NSE Market Pulse PDF

January 2020
Volume 2, Issue 1
Market Pulse
A monthly review of Indian markets
Market Pulse
January 2020 | Vol. 2, Issue 1
Table of Contents
Executive Summary ........................................................................................................................................................ 3
Story of the month........................................................................................................................................................... 4
Taking stock of markets in 2019.............................................................................................................................. 4
Chart of the month ........................................................................................................................................................ 22
Spike in inflation is transitory in nature .............................................................................................................. 22
Market Round up ........................................................................................................................................................... 25
Thought Leadership Article ......................................................................................................................................... 27
New Product: The NSE Knowledge Hub................................................................................................................... 29
Macro economy .............................................................................................................................................................. 31
FY20 AE GDP: Investments drag GDP growth to a decadal low of 5% ........................................................ 31
Retail inflation surges to 40-month high in November .................................................................................... 37
Industrial production contracts for the third month in a row ........................................................................ 41
Trade deficit witnesses a modest expansion in November............................................................................. 45
CAD contracts in Q2FY20; weak demand to keep it under check in FY20 .................................................. 48
December MPC Policy Minutes: Sharp rise in inflation trajectory keeps RBI on pause ........................... 53
Cumulative gross fiscal deficit surges in November to reach 115% of the budgeted target .................. 56
RBI announces India’s version of ‘Operation Twist’ to reduce long-term yields ...................................... 60
The INR 105trn ‘National Infrastructure Pipeline’ unveiled; execution remains the key......................... 62
STOP PRESS: Macro data update (Data released between December 1st and 15th).................................. 67
Insights ............................................................................................................................................................................ 68
Banks witnessing a turnaround but not out of the woods yet ........................................................................ 68
How can Designated Market Makers improve market quality? Evidence from the New York Stock
Exchange ..................................................................................................................................................................... 78
Market performance across asset classes .............................................................................................................. 80
Market Statistics: Primary market ............................................................................................................................ 87
Funds mobilised in the primary market ............................................................................................................... 87
New listings in the month ........................................................................................................................................ 87
Market Statistics: Secondary market ....................................................................................................................... 87
Institutional flows across market segments ...................................................................................................... 87
Segment-wise total turnover.................................................................................................................................. 90
Average daily turnover ............................................................................................................................................. 90
Turnover of top traded symbols............................................................................................................................. 92
1
Market Pulse
Trend of NSE’s turnover in different segments .................................................................................................. 93

Client category-wise participation in total turnover ........................................................................................ 98
Region-wise distribution of new investors registered ................................................................................... 102
Region-wise distribution of individual investors turnover in the cash market ........................................ 103
Asset category wise open interest (average daily volume)........................................................................... 104
Internet-based trading .......................................................................................................................................... 105
Record statistics ...................................................................................................................................................... 105
Investment through mutual funds in India ....................................................................................................... 106
Policy developments .................................................................................................................................................. 107
Comparison of trading activities across major exchanges globally ................................................................ 112
Economic calendar for the month for major countries ....................................................................................... 115
Annual Macro Snapshot ............................................................................................................................................. 116
2
Market Pulse
Executive Summary
GDP at 11-year lows, markets up 12%, and a new year and decade
2020 marks the beginning of the new year, and the decade. Seen with a long-term perspective, it becomes readily
apparent that despite near-term hiccups for the economy, we stand at a vastly different situation today than in 2010,
the beginning of the previous decade. Nominal GDP has risen from Rs64trn in FY10 to Rs204trn in FY20 (Advance
Estimate), per capital incomes have risen by an 11% CAGR over the last ten years, and amongst many other changes,
the role and importance of technology has sharply risen in our daily lives. For the markets, the new decade is one where
retail participation is finally seeing some traction, in the form of SIPs in equities, and for debt products like the Bharat
Bond ETF.
The year gone by, in particular, was a really exciting one for the economy as well as markets. Notwithstanding a weak
macroeconomic environment, equity markets ended the year on a high, with the Nifty 50 Index touching all-time high
levels, generating 12% return in 2019, supported by strong FII participation and sticky retail inflows through SIPs. It
has been quite a roller-coaster ride, however, with only select stocks driving the rally, while mid- and small-cap indices
generated negative returns for the second year in a row. The debt market benefited from easy monetary policy, even as
weak economic growth and fiscal pressures led to a significant steeping of the yield curve. The RBI resorted to India’s
own version of ‘Operation Twist’, having announced three tranches of Rs100bn each thus far. More on this in our ‘Story
of the month’ section on page 4.
On the global front, geopolitical uncertainty abated towards the end of the year, with the US and China signing the so-
called ‘Phase 1’ trade deal and the Conservative Party winning a decisive mandate in the UK parliamentary elections,
even as the tensions between US and Iran worsened. As a response to weak economic environment, the central banks
maintained easy monetary policy in 2019, with both the US Fed and the ECB expanding their balance sheets again and
the Fed cutting interest rates three times. More on this, across markets and regions globally, in our ‘Market Round-up’
section on page 25 and ‘Market performance across asset classes’ section on page 80.
Our Thought Leadership section features excerpts of an interesting interview by Vikram Limaye, MD, NSE, with the Indian
Express on the economy and markets, specifically highlighting the impact of rising geopolitical tensions on the Indian
economy and measures to achieve broad-based investor participation in equity markets. We also feature a new product
from the NSE Academy this month, the NSE Knowledge Hub. This unique Artificial Intelligence (AI) powered platform
will provide a unique learning eco-system where organisations can define the learning strategy and business planning
for their employees, track and measure the impact of learning. We include a detailed report on the product on page 29.
Further on the macro front, the CSO has pegged the FY20 GDP growth at an 11-year low of 5%, inflation has shot up to
six-year high on a sharp spike in vegetable prices, monthly trade performance pointed to a sustained weakness in
domestic demand, industrial production has remained weak amid low capacity utilisation and fiscal slippage risks have
intensified. There could be better ways to start the decade, one might say. That said, the night is often darkest before
dawn, and the Indian economy has been in some difficult positions earlier as well.
With inflation as well as growth surprising on the negative side for yet another month, policy action promises to be
interesting over the next few months, as we find more reasons (and solutions) for the current slowdown. We hope you
find this issue of Market Pulse useful, and as always, we look forward to your feedback and comments.
Dr. Tirthankar Patnaik

Chief Economist
3
Market Pulse
Story of the month

Taking stock of markets in 2019
Indian equity markets touched all-time high levels last year, with Nifty 50 ending the year with a 12% return,
notwithstanding a gloomy domestic as well as global macroeconomic environment and weak corporate earnings, even
as they underperformed the broader EM pack. On the macro front, while GDP growth is set to record a decadal low of
5% in FY20, with several high frequency indicators pointing to that, market sentiments seem to have remained
unscathed, probably reflecting better times ahead. Having said that, it has been quite a roller-coaster ride for the
markets, with the market erasing all gains over the next couple of months post the Union Budget announcement, only
to rise again in the last quarter following the Government’s corporate tax cut announcement. Given the stark contrast
between macroeconomic situation and market performance last year, it is interesting to take a deep dive and see what
really contributed to the rally.
Our analysis shows that despite a strong performance last year, Indian equity markets underperformed its global peers,
partly explained by idiosyncratic factors hurting India’s growth outlook. Moreover, the rally was largely led by large-caps
(Nifty 50), while mid- and small-caps indices generated negative returns for yet another year. Notably, just eight stocks
contributed more than 96% to the index return in 2019. Valuations have also risen sharply, with Nifty 50 trading at a 12-
month forward P/E of 17.4x, implying a premium of 20% to last 10-years average, even as the rerating has been
concentrated. Having said that, the relative premium to MSCI EM 12-month forward P/E is in-line with the last 10-years
average. India, in other words, has done well, but so have its peers.
Fixed income markets benefited from an expansionary monetary policy by the RBI (135bps cut in policy rates in 2019),
surplus systemic liquidity (post June 2019) as well as easy global liquidity, even as fiscal pressures and weak economic
growth led to a steepening of the sovereign yield curve. On the other hand, credit spreads, i.e., the spread between
corporate bonds and risk-free government securities, have remained stubbornly high last year as investor risk appetite
took a toll following a few credit defaults in the latter part of 2018 and early 2019.
• Indian equity markets ended 2019 on a high…: The year gone by was an exciting one for the economy and markets.
Notwithstanding a weak macroeconomic environment, the Indian equity markets ended the year on a high, with the
Nifty 50 Index touching all-time high levels, generating 12% return in 2019. However, it has been quite a roller-
coaster ride for the markets last year. The Nifty 50 Index rose in the former part of the year until May 2019, thanks
to a decisive electoral mandate for the NDA in the General elections and an accommodative monetary policy stance,
only to erase all the gains over the next few months in the aftermath of some of the unfavourable tax proposals
announced in the Union Budget and rising geopolitical uncertainty including Brexit and heightened Sino-US trade war
concerns.
The rally resumed in mid-September following the announcement of a significant overhaul in corporate tax rates.
This, along with the roll-back of enhanced surcharge on capital gains announced in the Union Budget, a slew of other
fiscal/external measures announced by the Government to revive the economy and abating geopolitical risks, kept
investor sentiments buoyant until the end of the year, translating into more than 13% return over this period.
4
Market Pulse
Figure 1: Nifty 50 performance in 2019
NIFTY performance in 2019 vs. 100 day moving average

x 1,000 x 1,000
12.5 12.5
May 23: Landslide victory for Sep 19: Govt. cuts corp
BJP in General Elections July 1: Union Budget
tax rates from 30% to 22%
June 6: RBI changes stance

