, RBI, CEIC, SBIMF Research; NB: **Crude oil price is average $/barrel for the month, rest of the
data are % month end; *Corporate bond rate is for AAA rated bonds ,*** Refers to PSU Banks’ CD rate; ^ INR and Oil price
changes are % change;
Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20
m-o-m
change
(in bps)
YTD
change
(in bps)
1 Yr T-Bill 5.11 5.30 5.29 5.16 4.94 3.70 3.41 -29 -189
3M T-Bill 4.88 5.03 5.13 5.08 4.36 3.64 3.19 -45 -183
10 year GSec 6.47 6.56 6.60 6.37 6.14 6.11 5.76 -35 -79
3M CD*** 5.33 5.08 5.38 5.40 4.83 4.43 3.38 -105 -170
12M CD*** 5.68 5.98 5.98 5.73 5.48 5.23 4.28 -95 -170
3 Yr Corp Bond* 6.65 6.95 6.83 6.34 6.54 6.41 6.07 -35 -88
5 Yr Corp Bond* 7.14 7.17 7.15 6.80 7.02 6.83 6.38 -46 -79
10 Yr Corp Bond* 7.74 7.63 7.83 7.43 7.51 7.47 7.28 -19 -34
1 Yr IRS 5.01 5.34 5.26 4.97 4.30 3.80 3.76 -4 -158
5 Yr IRS 5.09 5.54 5.42 5.02 4.73 4.27 4.21 -6 -133
Overnight MIBOR Rate 5.25 5.26 5.05 5.09 4.81 4.41 4.04 -37 -122
INR/USD 71.74 71.38 71.36 72.18 75.63 75.10 75.62 -1^ 1^
Crude Oil Indian Basket** 62.53 65.50 64.31 54.63 33.36 19.90 20.90 5^ -68^
• Indian G-sec market has been declined by 35 bps to 5.76% in May 2020 vs. 6.11% in the previous month. Benign crude oil
prices, risk of lower growth and continued monetary easing by RBI via unconventional measures aided the fall in yields.
However, concerns surrounding the likely fiscal slippages to combat the impact of COVID-19 and FPI outflows(in debt
segment) limited the fall. New 10-year benchmark paper was also introduced with 5.79% coupon on May 11, 2020.
• Crude oil prices for the Indian basket rose by 5% to US$ 20.90/bbl in May 2020. Improved demand following easing of
lockdown restrictions along with production cuts by the OPEC supported the rise in crude oil prices.
• Rupee weakened by 1% against the US dollar on m-o-m basis and reached 75.62/US$ in May 2020. Concerns over global
recession have led to investors rushing towards safe haven assets, thus leading to FII outflows from India (in the debt
segment) and rupee depreciation.
India GSec yield curve has steepened in May 2020
Source : Bloomberg, SBIMF Research.
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.003
Mo
nth
6 m
on
th
1 Y
ear
2 Y
ear
3 Y
ear
4 Y
ear
5 Y
ear
6 Y
ear
7 Y
ear
8 Y
ear
9 Y
ear
10
Yea
r
15
Yea
r
30
Yea
r
01-Jan-19 01-Jan-20 28-Mar-20 28-Apr-20 29-May-20
Surplus liquidity in banking system is leading to sharper rally in shorter end of the curve while longer
end is pricing some bit of fiscal concerns
SDL and Corporate bond yields rallied in May aided by liquidity
Source: Bloomberg, SBIFM Research
Spread of 10-year Corp Bonds vs. G-sec : 152 bps lower
than the average of 237 bps during 2008 crisisSpread of 10-year SDL vs. G-sec : 85 bps in May vs. 105 bps
in April
20
100
180
260
Jul-
07
Feb
-08
Sep
-08
Ap
r-0
9
No
v-0
9
Jun
-10
Jan
-11
Au
g-1
1
Mar
-12
Oct
-12
May
-13
De
c-1
3
Jul-
14
Feb
-15
Sep
-15
Ap
r-1
6
No
v-1
6
Jun
-17
Jan
-18
Au
g-1
8
Mar
-19
Oct
-19
May
-20
10 year Corp Bond minus G-sec (in bps)
LTA since 2002
10 year avg.
