India performs well in EM ranking as Asian peers battle covid-19
Spurred on by a rapidly improving covid-19 vaccination campaign and declining infections, India’s economy was largely able to maintain its growth advantage over other key emerging markets (EM) in August. The country ranked second behind Russia in Mint’s latest emerging markets tracker update, as the Delta variant rocked the recovery for major Southeast Asian peers.
Growth-sapping restrictions are back in countries like Malaysia and the Philippines, derailing their macroeconomic performance at a time when vaccines have not reached people fairly. In India, meanwhile, the vaccination effort reached its fastest levels to date in August, averaging 5.9 million daily doses during the month.
As mobility and demand picked up, the Manufacturing Purchasing Managers’ Index (PMI) for India remained in the expansion zone, and the goods and services tax catching up came through. ??1,000 billion for the second consecutive month. The gains helped foreign capital find its way back to India after being sidelined in July. With demand picking up and the economic environment appearing to be more favorable, foreign portfolio investors (REITs) bought shares worth $ 284 million in August. With China pulling regulatory hits on its tech giants, there is even more hope that India may reap some of the benefits.
This made India the largest beneficiary of portfolio stock flows over the past 12 months on the tracker, amounting to $ 25.3 billion. Thailand, Malaysia and the Philippines recorded outflows of more than $ 2 billion during the period. Interest in the flow of foreign funds into emerging market countries has come under the looming pressure of a monetary policy slowdown in the United States of late.
In August, Indian stocks posted the tracker’s third largest gains (3.4%), behind only the Philippines (10.5%) and Turkey (5.6%). The rupee appreciated 0.5% against the dollar thanks to the REIT’s inflows. Other emerging market currencies remained relatively stable as the greenback weakened in late August on disappointing employment data.
India’s superior performance was partly due to stronger economic growth than its peers in the quarter ended June, the data of which was released on August 31. The 20.1% year-over-year growth was just behind that of Turkey (21.7%) despite the crippling second pandemic wave. It also brought India to the top spot in the updated July rankings.
Admittedly, the base effect was strong: with its 24.4% contraction in April-June 2020, India had the lowest GDP base among the EMs considered in the tracker. Moreover, despite this year’s rebound, India is still below 9.2% of April-June 2019 production levels. Yet the steady recovery since then has kept India in an ideal position then. that China’s growth is slowing due to a new wave of covid-19 and regulatory restrictions.
The Reserve Bank of India estimates growth of 9.5% for 2020-2021, but could revise it up to 10% while remaining accommodative for the rest of the year to foster a sustained recovery, according to a note by ‘Edelweiss Wealth Research dated September 1. Another research note, from Moody’s Investors Service, said that although GDP growth has solidified in emerging Asian countries, the pace will vary across countries and sectors, with the pandemic acting as the greatest near-term risk. .
Mint’s emerging markets tracker, launched in September 2019, takes into account seven high-frequency indicators across 10 major emerging markets to help us understand India’s relative position in the emerging market rankings. The seven indicators taken into account in the tracker encompass both real activity indicators, such as the Manufacturing Purchasing Managers’ Index (PMI) and real GDP growth, and financial measures. Final rankings are based on a composite score that gives each indicator equal weight.
Foreign trade also showed encouraging signs. Exports in August registered an annualized growth of 13.2% compared to the level of two years ago, and increased by 46% compared to the same period last year. However, this figure remains significantly lower in Brazil, Russia and Indonesia, and is expected to slow further due to the slowing global recovery.
A few noticeable signs of weakness were evident in industrial activity as the PMI impression softened to 52.3 from 55.3 in July. However, the services sector PMI offered a silver lining, hitting an 18-month high at 56.7 as business leaders reported an increase in new orders. A PMI reading of over 50 denotes month-over-month expansion.
The weaker base effect helped control retail price inflation to a four-month low of 5.3%, which could slow further. Although high, the number has returned to the tolerance band over the past two months. The RBI has yet to join the tightening monetary policy train as other emerging countries like Brazil and Russia have. However, some dissent on accommodative policy is likely again when the monetary policy panel meets in October.
All in all, demand appears to be gaining ground in India and could be boosted by the upcoming festival season. However, the high risk of a third wave during the festivities will need attention as the economic trajectory will depend heavily on the mitigation plan.
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