12,168
to 'accomodative'
12.0 12.0
Feb 7: RBI starts monetary easing;
changes stance from calibrated Aug 23: Govt. withdraws
tightening to neutral. higher surcharge tax on
FPIs & domestic investors
11.5 11.5
Dec 10: Boris Johnson won

the UK election; further
progress on trade deal
11.0 11.0
Oct 11: US & China agree

on Phase 1 trade deal
10.5 10.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2019 Source: Refinitiv Datastream
Source: Refinitiv Datastream, NSE.
• …despite a weak macroeconomic environment and muted corporate profitability…: On the macro front, however,
things have remained rather gloomy. After remaining one of the fastest growing economies in recent years, the Indian
economy witnessed a severe slowdown last year, the elements of which are both cyclical and structural in nature.
GDP growth fell to a six-year low of 4.5% in the second quarter of current fiscal, with Advance Estimate for the full
year pegged at an 11-year low of 5% by the CSO. The slowdown has been rather broad-based, with both private
consumption and investments remaining weak and Government spending in the first half being the only silver lining.
However, what hit the confidence and consequently the Indian economy the most last year were tight financial
conditions, triggered post the crisis in the non-banking financial sector in late 2018. In turn, this reduced the risk
appetite of the overall financial sector, as evident from the nearly two-third decline in the flow of funds from domestic
and foreign sources, including banks and non-banks, to the Indian commercial sector in the first half of current fiscal.
Domestic headwinds apart, a part of the current domestic slowdown is also fallout of weak global growth
environment, with the IMF expecting global GDP growth in 2019 to fall to the lowest level since the global financial
crisis. This has had negative implications on India’s exports growth and continues to remain a challenge in the near-
term.
5
Market Pulse
Figure 2: Equity market has historically moved in tandem with economic growth, but a divergence has been
overserved over the last couple of years
% YoY Market movement vs. GDP growth
10 GDP growth NIFTY (R) 14000

9
12000
8
7 10000
6
8000
5 5.0
6000
4
3 4000
2
2000
1
0 0
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: CSO, CMIE Economic Outlook, NSE. FY20 GDP growth number refers to the CSO’s Advance Estimate. Nifty figure for FY20 is as of December 31, 2019.
Figure 3: Macro indicators in a snapshot

While inflation remained fairly comfortable most part of the last year, barring a surge towards the end, growth impulses
weakened, with FY20 GDP growth estimated at an 11-year low of 5%. To arrest growth slowdown and close the
widening output gap, the RBI reduced policy rates by 135bps in 2019, even as the transmission into the real economy
through credit markets remained benign.
Percent
CPI 3M MA 4.72%
8 IIP 3M MA (RHS) -2.17% 10
Policy rate 5.15%
GDP Qtrly %YoY (R) 4.55%
6
8
4.72
Q2FY20 GDP
4 at 4.5%
2
-2 -2.17
-4 0
2016 2017 2018 2019
Source: Refinitiv Datastream / Fathom Consulting
6
Market Pulse
Figure 4: Corporate performance in a snapshot

Corporate profitability looked optically good in the quarter ending September 2019, helped by the cut in corporate tax,
even as operational performance has weakened further. Sales growth for Nifty 50 companies has been trending
downwards since last few quarters and fell into the negative territory in the quarter ending September 2019 for the first
time in 15 quarters, reflecting worsening demand conditions in the economy.
Sales growth trend for Nifty 50 companies PAT growth trend for Nifty 50 companies
50% Nifty 50 80% Nifty 50
Nifty 50 ex-Energy Nifty 50 ex-Energy
40% Nifty 50 ex-Fin Nifty 50 ex-Fin
Nifty 50 ex-energy ex-Fin 60%
Nifty 50 ex-energy ex-Fin
30%
40%
20%
20%
10%
0%
0%
-20%
-10%
-20% -40%
Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Sep-19 Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Sep-19
Source: CMIE Prowess, Refinitiv Datatream, NSE
Figure 5: Nifty 50 Earnings Revision Indicator

The Earnings Revision Indicator (ERI) for the Nifty 50 universe has remained in the negative zone for more than five
years now, implying more downgrades of earnings estimates than upgrades. The number of downgrades peaked out
in March 2016 and kept on declining until September 2018. However, the pace of downgrades increased since October
2018, thanks to worsening domestic and global economic activity, declining commodity prices and tightness in
domestic liquidity post the IL&FS crisis, leading to ERI falling back deep into the negative zone.
NIFTY 50 Earnings Revisions
50 50
NIFTY 50 Upgrades NIFTY 50 Dowgrades
40 40
30 30
20 20
10 10
0 0
10 11 12 13 14 15 16 17 18 19
0.4 0.4
NIFTY 50 Earnings Revision Indicator
0.2 0.2
0.0 0.0
-0.2 -0.2
-0.4 -0.4
-0.6 -0.6
-0.8 -0.8
-1.0 -1.0
10 11 12 13 14 15 16 17 18 19
Source: Refinitiv Datastream
Source: Refinitiv Datatream, NSE
7
Market Pulse
Figure 6: Yearly trend of NIFTY 50 Consensus EPS estimates

The current ongoing domestic and global slowdown, coupled with tight domestic liquidity, has led to a ~15%
downgrade in the FY20 NIFTY 50 Consensus EPS estimate since the beginning of 2019.
Weighted mean Nifty EPS estimates for calendar years

1200 1200
2019
2018
2017
2016
2015
2014
1000 2013 1000
2012
2011
2008
2007
2006
800 800
600 600
400 400
200 200
2008 2010 2012 2014 2016 2018

Source: Refinitiv Datatream, NSE
• …but Indian equity market underperformed the broader EM pack…: Despite a strong performance relative to
the domestic macroeconomic situation, Indian equity market underperformed its global peers, thanks to
idiosyncratic factors that hurt India’s economic growth. While Nifty 50 ended the year with a 12% return, MSCI
Emerging Market Index rose by 15.4% in 2019. The global rally was largely driven by developed markets,
particularly US equity markets, with the MSCI Developed Index rising by a strong 25% last year.
8
Market Pulse
Figure 7: Equity market performance across geographies

% Equity market performance across geographies
40.0 CY18 CY19
30.0
20.0
12.0
10.0 3.2
0.0
-10.0
-20.0
-30.0
Source: Bloomberg, NSE.
• …as well as other domestic asset classes such as Gold: Indian equity market also underperformed other asset
classes in 2019. Gold led the rally, rising by a hefty 24% in 2019, with bulk of that happening during June-August
2019, thanks to a sharp rise in global risk-off sentiments then owing to trade war concerns. Nifty 50 performed
the second best with a 12% return, even as mid- and small-cap indices generated negative returns, followed by a
robust, yet steady, 11% return by the bond markets (+11%).
Figure 8: Equity market performance across geographies
Performance across asset classes
125 Nifty 50 Nifty Small-cap CCBFI ** USD Gold * Nifty Mid-cap
120
115
110
105
100
95
90
85
80
75
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
• Equity market rally led by a few stocks: While the flagship Index, Nifty 50, surged to all-time high levels last
year, mid-cap and small-cap indices generated negative returns, falling by 4.3% and 9.5%, over and above the
15.4% and 29.1% decline in the previous year, respectively. The rally in Nifty 50 was also quite narrow, with eight
stocks contributing to nearly 96% of the return last year. In terms of sectors, Banks, Energy and Information
Technology contributed to more than 80% of the Nifty 50 returns in 2019.
9
Market Pulse
Figure 9: Performance of Nifty Indices in 2019

% Performance of Nifty indices
CY18 CY19
20.0
12 10 9 8
10.0
3
0 1
0.0
-1
-3 -4
-10.0
-9 -10
-20.0 -15
-30.0
-29
-40.0
Nifty 50 Nifty Next 50 Nifty 100 Nifty 200 Nifty 500 Nifty Midcap Nifty Smallcap
Figure 10: Top 10 Nifty 50 performing stocks by Figure 11: Bottom 10 Nifty 50 performing stocks by
returns in 2019 returns in 2019
Stocks Return in 2019 (%) Stocks Return in 2019 (%)
Bharti Airtel 87.3 Yes Bank -71.5
Bajaj Finance 66.7 Zee Entertainment Enterprises -38.7
ICICI Bank 50.3 Mahindra & Mahindra -33.9
Bajaj Finserv 45.0 GAIL India -32.8
Bharat Petroleum Corp Ltd. 35.5 Vedanta -24.6
Reliance Industries 35.0 Hero MotoCorp -21.3
Kotak Mahindra Bank 34.3 Oil & Natural Gas Corp -15.8
Axis Bank 33.5 ITC -15.3
Nestle India 33.4 Coal India -12.8
Asian Paints 30.0 JSW Steel -12.0
Source: Bloomberg, NSE. Source: Bloomberg, NSE.
Figure 11: Top 10 performing stocks by contribution Figure 13: Bottom 10 performing stocks by contribution
to Nifty 50 return in 2019 to Nifty 50 return in 2019
Stocks % contribution (%) Stocks % contribution (%)
Reliance Industries 25.1 ITC -5.3
HDFC Bank 12.0 Mahindra & Mahindra -3.4
ICICI Bank 11.7 Oil & Natural Gas Corp -3.1
Bharti Airtel 11.0 Yes Bank -3.0
Bajaj Finance 10.3 GAIL India -2.7
Tata Consultancy Services 10.1 Larsen & Toubro -1.9
Kotak Mahindra Bank 8.3 Coal India -1.9
HDFC 7.9 Vedanta -1.9
Axis Bank 5.4 Zee Entertainment Enterprises -1.8
Bajaj Finserv 4.7 Indian Oil Corp -1.5
10
Market Pulse
Figure 12: Sector-wise returns within Nifty 50 Index in 2019

%
Sector-wise return within Nifty 50 Index
80.0 66.7 62.4
60.0 45.0
40.0 27.6 23.7
16.8
20.0 10.2 5.7 2.0 0.8
0.0
-20.0 -3.6 -6.1 -7.4 -9.6 -11.7
-40.0
-60.0 -38.7
Figure 13: Sector-wise contribution to Nifty 50 return in 2019