0
20
40
60
80
100
120
140
May
-09
No
v-0
9
May
-10
No
v-1
0
May
-11
No
v-1
1
May
-12
No
v-1
2
May
-13
No
v-1
3
May
-14
No
v-1
4
May
-15
No
v-1
5
May
-16
No
v-1
6
May
-17
No
v-1
7
May
-18
No
v-1
8
May
-19
No
v-1
9
May
-20
10 year SDL minus G-sec (in bps) 10 year avg.
LTA since 2006: 59 bps
10 year avg. 58 bps
5 year avg. 61 bps
COVID-19 disruptions to lead to significant economic shock
Source: CMIE Economic outlook , SBIMF Research.
Indian economic growth could further moderate in
FY21
• We expect India’s growth to moderate significantly in FY21 from 4.2%
growth in FY20.
• Lockdown spread over March/April results in output loss of ~5.7% of the
total annual output. The limited human contact required to contain the
spread of the virus is hindering economic activity. Given elevated
infection rates, the public fear may result in below-normal activity for a
few more months. Even if demand for durable goods picks up,
consumption of services may stay weak.
• As corporate profits are squeezed (weakening operating leverage) they
are likely to delay capex plans, lower salaries and cut jobs, which in turn
will weaken consumption demand. As corporates struggle, banking
sector GNPAs are likely to deteriorate.
• Other factors that will weigh on growth are a) increased risks of a global
recession, b) grim domestic employment situation for nearly a decade, c)
high leverage in government and household balance-sheet, d) weakness
in financial sector health and e) erosion of wealth due equity price fall.
• On positive side, as per RBI estimates, the impact of the 10% fall in
crude oil price is expected to increase growth by 15 bps. But it is
contingent on benefits being passed on and leading to higher demand.
• The agriculture sector and government spending will be crucial for
supporting economic activity in FY21.
• Both government and RBI policy support in terms of fiscal spending, rate
cuts and regulatory actions will have to continue. They will need to on
standby to step in with regulatory and liquidity measures in case of any
early signs of financial sector dislocations.
The projections of growth and inflation for FY21
would be heavily contingent on the intensity ,
spread and duration of COVID-19
8.8
3.8
4.8
3.8
7.9 7.9
7.9 8.1
7.7
3.1
7.9 8
.5
5.2 5.5
6.4
7.4 8
.0 8.3
7.0
6.1
4.2
0
3
6
9
12
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0Real GDP growth (in %)
Several economists are now expecting FY21
growth to be between -2% to -12%.
India inflation to moderate in coming months
Source: CMIE, Dept of consumer affairs, SBIMF Research;
Inflation seen in essential commodities
CPI inflation may moderate- but uncertainty aheadWhile inflation is broadly expected to moderate in coming
months, there are both push and pull factors which will be
at play.
• Income erosion may lead to demand erosion and hence
inflation may fall
• Crude price- an essential input is falling will lead to
reduced cost pressures for some businesses
• But shortage of labor and lost revenue may adversely
impact margin, providing an impulse to raise the cost of
final output
• Wage inflation may be for real and hence can feed into
inflation
• Aggressive procurement by governments may bring
upward movement in food prices
• Hence, uncertainty in inflation.
