The performance of a majority of the lead indicators slackened in February 2021, even as the CPI inflation recorded a sharper-than-expected uptick.
The year-on-year (YoY) performance of nine of the 15 early economic indicators worsened in February 2021 relative to the previous month. This sub-set includes the output of scooters and Coal India Limited (CIL), vehicle registrations, non-oil merchandise exports, consumption of petrol and diesel, ports cargo traffic, rail freight traffic, as well as electricity generation. The deterioration in the performance of these sectors may be linked to a number of factors. For instance, the sequential worsening in the YoY performance of the output of scooters and CIL, electricity generation and non-oil exports in February 2021 can be attributed to a high base, and therefore may not be a cause for alarm. Moreover, the moderation in the growth of merchandise exports may be linked to renewed restrictions in various trading partners. Additionally, the dip in fuel consumption is likely to be partly linked to rising retail fuel prices.
In contrast, six indicators witnessed an improved YoY performance in February 2021, relative to January 2021, namely output of passenger vehicles (PVs) and motorcycles, generation of GST e-way bills, domestic airlines’ passenger traffic, bank deposits, and non-food bank credit. In particular, the double-digit growth of GST e-way bills at 11.6% in February 2021 and the trends in early March 2021, suggest a steady momentum of the activity in the wider economy.
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The capital market regulator, the Securities and Exchange Board of India (SEBI) issued a circular revising the norms for investment by debt mutual funds in Basel III debt instruments issued by banks. The circular also revised valuation norms for the valuation of perpetual bonds issued by various class of issuers (banks, non-banking finance companies – NBFCs and corporates). As per the revised norms, mutual funds across all its schemes to own not more than 10% of the all the Basel III instruments issued by any bank. The norms also mention that no more than 10% of Net Asset Value (NAV) of the debt component of the scheme shall be issued in Basel III instruments and no more than 5% of the NAV of the debt component of the scheme shall be issued in Basel III instruments of a single issuer. In addition, the valuation of perpetual debt instruments (PDIs) henceforth shall be based on a maturity of 100 years from date of issuance instead of current practice of valuing them on time left for next call-option date.
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The residential realty sector is witnessing a K-shaped recovery as per an ICRA analysis, with large listed players recovering at a much better pace than smaller, unorganized players. While the broader market remained 24% below pre-Covid levels on a Yo-Y basis in Q3 FY2021 and 39% below pre-Covid levels in 9M FY2021, the top 10 listed realty players witnessed a 61% Y-o-Y growth in Q3 FY2021 and 13% growth in 9M FY2021. This disparity in sales growth rates led to accelerated consolidation in the aftermath of Covid-19 and the market share of the top 10 listed realty players has nearly doubled in the current year, increasing from 11% of sales in FY2020 to 19% in 9M FY2021. Larger developers have been benefitting from demand consolidation and better credit availability. In terms of launches as well, their market share has increased from 11% in FY2020 to 22% in 9M FY2021.
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The credit profile of the state-owned distribution utilities (discoms) continues to remain stressed due to higher level of technical & commercial (AT&C) losses compared to regulatory norms, inadequate tariffs in relation to their cost of supply and inadequate subsidy support from the respective state governments. As a result, discoms’ debt levels have again gone up post the implementation of UDAY scheme by Government of India in FY2016 and are now estimated at close to Rs. 6 trillion in FY2022. This apart there has been a build-up in dues to power generators by 30% to Rs. 1.27 trillion as of December 2020 on a year-on-year (Y-o-Y) basis.
ICRA thus maintains a negative outlook on the power distribution segment. Nonetheless, the credit profile of several privately-owned discoms remains healthy supported by superior operating efficiencies, favourable demographic profile and timely pass-through of cost variations to consumers.
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