%
Sector-wise contribution to Nifty 50 return
50 46.5
40
30 21.4
20 13.8
10.8 10.3
10 4.7 2.3 2.3 1.2 0.2
0
-10 -0.6 -1.8 -1.9 -1.9 -3.6 -3.6
• DMF flows remained robust; FII turned strong buyers in the latter part of the year: Domestic mutual funds
(DMFs) remained decent buyers of Indian equities in 2019, thanks to sticky SIP inflows. Monthly SIP inflows into
DMFs have averaged at around Rs820bn last year. This has translated into cumulative inflows of nearly Rs986bn
in 2019, implying a growth of 11% YoY despite a very high base (+49% in 2018).
Despite macroeconomic concerns, India remained a preferred market for foreign institutional investors (FIIs),
who emerged as strong buyers in the latter part of the year, supported by favourable global cues with regards to
US-China trade conflicts and easy global liquidity. Net FII inflows in equity markets stood at US$ 14.2bn in 2019,
the highest in last five years.
11
Market Pulse
Figure 14: Cumulative net FII inflows over the last five years
Cumulative FII net flows into equities over last five years (US$mn)
x 1,000
20
CY15
CY16
15 CY17
CY18
CY19
10
-5
-10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Figure 15: FII net inflows in 2019 are the highest in Figure 16: India leading the EM peers in net FII inflows
US$ bn Annual net FII equity inflows US$ bn Net FII inflows into equity markets across
geographies
30 26.8 20 16.6
25 15
21.9 9.4
19.3 10
20 16.6 3.5
5 0.9 0.2
15
0
10 8.3 -0.1 -0.2
-5 -1.5
4.0 4.4
5 -10
0 -15 -11.0
-5
-10 -6.1
2012 2013 2014 2015 2016 2017 2018 2019
Figure 17: DMF flows have also remained strong… Figure 18: …riding on the SIP wave
Rs bn Rs bn Monthly SIP inflows into mutual funds
Net DMF investment into equities
1,400 90
1,200 80
1,000 70
800 60
600 508
50
400 40
200
30
0
20
-200
10
-400
0
Source: CMIE Economic Outlook, NSE. Source: AMFI, NSE.
12
Market Pulse
• Valuation looks a bit stretched but relative premium to EMs has declined: Market witnessed a re-rating in
2019, with the 12-month forward P/E rising nearly 13% from the 2018 lows (post IL&FS default). However, the
relative premium to MSCI EM has declined, with MSCI India currently trading at a 45% premium to MSCI EM—in
line with last 10-year average multiple. However, the re-rating has been limited to select sectors, particularly
Financials and Consumer Discretionary, while all other sectors have seen a de-rating.
Figure 19: Nifty 50 12-month forward P/E chart

Nifty 50 12-month forward P/E
20 20
18 18
+1 Std Dev: 17.2
16 16
Last 10 years mean:14.4

14 14
12 -1 Std Dev: 11.7 12
10 10
8 8
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 20: Nifty 50 P/E bands

Nifty 50 PE bands
x 1,000 x 1,000
16 16
NIFTY 50 P/E: 12x P/E: 15x P/E: 17x P/E: 19x P/E: 21x
14 14
12 12
10 10
8 8
6 6
4 4
2015 2016 2017 2018 2019
13
Market Pulse
Figure 21: MSCI India 12-month forward P/E premium over MSCI EM
12-month forward P/E (Relative Premium)
IBES MSCI India vs MSCI Emerging Markets
1.8 1.8
1.7 1.7
1.6 1.6
+1 Std Dev: 1.5
1.5 1.5
Last 10 years mean:1.4 1.45
1.4 1.4
-1 Std Dev: 1.3
1.3 1.3
1.2 1.2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 22: Nifty Consumer Discretionary 12-month forward P/E chart

12-month forward P/E
Consumer Discretionary
24 24
22 22
20 20
+1 Std Dev: 18.3

18 18
16 16
14 14
12 -1 Std Dev: 11.7 12
10 10
8 8
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
14
Market Pulse
Figure 23: Nifty Consumer Staples 12-month forward P/E chart

Consumer Staples
45 45
40 40
+1 Std Dev: 36.6
35 35
30 30
-1 Std Dev: 26.0
25 25
20 20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 24: Nifty Energy 12-month forward P/E chart

Energy
14 14
13 13
+1 Std Dev: 12.5
12 12
11 11
-1 Std Dev: 10.2

10 10
9 9
8 8
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
15
Market Pulse
Figure 25: Nifty Financials 12-month forward P/E chart

Financials
24 24
22 22
20 20
+1 Std Dev: 18.7
18 18

16 16
14 -1 Std Dev: 13.7 14
12 12
10 10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 26: Nifty Healthcare 12-month forward P/E chart

Healthcare
30 30
28 28
26 26
24 +1 Std Dev: 23.4 24
22 22
20 20
-1 Std Dev: 18.9
18 18
16 16
14 14
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
16
Market Pulse
Figure 27: Nifty Industrials 12-month forward P/E chart

Industrials
30 30
25 +1 Std Dev: 24.1 25
20 Last 10 years mean:19.2 20
15 -1 Std Dev: 14.2 15
10 10
5 5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 28: Nifty Information Technology 12-month forward P/E chart

Information Technology
24 24
22 22
20 20
+1 Std Dev: 19.0
18 18
16 16
-1 Std Dev: 15.2
14 14
12 12
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
17
Market Pulse
Figure 29: Nifty Materials 12-month forward P/E chart

Materials
22 22
20 20
18 18
16 +1 Std Dev: 15.5 16
14 14

12 12
10 -1 Std Dev: 9.5 10
8 8
6 6
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 30: Nifty Utilities 12-month forward P/E chart

Utilities
20 20
18 18
16 16
+1 Std Dev: 14.3

14 14

12 12
-1 Std Dev: 10.1

10 10
8 8
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
18
Market Pulse
• India’s story is not over yet: While India’s share in the World GDP, in purchasing power parity terms, is more than
8%, the share of its equity market is a mere 2.5% as of December 31, 2019, down nearly 50bps YoY. Moreover,
India’s market cap to GDP ratio has been falling over the last two years and is significantly lower than the peak of
103% in March 2008.
Figure 31: India’s equity market cap share in world Figure 32: …with its share to India GDP also declining
market cap is a mere 2.5%... since last couple of years
% India market cap to World market cap % India market cap to GDP trend
India market cap to World market cap Nifty (R) India market cap to India GDP Nifty (R)
120.0 14000
3.5 14000
100.0 12000
3.0 12000
2.5 74.8 10000
2.5 10000 80.0
8000
2.0 8000 60.0
6000
1.5 6000 40.0
4000
1.0 4000 20.0 2000
0.5 2000
0.0 0
0.0 0
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Dec-19
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Dec-19
Source: Bloomberg, NSE. Market cap to GDP ratio for December 2019 is based on
Source: Bloomberg, NSE. the CSO’s Advance GDP estimate for FY20.
Figure 33: …with its share to India GDP also declining since last couple of years
Market cap to GDP ratio across countries

250 250
-15Y LATEST
200 200
150 150
100 100
50 50
0 0
S. Africa US Japan S. Korea France India Euro Area Brazil Indonesia China Germany Russia
• Easy monetary policy supported fixed income market: Fixed income markets benefited from an expansionary
monetary policy by the RBI (135bps cut in policy rates in 2019), surplus systemic liquidity (post June 2019) as
well as easy global liquidity, even as fiscal pressures and weak economic growth led to a steeping of sovereign
yield curve. While the 3-month G-sec yield declined by a huge 171bps in 2019, the decline in 10-year G-sec was
much lower at 82bps. The RBI’s bond-swapping programme, coined as India’s version of ‘Operation Twist’,
announced on December 19th, 2019, helped reduce the steepening to some extent.
Credit spreads (spread between the same maturity corporate bond and government security), however, remained
stubbornly high last year, thanks to reduced investor risk appetite following a few credit defaults in the latter part
of 2018 and early 2019.
19
Market Pulse
Figure 34: India 10Y G-sec yield declined by nearly Figure 35: …but the gap between 3-month and 10-year
80bps in 2019… widened sharply amid fiscal and growth concerns
% India 10-year benchmark g-sec yield movement over % India sovereign yield curve
last one year 31-Dec-18 19-Dec-19 31-Dec-19
8.0 7.8
7.6
7.3 7.3
7.5 7.1
Issue of new 6.8
6.7
7.0 6.3
5.8
6.5
5.3
5.0
5.1
6.0 4.8
Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 3M 6M 1Y 3Y 5Y 8Y 10Y 15Y 30Y
Source: Refinitiv Datastream, Bloomberg, NSE.
Figure 36: Corporate bond yields have fallen last year…

% AAA-corporate bond yields across tenors
1-year 3-year 5-year 10-year
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
Figure 37: …but credit spreads have remained fairly high and declined only from August 2019….
bps
Spreads for 5-year corporate bonds across segments
5Y Corp (-) 5Y G-sec 5Y NBFC (-) 5Y G-sec 5Y PSU (-) 5Y G-sec
180
160
140
120
100
80
60
40
20
May-19
Sep-18
Jul-19
Sep-19
Oct-18
Mar-19
Oct-19
Nov-18
Nov-19
Jan-19
Feb-19
Aug-18
Jun-19
Dec-18
Apr-19
Aug-19
Dec-19
20
Market Pulse
Figure 38: …helped by easy domestic liquidity…

Rs bn
Net lending under RBI's liquidity adjustment facility
4000
Figure greater than
3000 zero indicates deficit
2000
1000
0
-1000
-2000 Figure less than zero
indicates surplus
-3000
liquidity in the system Systemic liquidity has remained
-4000 in surplus since June 2019,
which in turn should aid
-5000
monetary transmission
-6000
Dec/2013 Dec/2014 Dec/2015 Dec/2016 Dec/2017 Dec/2018 Dec/2019
Source: Bloomberg, NSE
Figure 39: …as well as easy global liquidity

Intervention of US Fed in the financial system resumed in the latter part of 2019, with its total assets rising by nearly
US$410bn since August-lows to US$4.17trn as of December 31st, 2019. With the ECB also buying bonds worth Eur20bn
every month since September 2019 and committed to do so for as long as necessary, its balance sheet has also risen
since then.
US$bn Total assets of key global Central Banks