• Biggest uncertainty: Data collection given the lack of
mobility
• But from policy perspective, growth concern should
over-power inflation concern
0
2
4
6
8
10
12
14
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
Mar
-16
Sep
-16
Mar
-17
Sep
-17
Mar
-18
Sep
-18
Mar
-19
Sep
-19
Mar
-20
Sep
-20
Mar
-21
CPI % y-o-y
CPI target range 4% + 2%
Forecast
-31
-2 -1
0 2 3 4 5 5 5 7 7 7 8 8 9 9 10 1116 17
21
-40
-30
-20
-10
0
10
20
30
On
ion
Tea
loo
se
Milk
Tom
ato
Suga
r
Pal
m o
il
Wh
eat
Mu
star
d o
il
Gra
m d
al
Salt
pac
k
Soya
oil
Gu
r
Att
a
Van
asp
ati
Ric
e
Sun
flo
wer
oil
Tur/
Arh
ar d
al
Gro
un
dn
ut
oil
Ura
d d
al
Mo
on
g d
al
Mas
oo
r d
al
Po
tato
% change in prices since lockdown (22nd Mar-1st June)
Muted rise in Kharif MSP : No material impact on inflation
40.43.03.1
4.213.9
29.68.48.9
10.122.6
5.72.2
4.16.06.4
13.83.13.4
- 5 10 15 20 25 30 35 40
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20 CPI Weighted Avg Kharif- % y-o-y
3
4
5
6
7
8
9
10
11
12
13
0
2
4
6
8
10
12
14
16
18
20
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
20
13
-14
20
14
-15
20
15
-16
20
16
-17
20
17
-18
20
18
-19
Weighted Avg MSP hike- % y-o-y Avg CPI Inflation % y-o-y: RHS
CPI weighted kharif price rise in 2020-21 comes to 3.4% MSP price hike and CPI has decoupled since FY16
• Government has released the 2020-2021 minimum support price (MSP) for the Kharif crops. The price rise were muted and
ranged between 2-12% across 14 Kharif products. In simple average terms , Kharif MSP were hiked by 4.7% in FY21 (vs. 4% in
FY20.. Kharif MSP related crops have 7.7% pt. weight in CPI basket. Weighted for CPI, the MSP hike comes to 3.4% vs. 3.1 in
FY19
• During 2018 budget, government had announced to re-calibrate MSP calculation as 50% higher than cost of production. As a
result, we saw a sharp jump in MSP prices in FY19 (24%). This year also, government has kept the MSP at 50% more than the
cost of production barring 7 products (Bajra, arhar, urad, cotton,maize, jowar and paddy) where MSP has been fixed at more
than 50% of cost of production, thereby hoping to increase the profitability for farmers.
• We do not see an impact on CPI.
• MSP price hike and CPI inflation has decoupled since FY16. MSP hikes had averaged around 7% between FY16 to FY18 (both
Rabi and Kharif weighted for the share in CPI basket). On the other hand, CPI had moderated and averaged around 4% over
the last four years. In fact, food CPI fell to as low as 0.1% last year despite such high MSP hikes last year. This is primarily
because, except for cereals (and there too paddy and wheat) , prices of other products are dictated by demand supply
dynamics. Government procurement in rest of the items are miniscule.
Source: PIB; SBIMF Research
Policy rate Outlook
Source :Bloomberg; SBIMF Research.
RBI reduced repo rate by another 40 bps to
4% in May 2020
6.00
6.50
5.15
4.003
5
7
9
Mar
-11
Jan
-12
No
v-1
2
Sep
-13
Jul-
14
May
-15
Mar
-16
Jan
-17
No
v-1
7
Sep
-18
Jul-
19
May
-20
COVID-19 health crisis led to the second instance of monetary policy
committee (MPC) meeting being forwarded to at an early date. MPC lowered
the repo rate by 40bps to 4.00%. Consequently, the reverse repo rate and
MSF rate stands reduced to 3.35% and 4.35% respectively.
Cumulatively, the central bank has delivered 250bps of Repo rate cuts and
265bps of Reverse Repo cut in the current monetary easing cycle (i.e. since
February 2019). The policy rate stands at historic lows for India.
The central bank is clearly worried about growth. It expects the prices to stay
elevated for a couple of months but eventually fall below 4% by 2H FY21. That
said, as we have been pointing out, growth considerations are likely to
supersede any concerns on inflation and monetary conditions are likely to stay
accommodative for long
As the financial system challenges amidst COVID-19 continue, some of the
earlier announced regulatory relaxations has been extended for another three
months. Fresh set of regulatory relaxations were also announced.
While some of the widely anticipated measures such as MTM relaxations on
excess SLR investments by banks, OMO calendar and one-time restructuring
of bank loans have not been announced as yet, the policy actions by the
central bank reaffirm our faith that the central bank will stand to support the
financial system in all possible ways.
With the number of COVID-19 cases continuing to rise in India despite two
months of lockdown, and economic activity plunging to the sharpest order, the
pain points to Indian financial system is bound to continue for some time. To
that extent, RBI should likely pause for next couple of policy meet to keep its
powder dry.
Currency: Indian rupee show relatively contained depreciation
Source: Bloomberg, SBIMF Research
Rupee performance in the middle among EM
DXY and Yen has appreciatedRupee depreciated marginally to Rs 75.6/$ in May 2020 vs.
