BNP: Gute Aussichten für Indien

After correcting by 6.22% in USD terms in April, the MSCI India 10/40 (NR) index recordedpositive returns in May and June to end the quarter down by 3.35% in USD terms. The Indian rupee (INR) depreciated by 2.03% against the US dollar over the same period.GDP growth for the first quarter of 2015 was above expectations at 7.5% YoY. However,gross value added (GVA), which tends to better reflect growth dynamics, increasedmore mildly at 6.1% YoY. For the full fiscal year ending in March 2015 (FY 2015), GDP growth accelerated from 6.9% in FY 2014 to 7.3%, despite poor monsoons and sluggish consumption trends.

Similar to what happened during the winter session of parliament, the government failed to make much headway during the budget session due to reluctant opposition parties and the lack of a government majority in the Upper House. Key bills such as the Goods and Services Tax (GST) Bill and the Land Acquisition Bill have been referred to committeesfor further consideration before being examined again during the monsoon session of parliament.

The uncertainty surrounding the applicability of the Minimum Alternate Tax (MAT) toforeign investors was a hot topic this quarter. The government set up the Shah committeeto consult on the issue with the various stakeholders and make recommendations.CPI inflation remained stable over the quarter. In May the CPI stood at 5.0%, up from 4.9% in April. Core CPI inflation picked up to 4.4 % from 4.0 % in April, but remains within the Reserve Bank of India’s (RBI) comfort range. The trade deficit narrowed for the second consecutive month in May to USD 10.4 billion. Exports stayed weak in May, while non-oil,non-gold imports contracted for the first time in 13 months. Industrial output for April improved to a healthy 6.1% in line with recent industrial production trends. As expected, the RBI cut the repo rate by 25bp to 7.25% during its monetary policy meetingon 2 June. The central bank highlighted that further monetary policy action would be datacontingent, given the upside risks to inflation depending on potentially poor monsoons,the efficiency of the government’s policy response, geopolitical risks to oil prices and external volatility impacting the exchange rate. 

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