6,000
US Fed ECB BoJ
5,500 5,278
5,248
5,000
4,500
4,166
4,000
3,500
3,000
2,500
2,000
1,500
1,000
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Source: Refinitiv Datastream, NSE
21
Market Pulse
Chart of the month

Spike in inflation is transitory in nature
Headline CPI inflation shot up to 65-month high of 7.4% in December, albeit on a low base, rising 180bps on a sequential
basis, and overshooting the RBI’s upper target limit of 6%. This was largely on account of a sharp rise in food inflation
which surged to 6-year high of 12.2%, a large part of which was led by vegetables (+60.5% YoY), pulses (+15.4% YoY)
and cereals (+4.4% YoY) as well as higher telecom tariffs (telecom players hiked tariffs by 40-50% in December).
Excluding vegetables, headline inflation came in at 4.1% in December 2019, rising by 60bps MoM. While cereals and
pulses are recovering from extremely low inflation over the previous few years, vegetable prices (particularly onion,
potato and tomato) have shot up owing to an excessive and prolonged Southwest monsoon, resulting in crop damage.
Our analysis shows that onion, potato and telephone mobile charges have together contributed 166bps of the 181bps
sequential jump in headline inflation. Core inflation, on the other hand, has remained fairly benign, rising by modest
20bps MoM on account of telecom tariff hikes, reflecting weak demand environment.
We see this spike as temporary in nature and expect it to reverse over the next few months as fresh supply hits the
market. Vegetable prices in the wholesale market have already fallen sharply from the peak levels seen in December
2019. On the positive side, heavy rainfall that damaged Kharif crops has led to an increase in soil moisture and reservoir
levels, thereby improving prospects of the Rabi season.
Having said that, inflation is likely to remain north of RBI’s projected trajectory in the near-term owing to the transitory
spike in food prices, keeping the Central Bank on hold for now.
Figure 40: Headline and core inflation following a diverging trend for some time now
India Consumer Inflation and Components (Dec 19)
8 CPI Inflation Food & Bev. 8
Tobacco Fuel & Light
Clothing & Footwear Housing 7.4
Miscellaneous Core Inflation
6 6
4 4
3.7
2 2
0 0
2016 2017 2018 2019

22
Market Pulse
Figure 41: Category-wise contribution to India Food and Beverages inflation (CPI)
India Food Inflation and Components
15 15
Food & Beverages
Cereal and Products
Milks and Products
Vegetables
Prepared Meals, Snacks, Sweets
Meat and Fish
Egg
Oils and Fats
Fruits
10 Spices 10
Pulses and Products
Sugar and Confectionary
Non-alcoholic Beverages
5 5
0 0
-5 -5
2017 2018 2019
Figure 42: Contribution of key items to CPI inflation in Dec’19

Onion, potato and telephone mobile charges have together contributed to 166bps of the 181bps sequential jump in
the headline inflation in December 2019
bps
Contribution to CPI Inflation in Dec'19
800
15 7.4%
35 14
700 117
181
600 5.5%
500
400
300
200
100
0
Headline Onion Potato Telephone Others Headline
inflation in mobile inflation in
Nov'19 charges Dec'19
Source: CMIE Economic Outlook, NSE.
23
Market Pulse
Figure 43: Wholesale onion prices

Rs/Kg
Long-term trend of wholesale onion prices
100
90
80
70
60
50
40
30
20
10
0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: Agmarknet, NSE. Prices are from Lasalgaon in Maharashtra.
Figure 44: Wholesale potato prices

Rs/Kg
Long-term trend of wholesale potato prices
25
20
15
10
0
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Dec-15
Apr-16
Aug-16
Dec-16
Apr-17
Aug-17
Dec-17
Apr-18
Aug-18
Dec-18
Apr-19
Aug-19
Dec-19
Source: Agmarknet, NSE. Prices are from Farrukabad in Uttar Pradesh.
Prices of key vegetables like potato and onion show clear signs of occasional, sharp seasonal spikes, that rarely last for
more than a few months at a time. Prices rise at the wholesale level, are transmitted to the retail markets and consumers
feel the pinch. Spikes in onion prices have historically been a sensitive, often political issue. What is clear, however, is
that the spikes are temporary in nature, and soon subside, translating into comfortable food inflation. This time is no
different, with both onion and potato prices showing signs of subsiding.
24
Market Pulse
Market Round up
Equity markets remained buoyant in December but underperformed global peers
Indian equity markets rallied for the fourth consecutive month, even as continued concerns on the macro front led to an
underperformance with respect to global peers. The rally was supported by positive global developments, particularly
with respect to US-China trade deal and UK parliamentary elections, partly offset by an expected pause by the RBI in
the December policy review meeting. The CSO has pegged the Advance Estimate for FY20 at an 11-year low of 5.0%,
thanks to a broad-based slowdown. However, notwithstanding weak economic growth, a sharp spike in headline
inflation, even as a large part of it was led by food, is expected to keep RBI on hold in the near-term, which in turn
weighed negatively on market sentiments. This, along with sustained fiscal pressures, has kept fixed income market
sentiments muted, even as the RBI’s bond-swapping programme (the so-called ‘Operation Twist’) provided some
support to the long-end of the curve.
• Domestic equity market registers modest gains in December: Indian equity markets ended in green for the
fourth consecutive month, in-line with global markets, with Nifty 50 Index touching all-time high levels in
December, generating modest gains of 0.9%. This translated into an overall return of 12% for the year. Mid- and
Small-cap indices also posted marginal gains following previous many months of negative returns. Despite weak
macroeconomic data, Indian market sentiments remained buoyant, thanks to further progress on the US-China
trade deal, a decisive UK election mandate and measures taken by the Government to revive growth, partly
offset by an unexpected pause by the RBI in the December policy meeting. This was accompanied by a sharp
16% decline in market volatility (Nifty VIX Index). Average daily turnover in cash markets declined by 22% MoM
to Rs325bn—6% lower than the average daily turnover over the previous 11 months. Derivative turnover also
witnessed a 15% decline MoM, touching an average of Rs772bn.
On a sector level, returns last month were led by Metals (+6.7% MoM; YTD: -11.2%), Real Estate (+5.9% MoM;
YTD: 28.5%) and IT (+4.4% MoM; 8.4% YoY. Sectors that ended in red last month include FMCG (-2.8% MoM;
YTD: -1.3%), Pharma (-1.8% MoM; YTD: 9.3%) and Media (-1.7% MoM; YTD: 29.7%).
• Fixed income market remained volatile in December: The fixed income market traded with a negative bias in
the first half of the month, thanks to an unexpected pause by the RBI, followed by unfavourable inflation reading.
However, the RBI’s initiated the so-called ‘Operation Twist’ programme, entailing simultaneous purchase of
long-term Government securities and sale of short-term Government securities, to bring down long-term
interest rates, which otherwise have not fallen commensurate to the reduction in policy rates, thanks to
concerns around Government’s fiscal balances in the wake of lacklustre tax collections. The first tranche was
announced on December 19th, leading to a 25bps drop in 10-year G-sec yield in the second half of December.
This helped in reducing the steepening of the yield curve, with the spread between 1-year and 10-year G-sec
falling from 120bps as of November 30, 2019 to ~100bps by December-end, even as it remained much higher
than ~60bps a year ago. On the global front, while the US 10-year and German bunds yield increased by 14bps
and 18bps respectively, to close the month at 1.8%, China 10-year yields ended the month 3bps lower at 3.14%.
• FIIs remained net buyers in equities but net sellers in debt: Foreign institutional investors (FIIs) remained
buyers in Indian equity markets for the fourth consecutive month, even as the net inflows came off in December.
This was largely on sustained global risk-on environment amid favourable global cues with regards to US-China
trade conflicts and UK election. Net FII inflows in equity markets stood at US$860mn in December, translating
into cumulative inflows of US$16.6bn in 2019—the highest in five years. Domestic institutional investors (DIIs)
however, were net sellers in Indian equities, with net inflows at Rs7.4bn in December, translating into net
inflows of Rs420bn in 2019. While the share of FIIs in NSE’s cash turnover declined from 16.6% in November
to 14% in December 2019, the share of DIIs remained unchanged at 9%. In contrast to equity markets, FIIs
remained net sellers of Indian debt for the second consecutive month, with net outflow of US$759mn in
December (2019: +US$5.0bn).
25
Market Pulse
• Global equity markets continued to rally: Global equity markets ended in green for yet another month as
favourable development in the ‘Phase 1’ trade deal between the US and China and improving economic
conditions in the US and Europe kept investor sentiments buoyant. While the developed market index (MSCI
World) rose by 2.9% in December (YTD: 25%), the emerging market index (MSCI EM) rose 7.2% (YTD: 15%).
US: The S&P 500 Index and Dow Jones Index rose 2.9% and 1.7% respectively in December on optimism
around the US-China trade deal and positive business sentiments. The US trade gap in November narrowed to
its lowest levels in three years due to a continued slowdown in imports and expansion in exports. The PMI
manufacturing was slightly lower in December, although one of the strongest in 2019, at 52.4 from 52.6 in the
previous month. Nonfarm payrolls rose 145,000 in December, keeping the unemployment rate at half-century
low of 3.5%. The ~29% gain in S&P 500 Index witnessed this year has been the best in the last six years, as tax
cuts, share buybacks and optimism about US growth prospects boosted markets.
Europe: FTSE 100 surged 5% post results of the UK general elections, on expectations of a smoother Brexit
process. The index, however, has been one of the worst performers in 2019. Other European indices were also
marginally higher in December, with CAC 40 Index and DAX Index rising by +1.2% (YTD: 26.5%) and +0.1%
(YTD: 25.5%) respectively. Rising wages, falling unemployment, improvement in manufacturing PMI and easier
financial conditions have helped European equity markets recover in 2019.
Asia: Asian equity markets displayed a mixed performance. While China (Shanghai Composite Index) and Hong
Kong (Hang Seng Index) markets grew at a robust 6% and 7% respectively, Indian (Nifty 50 Index) and Japan
(Nikkei 225 Index) markets closed the month with marginal returns of 0.9% and 1.6% respectively. Despite
below-average macroeconomic and corporate earnings growth in 2019 coupled with political uncertainties,
most Asian equity markets have performed well in 2019 led by Shanghai Composite Index (+22% YTD), Nikkei
225 Index (+18% YTD) and Nifty 50 Index (+12% YTD). The Hang Seng Index had underperformed compared
to other Asian equity markets, with 9% rise in 2019. The social unrest in Hong Kong has pushed the economy
into recession, with the third quarter GDP contracting by 2.9%—the first negative growth in a decade.
• Commodities witnessed rise across the board: In the commodity segment, Brent crude oil continued to rise,
ending the month 5.7% higher at US$66/bbl, as oil producers reached an agreement to extend production cuts.
Metal prices, including precious metals, also witnessed an increase in December, after a decline in the prior
month. Precious metals, including gold and silver, posted strong gains in December and were the best
performing asset class in 2019, a large part of which is attributed to risk-off sentiments in the first half of 2019.
• Euro appreciated on favourable political developments: The US dollar depreciated 1.8% against the Euro and
2.4% against the GBP, as a decisive mandate to the Conservative Party in the UK Parliamentary elections
reduced political and Brexit uncertainty. Meanwhile, INR also appreciated marginally (+0.5%) against the dollar,
ending the month at 71.4.
26
Market Pulse
Thought Leadership Article

