MUMBAI: The Indian economy is on a sustainable recovery path due to favorable monetary and credit conditions, despite global adverse conditions, said a reserve Bank of India (RBI) Article on the state of the economy.
Domestically, there have been many positives on the Covid-19 front, in terms of fewer infections and faster vaccination, added the article published in the RBI bulletin November 2021.
The article said that the Indian economy is clearly isolating itself from the global situation, which is affected by supply disruptions, stubborn inflation and rising infections in different parts of the world.
Despite global constraints, the article noted that mobility is improving rapidly, the job market is improving, and overall economic activity is on the verge of a strong revival.
“Overall monetary and credit conditions remain favorable for sustainable economic recovery to take root,” it noted.
At a time when many economies are still grappling with nascent reforms, the global economic outlook is clouded by uncertainty with adversity on several fronts.
The article said there is a risk of rapid policy normalization by major central banks, further consolidating financial conditions.
The central bank said that the views expressed in this article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
On capital markets, it said that the Indian equity market has outperformed major equity indices so far in 2021.
“The spectacular gains have raised concerns over excessive valuations with several global financial services firms remaining cautious on Indian equities,” it said.
Traditional valuation metrics such as the price-to-book price ratio, the price-to-earnings ratio and the market capitalization to GDP ratio remained above their historical averages.
The yield gap (the difference between the BSE Sensex’s 10-year G-Sec yield and the 12-month forward earnings yield) is much higher than the historical long-term average of 1.65 per cent at 2.47 per cent.
Despite widespread concerns over valuations, the article said it is noteworthy that private promoters’ stake in companies listed on the NSE rose by nearly 50 basis points to 44.90 per cent in September-end 2021 from 44.42 per cent in June-end 2021 .
It said, “Empirical research shows a positive relationship between promoter ownership and firm value. Consistently rising promoters’ stake reflects confidence on the part of promoters about their business prospects and comfort with ongoing valuations.”
Indian equity markets hit record highs several times during the first half of October 2021, buoyed by consolidating signs of recovery in economic activity, a strong demand outlook ahead of the festive season and the Reserve Bank’s announcement of status quo in its policy repo rate. Also with the continued accommodative stance of monetary policy.
However, the market cut some gains in the second half of the month amid mixed second quarter corporate earnings results and quick profit booking following concerns over elevated valuations.
The article said that during April-August 2021, there has been a strong growth in both own tax revenue and own non-tax revenue receipts of states as compared to the same period a year ago.
As the Central Government is relaxed to achieve its tax revenue collection target for 2021-22, it is expected that higher collection of tax revenue of the Central Government will result in higher tax devolution to states in H2:2021-22 will be transformed into The article said.
This can ease the fiscal position of the states and set them conveniently towards achieving their budgetary fiscal deficit target.
On reduction in excise duty by the central government and most states and union territories reducing their value added tax (VAT) on petrol and diesel, he said that overall, reduction in motor fuel rates could have a positive impact on consumption and private investment. Is.
The article also noted that although only 5.2 per cent of the budgeted disinvestment target of Rs 1.75 lakh crore has been achieved, “the sale of Air India marked a turning point in the government’s disinvestment programme”.
It further said that the global supply disruptions weighed on the domestic automobile sector, which continues to be under supply constraints of semiconductor chips in October.
Supply constraints thwarted festive season sales, and in sync, retail sales of motor vehicles and vehicle registrations declined.
Domestically, there have been many positives on the Covid-19 front, in terms of fewer infections and faster vaccination, added the article published in the RBI bulletin November 2021.
The article said that the Indian economy is clearly isolating itself from the global situation, which is affected by supply disruptions, stubborn inflation and rising infections in different parts of the world.
Despite global constraints, the article noted that mobility is improving rapidly, the job market is improving, and overall economic activity is on the verge of a strong revival.
“Overall monetary and credit conditions remain favorable for sustainable economic recovery to take root,” it noted.
At a time when many economies are still grappling with nascent reforms, the global economic outlook is clouded by uncertainty with adversity on several fronts.
The article said there is a risk of rapid policy normalization by major central banks, further consolidating financial conditions.
The central bank said that the views expressed in this article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
On capital markets, it said that the Indian equity market has outperformed major equity indices so far in 2021.
“The spectacular gains have raised concerns over excessive valuations with several global financial services firms remaining cautious on Indian equities,” it said.
Traditional valuation metrics such as the price-to-book price ratio, the price-to-earnings ratio and the market capitalization to GDP ratio remained above their historical averages.
The yield gap (the difference between the BSE Sensex’s 10-year G-Sec yield and the 12-month forward earnings yield) is much higher than the historical long-term average of 1.65 per cent at 2.47 per cent.
Despite widespread concerns over valuations, the article said it is noteworthy that private promoters’ stake in companies listed on the NSE rose by nearly 50 basis points to 44.90 per cent in September-end 2021 from 44.42 per cent in June-end 2021 .
It said, “Empirical research shows a positive relationship between promoter ownership and firm value. Consistently rising promoters’ stake reflects confidence on the part of promoters about their business prospects and comfort with ongoing valuations.”
Indian equity markets hit record highs several times during the first half of October 2021, buoyed by consolidating signs of recovery in economic activity, a strong demand outlook ahead of the festive season and the Reserve Bank’s announcement of status quo in its policy repo rate. Also with the continued accommodative stance of monetary policy.
However, the market cut some gains in the second half of the month amid mixed second quarter corporate earnings results and quick profit booking following concerns over elevated valuations.
The article said that during April-August 2021, there has been a strong growth in both own tax revenue and own non-tax revenue receipts of states as compared to the same period a year ago.
As the Central Government is relaxed to achieve its tax revenue collection target for 2021-22, it is expected that higher collection of tax revenue of the Central Government will result in higher tax devolution to states in H2:2021-22 will be transformed into The article said.
This can ease the fiscal position of the states and set them conveniently towards achieving their budgetary fiscal deficit target.
On reduction in excise duty by the central government and most states and union territories reducing their value added tax (VAT) on petrol and diesel, he said that overall, reduction in motor fuel rates could have a positive impact on consumption and private investment. Is.
The article also noted that although only 5.2 per cent of the budgeted disinvestment target of Rs 1.75 lakh crore has been achieved, “the sale of Air India marked a turning point in the government’s disinvestment programme”.
It further said that the global supply disruptions weighed on the domestic automobile sector, which continues to be under supply constraints of semiconductor chips in October.
Supply constraints thwarted festive season sales, and in sync, retail sales of motor vehicles and vehicle registrations declined.
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