Rs 75.1/$ in April 2020
68.8
71.4
71.4
75.1 75.6
65
67
69
71
73
75
77
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
Rupees per US dollar-2
4.6 -2
0.2 -1
4.7
-12
.8
-11
.9
-11
.7
-6.6
-6.6
-5.9
-5.6
-5.4
-5.3
-5.1 -2
.4 -0.1
0.1
0.7
-30
-25
-20
-15
-10
-5
0
5
Bra
zil R
eal
Afr
ican
Ran
d
Me
xica
n P
eso
Turk
ey
Lira
Co
lom
bia
n P
eso
Ru
ssia
n R
ou
ble
Thai
Bah
t
Ko
rean
Wo
n
Mal
aysi
an R
ingi
tt
Ind
ian
Ru
pe
e
Hu
nga
rian
Fo
rin
t
Po
lish
Zlo
ty
Ind
on
esi
an R
up
iah
Ch
ine
se r
enm
inb
i
Taiw
anes
e D
olla
r
Ph
ilip
pin
e P
eso
Jap
an Y
en
% YTD change
-6.9
-5.0
-1.0
0.72.0
-10.0
-5.0
0.0
5.0
BritishPound
AustralianDollar
Euro JapaneseYen
DXY Index
% YTD change
Outlook on Rupee
Source : RBI , CMIE economic outlook, SBIMF Research; *uptil 22nd May 2020
Favourable factors
Risk
• Crude oil price crash and
strong Forex reserves to work
in favour of rupee
• The coordinated global
policy easing may stem the
portfolio outflows but may
take a while for risk appetite to
fully recover.
• US $ and other safe haven
currencies to maintain its
appreciation bias , that can
weigh on Indian currency
• Rupee likely to come under
pressure if number of new
virus cases sharply rise in India
or policymakers undelivered and
growth is impacted
Rupee is likely to maintain a depreciation bias in the near-term. Global and local policy action, number of
COVID-19 cases in India and its impact on growth will determine the near-term trajectory
Foreign Exchange reserves at an all time high
Surplus banking system liquidity aided the fall in money market rates
Source: CEIC, SBIMF Research ; Data up to 29th May 2020
0
2
4
6
8
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
Call money: Weighted average rate (%)
Triparty repo: Weighted average rate (%)
Market Repo: Weighted Avg Rate (%)
Which in turn resulted in better transmission of rate cuts
in overnight segment
Repo rate reduced by another 40 bps in May 2020 to 4%..
Transmission of rate cuts in money market segment since
Feb 2019
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
May
-17
Sep
-17
Jan
-18
May
-18
Sep
-18
Jan
-19
May
-19
Sep
-19
Jan
-20
May
-20
Average monthly banking system liquidity - Rs billion (+ve is deficit, -ve is surplus)
Net Borrowing of Banks from the RBI adjusted for surplus cash
..that helped in increased banking surplus liquidity..
6.5
5.15
4.44
4.9
43.35
3
5
7
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
Repo rate(%) Reverse repo rate (%)
% Jan-19 May-20
Change
(in bps)
Repo rate 6.50 4.00 -250
Reverse repo 6.25 3.35 -290
Call money 6.35 3.74 -261
Triparty repo 6.39 3.00 -339
Market repo 6.41 2.91 -350
Bank deposit and lending rates seeing gradual transmission
Source: CEIC, SBIMF Research; Data up to May 29, 2020 ; *Data uptil March 2020
Transmission of rate cuts in lending and deposit rates
% Jan-19 May-20
Change
(in bps)
Repo rate 6.50 4.00 -250
Reverse repo 6.25 3.35 -290
WALR (fresh loans) 9.81 8.80* -101
MCLR (1 year) 8.80 7.50 -130
Saving deposits rate 3.50 2.75 -75
Term deposit rate 6.88 5.81 -107
3.5 3.32.8
6.9 6.65.8
2.0
4.0
6.0
8.0
10.0
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
Saving deposits rate (%) Term Deposit rate > 1 year (%)
8.88.4 8.2
9.710.0
9.7
7.0
8.0
9.0
10.0
11.0
12.0
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
MCLR (1 year) -% WALR on fresh loans (%)
Savings & term deposit rate declined by 75 and 107 bps
respectively vs. 250 bps decline in repo rate since Feb
2019
MCLR & WALR declined by 130 and 101 bps respectively
vs. 250 bps decline in repo rate since Feb 2019
Source: CMIE, Economic Outlook ; SBI MF Research
FY20 Fiscal deficit stood at 4.6% vs. 3.8% (RE)
• Fiscal deficit for FY20 stood at 4.6% of GDP vs. 3.3% BE and 3.8% RE. This was mainly due to lower tax collections and
disinvestment proceeds as well as government's commitment to continue with its revised expenditure in absolute terms.