Edited excerpts of the interview of Mr. Vikram Limaye, MD & CEO, NSE with the Indian
Express 1
The economy has been undergoing a slowdown and now a new uncertainty has come up in the form of tension
between the US and Iran. How do you think it may hurt out economy and markets?
Geopolitical risk is something that has always been there. US-China trade war was also geopolitical risk from an
economic point of view and Middle East has always been an area of concern in terms of other aspects. For us, oil is an
important component of our overall financial health and macroeconomic stability. So, if there is any kind of instability
that impacts the oil prices, it significantly impacts our own finances and fiscal situation. To that extent this is certainly
not something that is good for India and also globally. If it spins out of control, the implications are unknown.
Even from a macro perspective it will certainly have a negative impact on oil and that it will impact the global markets.
India can’t be immune as an economy and as market. This is one another element like the US-China trade war and this
is a different element of global risk that will have an impact on Indian markets and economy depending upon how it
evolves.
How do you see it shaping up globally?

It will have significant impact on global economy if it goes down the wrong path. However, my hope is that in today’s
world, there are enough checks and balances and it is not easy for things to spiral out of control, because discussions
happen and other countries and UN weighs in.
There are various checks that come in and so the response can’t be knee jerk that somebody can just go and do
something. That makes sure that there is a balanced way of approaching things. So my hope is that it will get managed
in that context.
Last year we witnessed strong FPI flows into Indian markets but the inflows seem to be getting concentrated in
few stocks. Do you see it as a developing risk?
It is a risk. In fact, we have had conversations internally and with others in the system including the regulators and
people in the government on the fact that having concentration in handful of stocks cannot be good and broad-basing
of the market and participation in many more stocks is needed. You need more liquidity in many more stocks.
We have discussed with the regulator and government as to how we can develop and broad base the market, how we
can deepen liquidity in stocks other than Nifty 50 or even beyond top 100 and how to expand that to the next 250-300
stocks.
What is leading to this concentration?

When there is a slowdown or any kind of stress in any financial system, there is always a flight to quality. That is not
unique to India and in this flight to quality, people focus only on the best in class, large cap and lower risk stocks and
that’s what you are seeing happening. The fact that there have been various governance related issues that have
cropped up periodically, many are hesitant and reluctant to take a call in an economy where the growth rate has slowed
down.
Another thing you are seeing happening is that increasingly the market is driven more by passive flow. Passive funds
are not active stock pickers, they just put in Nifty and if they put there then the money is going in the same 50 stocks.
As the passive flow increase, you will see more money flowing into fewer stocks, particularly because the liquidity in
the next 200 stocks is not sufficient for the passive funds to deploy more and more money. Therefore you need to
1
This interview was published in the Indian Express on January 7th, 2020.
27
Market Pulse
increase the public float, broaden liquidity in the next 200 stocks, get more institutional participation in markets and
further penetrate and deepen the retail participation.
We have to see that markets are more broad-based and money managers have more investable companies from
quality and liquidity perspective.
How do you think the broad basing could be achieved?

So you need more retail penetration and more institutional participation and you need to increase the public float of
companies so that the investible amount that is available is larger than what is available now. And obviously you need
more companies to list to raise money in growth capital. In case of retail, the know-your-customer (KYC) compliance
could be simplified. One thing that we have suggested is that if an investor has a bank account, which most of them
have, why is an incremental KYC required beyond that, since the bank has already done it. So, the on-boarding has to
be smoothened.
For institutional participation each regulator has his own requirement of risk appetite, so the regulators will have to
enable their respective constituencies to participate in markets. For example you have large insurance companies
including LIC but they don’t participate in derivatives market. It is not that they don’t want to but it requires a process,
approval and human capital to participate in the F&O market. Institutional participation will add more liquidity and
improve price discovery.
(Views expressed are personal)
28
Market Pulse
New Product: The NSE Knowledge Hub

NSE launches NSE Knowledge Hub for BFSI Industry
NSE Academy Limited (NAL), a wholly owned subsidiary of the National Stock Exchange of India Ltd (NSE) launched
The NSE Knowledge Hub, a unique Artificial Intelligence (AI) powered learning eco-system on January 6th, 2020,
inaugurated by Shri Piyush Goyal, Hon’ble Minister of Commerce & Industries and Railways. The prime objective of
NSE Knowledge Hub is to assist the BFSI sector in enhancing skills for their employees and help academic institutions
in preparing future ready talent skilled for the financial services industry.
The NSE Knowledge Hub will bring world class content closer to learners in a personalized and community learning
environment which allows aggregation, curation, creation and targeting of content making it both learner centric and
learner driven. The learning platform is powered by content aggregated from many internal, external, and premium
sources, and enhanced by collaborative knowledge sharing from users.
The NSE Knowledge Hub shall identify and designate Subject Matter Experts (SMEs), Curators and Trainers who will
do the last mile curation of machine curated content. This would allow knowledge to be easily captured and shared
among the community using an industry first video live streaming capability & ability to create individualised learning
pathways. The platform will provide a scientifically structured learner journey to suit every requirement across all
verticals.
NSE Knowledge Hub will provide a unique learning eco-system where organisations can define the learning strategy
and business planning for their employees, track and measure the impact of learning. A Learning Experience Platform
(LXP), an in-built application on the platform, functions as a curation and content aggregation layer between an
organization’s internal digital learning assets, the vast amount of external content available on the Internet, and user
generated content. Enterprises can upskill workforce and enhance employee performance through collaborative
innovation. University/College learners can learn current skills and be future-ready thru content/certifications that
complement their academic curriculum. NSE Knowledge Hub is powered by Edcast.
In its pilot phase, the NSE Knowledge Hub has garnered very encouraging response and interest from industry leaders,
especially Learning & Development experts and the faculty in educational institutions as this unique learning eco-
system enhances the levels of performance for organizations that produces dramatic business and economic impact
and value. NAL targets to have 100 plus leading education institutions and BFSI organisations as part of the community
during the initial period.
For enquiries please contact:
NSE Academy ltd.

National Stock Exchange of India Ltd.,
Exchange Plaza, C-1, Block G,
Bandra Kurla Complex,
Bandra (E), Mumbai – 400 051
Phone No: 022-68646464

Email: info_knowledgehub@nse.co.in
29
Market Pulse
NSE Knowledge Hub Interface
NSE Knowledge Hub Ecosystem
30
Market Pulse
Macro economy
FY20 AE GDP: Investments drag GDP growth to a decadal low of 5%
Advance Estimates (AE) of India’s real GDP growth have been pegged by the CSO at a 11-year low of 5% in FY20 vs.
6.8% in FY19; also implying a growth of 5.2% in H2FY20. Growth at the nominal level, however, is estimated at 7.5%—
about the lowest in 44 years 2, and meaningfully lower than the 12% assumed in the Union Budget for FY20. Investment
is expected to be the biggest drag, with growth there pegged at a modest 1% in FY20—the lowest in 17 years, and
significantly lower than 10% in FY19. Weak domestic (private) as well as global consumption demand have also weighed
on growth, with small consolation from Government spending (Up 10.5%). While in line with consensus, the data release
nevertheless underscores the low-growth orbit of the economy and the stress in financial conditions.
At the sector level, agriculture growth is expected to remain steady, services sector growth is expected to decelerate to
an 8-year low of 6.9% owing to weakness in trade, hotels, financial & real estate services and industrial sector growth
is pegged at a 28-year low of 2.5% led by a Manufacturing.
The current economic slowdown, elements of which are both cyclical and structural in nature, is quite pervasive, and
any tangible recovery may take time to materialise, contingent on faster and effective transmission of rate cuts delivered
in 2019 and improvement in financial conditions. The fiscal and external measures taken by the Government, including
the corporate tax cuts and the recently announced infrastructure investment roadmap, bode well for economic growth,
even as the effect is expected to be gradual. Moreover, fiscal deficit already hovering much above the annual target
implies limited headroom for an expansionary policy. On the positive side, improved prospects for the Rabi season,
coupled with higher farm prices, bodes well for rural demand.
• FY20AE GDP growth pegged at 5%: India’s real GDP growth is estimated to fall to a 11-year low of 5% in FY20
from 6.8% in FY19, led by a sharp deceleration in investment growth and moderation in private consumption,
even as Government spending has remained strong. The nominal GDP growth, however, is pegged at 7.5%—the
lowest in 44 years, signalling lower tax collections and consequent pressure on fiscal balances and debt servicing.
The Gross Value Added (GVA) growth is pegged at 4.9% in FY20 vs. 6.3% in FY19, largely led by a sharp
deceleration in the industrial sector growth and a moderation in services sector growth, even as agriculture sector
growth is expected to remain broadly steady.
• Investment is the biggest drag; Government spending the only saviour: The FY20AE GDP growth is severely
dragged down by lacklustre investment, with GFCF (Gross Fixed Capital Formation) growing at a 17-year low of
1.0% vs. 10% in FY19. This is largely a consequence of consequence of muted demand environment, weak
business confidence, low capacity utilisation and tight financial conditions. Private consumption growth is also
expected to decelerate to 5.8% in FY20 from 8.1% in FY19, thanks to muted urban as well as rural demand.
Government spending is the mainstay, with GFCE (Govt. Final Consumption Expenditure) growth pegged at a
robust 10.5% in FY20, excluding which GDP growth would come down to 4.3%.
• Sector-wise, Manufacturing pulls down GVA to sub-5%: Among the sectors, agriculture sector growth is
expected to remain broadly steady at 2.8% in FY20 vs. 2.9% in the previous year, negatively impacted by an
extended and heavy South-west rainfall hitting farm output. Industrial growth is expected to fall to a 28-year low
of 2.5% in FY20, led by a sharp slowdown in the manufacturing sector. While mining sector GVA growth is
expected to improve modestly to 1.5%, manufacturing sector growth is estimated at a 22-year low of 2.0%,
reflecting weak consumption and investment demand in the economy. Services sector growth is also expected to
decelerate to an 8-year low of 6.9% in FY20, largely led by weakness in trade & hotels (5.9%—11-year low) and
financial & real estate services (6.4%), partly offset by strong Government spending (9.1%).
• A shallow recovery ahead: The CSO’s Advance Estimates point to a pervasive slowdown in the economy. While
GDP growth has likely bottomed out in Q2FY20 and is expected to improve, any tangible recovery is likely to take
its own sweet time, with transmission of earlier rate cuts and easing of financial conditions being crucial
requirements for the recovery. On the positive side, the fiscal measures taken by the Government, including the
corporate tax cuts and the recently announced infrastructure investment roadmap, bode well for economic
2
As per CMIE Economic Outlook for Nominal GDP.
31
Market Pulse
growth, even as the effect is expected to be gradual. Additionally, high reservoir levels and soil moisture, thanks
to a prolonged and an above normal South-west rainfall, have improved prospects for the Rabi season, which in
turn augers well for farm incomes and rural demand. Notwithstanding current weak growth impulses, the RBI is
expected to remain on pause in the near-term in the wake of rising inflationary concerns.
Figure 45: Annual real GDP growth trend (% YoY)
FY16 FY17 FY18 FY19 FY20AE Implied H2FY20
Gross Domestic Product (GDP) 8.0 8.2 7.2 6.8 5.0 5.2
Private Consumption (PFCE) 7.9 8.2 7.4 8.1 5.8 7.3
Government Consumption (GFCE) 7.5 5.8 15.0 9.2 10.5 8.5
Gross Capital Formation (GCF) 4.7 3.6 10.4 9.0 1.5 0.8
Gross Fixed Capital Formation (GFCF) 6.5 8.3 9.3 10.0 1.0 -0.5
Net trade of goods & services -9.1 -7.2 263.1 31.0 -24.3 -33.3
Exports of goods & services -5.6 5.1 4.7 12.5 -2.0 -6.4
Imports of goods & services -5.9 4.4 17.6 15.4 -5.9 -10.4
Gross Value Added (GVA) 8.0 7.9 6.9 6.6 4.9 5.2
Agriculture 0.6 6.3 5.0 2.9 2.8 3.3
Industry 9.6 7.7 5.9 6.9 2.5 3.3
Mining and Quarrying 10.1 9.5 5.1 1.3 1.5 1.4
Manufacturing 13.1 7.9 5.9 6.9 2.0 4.1
Electricity 4.7 10.0 8.6 7.0 5.4 4.7
Construction 3.6 6.1 5.6 8.7 3.2 1.8
Services 9.4 8.4 8.1 7.5 6.9 6.9
Trade, Hotels, Transport, Storage, Comm. 10.2 7.7 7.8 6.9 5.9 5.8
Fin. Svcs, Real Estate & Business Svcs. 10.7 8.7 6.2 7.4 6.4 7.0
Community, Social & Personal Svcs. 6.1 9.2 11.9 8.6 9.1 8.3
Source: CSO, NSE
Figure 46: Share in GDP (%)

FY16 FY17 FY18 FY19 FY20AE
Gross Domestic Product (GDP) 100.0 100.0 100.0 100.0 100.0
Private Consumption (PFCE) 56.1 56.1 56.3 56.9 57.4
Government Consumption (GFCE) 10.0 9.7 10.5 10.7 11.3
Gross Capital Formation (GCF) 34.5 33.0 34.0 34.7 33.5
Gross Fixed Capital Formation (GFCF) 30.7 30.8 31.4 32.3 31.1
Net trade of goods & services -1.2 -1.1 -3.6 -4.4 -3.2
Exports of goods & services 20.8 20.3 19.8 20.8 19.5
Imports of goods & services 22.1 21.3 23.4 25.3 22.6
Discrepancies 0.7 2.2 2.9 2.1 1.0
Gross Value Added (GVA) 100.0 100.0 100.0 100.0 100.0

Agriculture 15.4 15.2 14.9 14.4 14.1
Industry 31.6 31.5 31.2 31.3 30.6
Mining and Quarrying 3.0 3.1 3.0 2.9 2.8
Manufacturing 18.1 18.2 18.0 18.0 17.5
Electricity 2.1 2.2 2.2 2.2 2.2
Construction 8.2 8.1 8.0 8.2 8.0
Services 53.0 53.3 53.9 54.3 55.3
Trade, Hotels, Transport, Storage, Comm. 19.0 19.0 19.1 19.1 19.3
Fin. Svcs, Real Estate & Business Svcs. 21.9 22.0 21.9 22.1 22.4
Community, Social & Personal Svcs. 12.2 12.3 12.9 13.1 13.7
Source: CSO, NSE
32
Market Pulse
Figure 47: India’s FY20 real GDP growth expected to fall to 5%: The CSO has pegged FY20 real GDP growth at a
11-year low of 5.0%, led by a sharp deceleration in investment growth and moderation in private consumption, even
as Government spending has remained strong.
% Annual GDP growth trend
9.0 8.5
7.9 8.1 7.9 8.0 8.2
7.7 7.4
8.0 7.2
6.8
7.0 6.4
6.0 5.2 5.5
5.0
5.0
4.0 3.1
3.0
2.0
1.0
-
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: CSO, NSE
Figure 48: Investment is the biggest drag to FY20 GDP growth (%YoY): Investment growth (Gross Fixed Capital
Formation) is expected to fall sharply to a 17-year low of 1.0% vs. 10% in FY19—a consequence of muted demand
environment, weak business confidence, low capacity utilisation and tight financial conditions. Private consumption
growth is also expected to decelerate to 5.8% in FY20 from 8.1% in FY19, thanks to muted urban as well as rural
demand. Government spending is the mainstay this year, with GFCE (Govt. Final Consumption Expenditure) growth
pegged at a robust 10.5% in FY20.
% %
Private consumption (PFCE) growth trend Govt. consumption (GFCE) growth trend
9.0 16.0 15.0
7.9 8.2 8.1 14.2
8.0 7.5 7.3 7.4 7.3 7.4 14.0
6.7 11.4
7.0 6.4
12.0
5.8 10.5
6.0 5.5 9.4 9.2
4.9 5.0 10.0 8.8
5.0 4.5 7.6 7.5
8.0 6.5
4.0 5.2
5.8
6.0
3.0 4.1
4.0
2.0
1.0 2.0 0.6 0.6
0.0 0.0
% Investment (GFCF) growth trend %

Net exports growth trend
18.0 16.4 300.0 263.1
16.3
16.0 250.0
13.9 200.6
14.0 12.1 200.0
12.0 11.0
10.0 150.0
9.3
10.0 8.3 77.2
7.7 100.0
8.0 6.5 51.8 43.3
34.2 31.0
4.9 50.0 11.5 1.3
6.0 3.1
4.0 3.2
2.6 0.0
1.6
2.0 1.0 -50.0 -11.8-9.1 -7.2
-24.3
0.0 -100.0 -70.1
Source: CSO, NSE

33
Market Pulse
Figure 49: Investment share of GDP growth expected to decline sharply in FY20…: The share of investment in
overall real GDP growth is expected to fall from 3.1% in FY19 to a mere 0.5% in FY20, while that of Government
consumption is expected to improve.
% Share of overall GDP growth