• There was a broad based shortfall in the tax segment.
• Contrary to everyone’s expectation, expenditure grew by 16% in FY20. Both revenue and capital spending grew.
• Lower than budgeted spending was seen in Agriculture, PDS, and Roads. Expenditure was met for defence, railways, health,
education, housing etc. Marginally higher spend was seen in rural development. States were transferred 32.4% of the gross tax
revenue.
• Rs.1.7 trillion of higher fiscal deficit was funded primarily by higher short-term borrowings (Rs.600 billion) and drawdown of
cash balances.
Consolidated fiscal deficit likely to reach +10% of GDP in FY21
Source: RBI, SBIMF Research; Central government borrowings based on revised borrowing calendar .SLR = Statutory
Liquidity Ratio
Combined fiscal deficit estimated to be 10% in FY21 vs.
likely 7.5% in FY20Near doubling of Government Bond supply in FY21
RBI will have to the heavy lifting in funding the government’s fiscal deficit
Case 1:
26% SLR
Case 2:
27% SLR
Case 3:
28% SLR
in Rs. billion FY19 FY20E FY21E FY21E FY21 E
Demand Sources
1. Banks 968 3,144 3,550 5,100 6,655
2. Insurance Companies 2,282 2,900 1,900 1,900 1,900
3. Provident/Pension/ Gratuity 1,364 1,400 1,400 1,400 1,400
4. RBI's Net OMO 2,556 1,137 10,250 8,700 7,145
5. Others 167 795 1,000 1,000 1,000
A. TOTAL DEMAND 7,337 9,376 18,100 18,100 18,100
Supply Sources
Central Govt Sec (net of redemptions) 3,853 4,740 9,600 9,600 9,600
State Govt Securities (net of redemptions) 3,484 4,636 8,500 8,500 8,501
B. TOTAL SUPPLY 7,337 9,376 18,100 18,100 18,100
6.64.6 4.4 3.7 3.8 4.9 3.9 4.7
9.6
1.51.6 2.1 3.6 4.6 3.4
3.54.6
8.5
-
5
10
15
20
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
State Govt Borrowings (net of redemptions)
Central Govt Borrowings (net of redemptions)
in Rs. trillion
8.2
6.3 6.67.3 8.4 8.3
7.3
9.4
18.1
6.9 6.7 6.7 6.9 6.96.4
5.8
7.5
10
0.0
4.0
8.0
12.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 E FY21 E
Combined fiscal deficit (state and centre)
% of GDP
Source :Bloomberg, Moody’s Investor Services; SBIMF Research.’ Local currency bond rating is shown in the graph
Moody downgrades India to lowest investment grade
Moody downgraded India’s sovereign bond rating to lowest investment grade
from Baa2 to Baa3 with a negative outlook
Rationale for downgrade
• Limited effectiveness of the reforms undertaken
• Challenge for policymakers to mitigate the risks of
relatively low growth
• Further deterioration of General Government Debt
• Stress in India’s financial sector
Factors that could lead to upgrade/downgrade of
the rating
• Rating outlook to be changed to stable if policy action
raise the confidence that real and nominal growth will
rise to sustainably higher rates, including measures that
enhance financial stability .
• The rating is at par with both
S&P and Fitch now. As per the
press release, the rating
downgrade has not been
driven by the impact of the
pandemic. Rather, the
pandemic amplifies
vulnerabilities in India’s credit
profile that were present and
building prior to the shock.
Valuations: increased attractiveness in May
Source : Bloomberg ; SBIMF Research.