Private Consumption (PFCE) Government Consumption (GFCE)
Gross Capital Formation Net exports
15.0 Discrepancies GDP growth (share in growth)
10.0
5.0 5.0
0.0
-5.0
-10.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20AE
Source: CSO, NSE
Figure 50: …and so is Investment contribution to GDP growth: The contribution of investment to overall real GDP is
pegged to decline from 45% to 10% in FY20. Government spending has remained strong, with its contribution to
overall GDP growth improving from 14% in FY19 to 23% in FY20.
% Contribution to overall GDP growth
Private Consumption (PFCE) Government Consumption (GFCE) Gross Capital Formation
225.0 Net exports Discrepancies
175.0
125.0
75.0
25.0
-25.0
-75.0
-125.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20AE
Source: CSO, NSE
34
Market Pulse
Figure 51: India real GVA growth is pegged at 4.9% in FY20 (%): The real GVA growth is expected at 4.9% in FY20,
led by a sharp deceleration in industry sector growth. The Industry sector’s share in overall GVA growth has come off
sharply to 18-year low of 0.8% in FY20, with its contribution declining from 32% in FY19 to 16% in FY20.
% Sector-wise share of overall GVA growth % Sector-wise contribution to overall GVA growth
Agriculture Industry 110.0 Agriculture Industry Services
9.0
Services GVA growth
90.0
7.0
70.0
5.0 4.9
50.0
3.0
30.0
1.0 10.0
-1.0 -10.0
Source: CSO, NSE
Figure 52: Gross value added (GVA) across sectors: While GVA growth for Agriculture sector is expected to remain
broadly steady, the Advance Estimates peg Industry sector growth at a 22-year low of 2.0% in FY20, led by a sharp
deceleration in Manufacturing sector growth, as also reflected in several high frequency indicators this year such as
industrial production, eight-core sector growth and manufacturing PMI, amongst others. Services sector GVA growth
is also expected to decelerate to an 8-year low of 6.9% in FY20, led by weakness in trade, hotels, financial & real estate
services, partly offset by strong Government spending.
% % Agriculture GVA growth trend
Annual GVA growth trend
10.0
9.0 8.8
8.3 8.1
8.0 8.0 7.9
8.0 7.4 8.0
7.2 6.9
6.9 6.6 6.4 6.3
7.0 5.5 5.6
6.1 6.0
4.8 5.0
6.0 5.2 5.4
4.9
5.0 4.3 4.0 2.9 2.9 2.8
4.0
2.0 1.5
3.0 0.6
2.0
0.0
1.0 -0.2 -0.2
-0.9
0.0 -2.0
35
Market Pulse
% Industry GVA growth trend % Services GVA growth trend

9.8
14.0 13.2 10.0 9.4
9.1
8.7 8.4
9.0 8.3 8.1
12.0 7.8 7.8 7.7 7.5
8.0 7.0
9.6 9.6 6.9
10.0 8.8 7.0 6.5
8.0 7.9 5.9
7.7 6.0
8.0 7.0 6.9
5.9 5.0
6.0 4.0
4.0 3.6 3.3 3.8
4.0 3.0
2.5
2.0
2.0
1.0
0.0 0.0
Source: CSO, NSE
Figure 53: Nominal vs. real GDP and GVA growth: The nominal GDP growth is pegged at 7.5% in FY20—the lowest
in 44 years, signalling muted corporate performance and lower tax collections and consequent pressure on fiscal
balances and debt servicing.
% Nominal vs. real GDP growth trend % Nominal vs. real GVA growth trend
Real GDP growth Nominal GDP growth Real GVA growth Nominal GVA growth
21.0 20.0
18.0
18.0
16.0
15.0 14.0
12.0
12.0
10.0
9.0 8.0
7.5 7.6
6.0 6.0
5.0 4.9
4.0
3.0
2.0
0.0 0.0
Source: CSO, NSE
36
Market Pulse
Retail inflation surges to 40-month high in November

India’s retail inflation (CPI) shot up further to 40-month high of 5.5% in November, higher than market expectations
(Refinitiv Datastream poll: 5.3%) and 90bps higher than the October’s print. This was primarily on account of a sharp
pick-up in food inflation, largely attributable to vegetables, pulses, milk and cereals, partly deflation in the fuel & light
category for the fifth consecutive month. Excluding vegetables, headline inflation would come in at 3.5% in November,
albeit still up 40bps MoM. Core inflation (excluding food and fuel), however, remained stable at 3.5%—near the lowest
level since the start of the series, largely on account of a dip in recreation & amusement and education inflation, partly
offset by an increase in fuel and personal care & effects inflation. WPI inflation also picked up from the 40-month low in
the previous month to 0.6% in November, largely on account of a sharp increase in food inflation, partly offset by
continued deflation in fuel, mineral oils and manufacturing products.
CPI inflation is expected to inch-up further over the next few months due to an unfavourable base, persistence of higher
vegetable prices and implementation of telecom tariff hikes. However, core inflation is expected to remain benign owing
to weak demand. Having said that, an elevated inflation trajectory and consequent rise in inflationary expectations is
likely to keep the RBI on pause for now. However, expectations of CPI inflation falling back to near-4% by Q1FY21 keep
the room open for further easing; we expect another 25-50bps cut in policy rates in this easing cycle, ceteris paribus.
• Spike in food prices causes retail inflation to jump to 40-month high: Retail inflation (CPI) rose sharply from
4.6% in October to 5.5% in November—the highest in 40 months, and higher than the Consensus estimate of
5.3%. This has translated into average monthly inflation rate for the second half of the fiscal thus far already
reaching the higher end of the RBI’s projected band of 5.1% (4.7-5.1% for H2FY20). This was largely on account
of higher vegetable, pulses and cereals inflation, which increased to 71-month, 38-month and 27-month high to
36.0%, 13.9% and 3.7% respectively. While a part of the reason for the surge in food inflation was a very low base
(vegetables and pulses were in deflation in the year ago period), crop damage on account of an excessive and
prolonged monsoon have led to a spike in vegetable prices, particularly onion, garlic and tomato. Excluding
vegetables, headline inflation actually inched up by 40bps MoM to 3.5% in November. High food inflation was
partly offset by continued deflation in fuel & light (LPG, diesel, coal) which came in at -1.9%.
• Steady core inflation points to weak domestic demand: Core inflation (ex-food ex-fuel) remained stable at near
the series lows at 3.5% in November. While an increase in conveyance expenses led to a rise in transportation
inflation, a sustained increase in gold and silver prices led to a modest inch-up in personal care & effects inflation.
Inflation in rest of the categories posted a decline, signalling a pervasive weakness in demand conditions. Housing
inflation declined to 52-month low of 4.5% in November.
• Elevated inflation to keep RBI on pause in the near-term: The recent spike in food inflation has resulted in a
rise in inflationary expectations. Amid expectations of a persistence in the spike in vegetable prices and an
unfavourable base, headline inflation is expected to remain elevated in the near-term and potentially overshoot
the RBI’s projected band of 4.7-5.1% in the second half. This is likely to keep the Central Bank on hold in the near-
term. However, we see this as a temporary pause. With inflation expected to fall back to near-4% in Q1FY21, and
growth recovery expected to be shallow and gradual, there is room available for further monetary easing. we
expect another 25-50bps cut in policy rates in the current easing cycle, ceteris paribus.
Figure 54: Consumer price inflation in November 2019 (%YoY)
Weight (%) Nov-19 Oct-19 Nov-18 FY20TD FY19TD
CPI 5.5 4.6 2.3 3.7 3.9
Food & Beverages 45.9 8.7 6.9 (1.7) 3.9 1.4
Pan, Tobacco & Intoxicants 2.4 3.3 3.9 6.1 4.2 6.7
Clothing & Footwear 6.5 1.3 1.6 3.5 1.5 4.7
Housing 10.1 4.5 4.6 6.0 4.7 7.6
Fuel & Light 6.8 (1.9) (2.0) 7.2 (0.1) 7.4
Miscellaneous 28.3 3.7 3.4 6.2 4.4 5.7
Source: CSO, NSE
37
Market Pulse
Figure 55: India inflation vs. interest rates
10 10
CPI inflation (%YoY) Repo Rate (%)
10yr Govt. yield (%) WPI inflation (%YoY)
8 8
6.7
6 6
5.5
5.2
4 4
2 2
0.6
0 0
2017 2018 2019
Figure 56: India consumer price inflation (CPI)
10 Foods & Beverages (%YoY) 14

Pan, Tobacco & Intoxicants (%YoY)
8.7 12
8
10
6
8
4 6
4
2 3.3
2
0
0
-2 -2
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
14
Clothing & Footwear (%YoY) 14 Housing (%YoY)
12 12
10 10
8 8
6 6
4 4 4.5
2 1.3 2
0 0
-2 -2
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
14 14
Fuel & Light (%YoY) Miscellaneous (%YoY)
12 12
10 10
8 8
6 6
4 4 3.7
2 2
0 0
-1.9
-2 -2
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
38
Market Pulse
Figure 57: Category-wise contribution to India consumer price inflation (CPI)

India Consumer Inflation and Components (Nov 19)
7 CPI Inflation Food & Bev. 7
Tobacco Fuel & Light
Clothing & Footwear Housing
Miscellaneous Core Inflation
6 6
5.5
5 5
4 4
3.5
3 3
2 2
1 1
0 0
-1 -1
2016 2017 2018 2019
Figure 58: Category-wise contribution to India Food and Beverages inflation (CPI)
India Food Inflation and Components
10 10
Food & Beverages
Cereal and Products
Milks and Products
Vegetables
8 Prepared Meals, Snacks, Sweets 8
Meat and Fish
Egg
Oils and Fats
Fruits
6 Spices 6
Pulses and Products
Sugar and Confectionary
Non-alcoholic Beverages
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
2017 2018 2019

39
Market Pulse
• WPI inflation witnesses a modest pick-up: Wholesale price inflation (WPI) inched up from the 40-month low of
0.2% in the previous month to 0.6% in October, a tad lower than the Consensus estimate of 0.7%. This was largely
on account of a 130bps MoM increase in food inflation to 11.1%—the highest in 71 months, partly offset by
continued deflation in fuel, mineral oils and manufacturing products. Food apart, the other categories of primary
inflation continued to witness a fall in prices, with non-food articles inflation declining to 18-month low of 19%,
minerals inflation falling from double-digit print over the previous seven months to 2.3% and crude, petroleum &
natural gas remaining in deflation for the seventh consecutive month in November. Mineral Oils inflation also
remained low at -13.2%, marking the sixth straight month of YoY price contraction. Manufactured products
inflation also remained in the negative territory for the third consecutive month at -0.8% in October—the lowest
in 44 months.
The gap between retail and wholesale inflation has widened to 40-month of ~500bps, reflecting a) a much higher
weight of food in the retail basket (45.9%) as compared to the wholesale basket (15.3%)—the prime culprit behind
an increase in CPI inflation, and b) a higher weightage of manufactured goods in the wholesale basket (64.2%) as
compared to the retail basket—segment where prices have remained suppressed amid weak demand conditions.
Figure 59: Wholesale price inflation for November 2019 (%YoY)