Spread of 10- year GSec vs. Repo higher than long term
average
Spread of 10-year G-sec (India-US) adjusted for 1-year
currency premium at 1.2%
-50
0
50
100
150
200
250
300
350
No
v-0
9
Jun
-10
Jan
-11
Au
g-1
1
Mar
-12
Oct
-12
May
-13
De
c-1
3
Jul-
14
Feb
-15
Sep
-15
Ap
r-1
6
No
v-1
6
Jun
-17
Jan
-18
Au
g-1
8
Mar
-19
Oct
-19
May
-20
10 year G-sec minus Repo rate (in bps)
10 year average
5 year average
Spread when CD ratio>74%: 70bs
Spread when CD ratio<74%: 58bps
LTA since 2001: 89 bps
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
No
v-0
9
May
-10
No
v-1
0
May
-11
No
v-1
1
May
-12
No
v-1
2
May
-13
No
v-1
3
May
-14
No
v-1
4
May
-15
No
v-1
5
May
-16
No
v-1
6
May
-17
No
v-1
7
May
-18
No
v-1
8
May
-19
No
v-1
9
May
-20
India minus US 10 year G-sec adjusted for 1 yr rupee fwd premium(in %)
LTA since 2001
10 year Avg (in %)
5 year average (in %)
Source: Bloomberg, SBIFM Research
10-year G-Sec is trading at 176 bps spread to repo
rate
8.0
6.4
6.7
5.8
4.4
4.03.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
De
c-1
8
May
-19
Oct
-19
Mar
-20
10 year G-sec (in %) Repo Rate (in %)
Debt Outlook
Indian G-sec market has been extremely volatile, but the broad trajectory has been that of
falling yields since September 2018. 10-year G-Sec yield finally glided below 6% to end at
5.76% in May.
The current crisis is that of a health crisis but eventually leading to shutdown of economic
activity across the globe. Growth and trade is expected to plunge even sharper than 2008
crisis. Consequently, a few central banks and governments has come to support the economic
activity in quantum never seen before.
In India, while the government has been calibrated in its approach, given the challenges in its
balance-sheet, RBI has been forthcoming to do ‘whatever it takes’ to support growth and the
financial system by keeping the cost of fund low, injecting liquidity, allowing regulatory
forbearance and incentivizing banks and financial institutions to lend.
Coming to the markets, benign crude oil prices, risk of lower growth and expectation of
continued monetary easing support the fall in yields. However, concerns surrounding the likely
fiscal slippages to combat the impact of COVID-19 and FPI outflows limit the fall.
Inflation has likely peaked in February 2020 and should moderate through 2020. As such
growth inflation dynamics are supportive of continued monetary policy easing.
Rupee hovered between US$ 75-76 in May. A favourable external account dynamics
(emanating primarily from low crude prices) and strong FX reserves balance should keep the
rupee supported.
Government balance-sheet is stressed and pose significant risks of slipping the stated deficit
target. The GoI has already revised up its FY21 gross market borrowing to Rs. 12 trillion and
permitted states to take their net borrowing up to 5% of their GSDP subject to certain
conditions. RBI may have to come forward and monetize the fiscal deficit via OMO purchase.
In the other fixed income assets, challenge is of massive liquidity on one hand and
deteriorating credit conditions on the other.
Implications: We stay long duration as we think that the current situation clearly portrays that monetary policy rates are likely to stay
low for long. Ultimately the central bank will continue to take alternate policy actions so as to keep the rates across the asset classlow. However, we are extremely selective in taking credit risks.
Thank you
Disclaimer
This presentation is for information purposes only and is not an offer to sell or a solicitation to buy anymutual fund units/securities. These views alone are not sufficient and should not be used for thedevelopment or implementation of an investment strategy. It should not be construed as investmentadvice to any party. All opinions and estimates included here constitute our view as of this date and aresubject to change without notice. Neither SBI Funds Management Private Limited, nor any personconnected with it, accepts any liability arising from the use of this information. The recipient of thismaterial should rely on their investigations and take their own professional advice.
Mutual Funds investments are subject to market risks, read all scheme related documentscarefully.
Asset Management Company: SBI Funds Management Private Limited (A joint venture with SBI andAMUNDI). Trustee Company: SBI Mutual Fund Trustee Company Private Limited.
Contact Details
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