Weight (%) Nov-19 Oct-19 Nov-18 FY20TD FY19TD
WPI 0.6 0.2 4.5 1.4 4.9
Primary articles 22.6 7.7 6.4 0.6 6.4 2.4
Fuel & power 13.2 (7.3) (8.3) 15.5 (3.4) 15.5
Manufactured products 64.2 (0.8) (0.8) 4.2 0.3 4.1
Food group 24.4 9.0 7.6 (2.0) 6.1 (0.2)
Source: CSO, NSE
Figure 60: India wholesale price inflation (WPI)
Primary articles (%YoY) Manufactured products (%YoY)

8 6
7.7
6
4
4
2 2
0
0
-0.8
-2
-2
-4
-6 -4
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
30 Fuel & Power (%YoY) 10 Food products (%YoY)

9.0
20 8
6
10
4
0
2
-7.3
-10
0
-20 -2
-30 -4
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
40
Market Pulse
Industrial production contracts for the third month in a row

The industrial production (IIP) growth remained in the contraction zone for the third consecutive month at -3.8% in
October vs. -4.3% in September, albeit marginally higher than market expectations (Refinitiv Datastream poll: -5.0%)
and off a high base (8.4% in October 2018). The slowdown was across the board, with all sectors registering a negative
growth. A sharp deterioration in the investment activity was visible in the huge decline in capital goods and
infrastructure/construction goods’ production. Consumption demand also continues to remain weak, as evident from a
sharp dip in the production growth of consumer goods to 60-month lows.
• Industrial production continues to contract…: Industrial production growth remained negative at -3.8% in
October—the second lowest print in the series—vs. -4.3% in September and Consensus estimate of -5.0%. This
sharp plunge, albeit off an unfavourable base (+8.4% in October 2018), has been on account of a slowdown across
the board. Manufacturing production declined by 2.1% YoY, marking the third consecutive month of contraction,
with 18/23 sectors reporting negative growth (vs. 17 in the previous month) led by computer, electronic and
optical products and motor vehicles. Electricity production registered a huge 12.2% YoY decline in September—
the lowest print in the series, while mining production declined by 8% YoY.
• …reflecting a pervasive slowdown: The sharp deterioration in investment activity, as evident from the weak
Q2FY20 GDP print, was also visible from capital goods production which declined by 22% YoY—the weakest in
the series. This was the third consecutive month of 20%+ YoY decline in capital goods production, translating into
a fall of 11.6% YoY in the fiscal year thus far. Weakness in investment activity is also reflected in the performance
of infrastructure/construction goods sector, with the production there falling by 9.2% YoY—the steepest decline
in the new series. While the National Accounts data for Q2FY20 has pointed to a modest improvement in domestic
consumption demand, production of consumer goods signal otherwise. While consumer non-durables production
declined by a modest 1.1% YoY in October, consumer non-durables registered a strong 18% decline—the
steepest pace of decline in the series, translating into growth in consumer goods production at -8.7% YoY—the
steepest pace of decline in five years.
• Weak growth impulses call for resumption of monetary easing: A sharp contraction in industrial production,
thanks to a broad-based slowdown, reflects a pervasive slowdown in the economy, even as a favorable base may
provide some respite in the last quarter of FY20. On the positive side, lower cost of funds in the economy, coupled
with a slew of measures taken by the Government over the last couple of months including corporate tax cuts, is
expected to gradually provide a boost to business sentiments and support economic activity. Nevertheless, weak
domestic demand and faltering exports are likely to weigh on IIP growth in the near-term, making it imperative
for the RBI to resume monetary easing when inflation trajectory turns favourable again.
Figure 61: India industrial production for October 2019 (%YoY)

Weight (%) Oct-19 Sep-19 Oct-18 Apr-Oct’19 Apr-Oct’18
IIP (3.8) (4.3) 8.4 0.5 5.7
Sector- Mining 14.4 (8.0) (8.6) 7.3 (0.4) 3.8

based Manufacturing 77.6 (2.1) (4.0) 8.2 0.6 5.8
indices Electricity 8.0 (12.2) (2.6) 10.8 1.6 6.8
Primary Goods 34.0 (6.0) (5.2) 6.1 1.2 4.9
Capital Goods 8.2 (21.9) (20.3) 16.9 (10.2) 7.6
Intermediate Goods 17.2 22.2 7.0 2.4 9.5 1.3
Use-based
Infra/Construction Goods 12.3 (9.2) (6.8) 9.0 (1.3) 8.7
Goods
Consumer Goods 28.2 (8.7) (4.6) 12.4 0.7 5.8
Consumer Durables 12.8 (18.0) (9.9) 17.4 (5.0) 8.1
Consumer Non-durables 15.3 (1.1) (0.4) 8.6 5.3 4.0
Source: CSO, NSE
41
Market Pulse
Figure 62: India industrial production (3MMA)
10 Industrial production (%YoY)) 15 Mining (%YoY)

8
10
6
4 5
2
0 0
-2
-5
-4 -3.8
-8.0
-6 -10
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
12 Manufacturing (%YoY) 15 Electricity (%YoY)

10
10
8
6 5
4 0
2
-5
0
-2 -2.1 -10
-12.2
-4 -15
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Figure 63: Long-term industrial production trend (12MMA)
Industrial Production trend

20 20
IIP %YoY 12mma (-3.84% in Oct 19)
Eight core growth 12MMA (1.3% in Oct 19)
IIP Manufacturing 12mma (0.88% in Oct 19)
15 15
10 10
5 5
0 0
2008 2010 2012 2014 2016 2018

42
Market Pulse
Figure 64: India industrial production use-based goods (3MMA)
20 Primary goods (%YoY)) 20 Capital goods (%YoY)

15 15
10 10
5 5
0 0
-5 -6.0 -5
-10 -10
-21.9
-15 -15
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
20 Intermediate goods (%YoY) 20 Infrastructure/Construction goods (%YoY)

22.2
15 15
10 10
5 5
0 0
-5 -5
-10 -10 -9.2
-15 -15
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
20 20 Consumer non-durable (%YoY)

Consumer durable (%YoY)
15 15
10 10
5 5
0 0 -1.1
-5 -5
-10 -10
-18.0
-15 -15
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
43
Market Pulse
Figure 65: India eight-core sector growth (3MMA)
Eight-core sectors Coal

10 20
5 10
0
0
-10
-5 -5.8 -20 -17.6
-10 -30
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Steel Cement
20 30
20
10
10
0
0 -1.6
-10 -7.7
-10 -20
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Fertilizer Petroleum Refinery products & Crude oil
20 20
10 11.8
10
0
0 -0.2
-10
-20 -10
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Natural Gas Electricity
20 20
10 10
0 0
-5.7
-10 -10 -12.4
-20 -20
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
44
Market Pulse
Trade deficit witnesses a modest expansion in November

Trade deficit in November widened by ~11% MoM to US$12.1bn vs. US$11bn in the previous month, albeit still down
~31% YoY. This was largely on account of a continued decline in imports (down 12.7% YoY), even as exports also
registered a modest YoY decline for the fourth consecutive month. While oil imports fell by a strong 18.2% YoY, marking
the sixth consecutive month of YoY decline, gold imports registered a growth of 6.6% YoY, albeit off a very low base (-
15.5% in November 2018). Non-oil non-gold imports, however, declined by strong 12% YoY—the steepest pace of
decline in 43 months—reflecting weak domestic demand. Exports also declined by a modest 0.3% YoY, largely led by
lower exports of petroleum products, readymade garments and gems & jewellery, partly offset by a sustained strong
growth in exports of electronic goods. Excluding petroleum products, exports grew by a modest 2.5% YoY.
Going forward, we expect trade deficit to remain benign as weak domestic demand keep imports in check, partly offset
by a temporary spike in crude oil prices owing to geopolitical tensions, while exports growth improves amid stabilising
global environment, further supported by recent measures taken by the Government. Consequently, India’s Current
Account Deficit (CAD) is expected to fall below 1.5% of GDP in FY20, with foreign capital inflows (FDI/FII) expected to
more-than-adequately compensate, translating into a decent BoP (Balance of Payments) surplus. In turn, this reduces
external vulnerability and bodes well for the INR, even as weak domestic growth and mounting fiscal pressures continue
to pose upside risks.
 Exports register a modest YoY decline…: Exports declined for the fourth consecutive month, falling by a modest
0.4% YoY in November to US$26bn, translating into an YoY decline of 2.1% in the fiscal thus far compared to a
strong 10.9% growth for the same period last year. This was largely on account of a sharp drop in exports of
petroleum goods for yet another month by 13.1% YoY (-10.7% YTD)—a reflection of benign crude oil prices and
still weak global demand. Excluding petroleum products, exports growth actually improved to 2.5% YoY. Decline
in petroleum exports was largely offset by a sustained growth in exports of electronic goods (+46.1% YoY) and a
strong growth in drugs & pharmaceuticals exports (+20.6% YoY). Electronic goods exports have grown at an
average monthly pace of ~30% over last two years and at a much higher ~40% over last 12 months. This has been
largely coming from exports of electronic and telecom instruments (accounting for ~60% of electronic goods
exports), which have grown at 24.7% and 112.7% YoY respectively during Apr-Oct 2019.
 …while imports continue to decline at a sharp rate: Imports fell sharply for the sixth month in a row, contracting
by 12.7% YoY to US$38.1bn, led by a broad-based decline. Oil imports declined by a strong 18.2% YoY, albeit off
a high base, reflecting lower oil prices and weak domestic demand. Gold imports, however, registered a modest
6.6% growth for the second consecutive month partly explained by a low base and festive-led demand. Non-oil
non-gold imports declined by 12.0% YoY—the worst in last 43 months, marking the sixth consecutive month of
contraction and clearly reflecting the slowdown in consumption demand in India. This was largely led by decline
in imports of transport equipment (-48.5% YoY), coal, coke & briquettes (-23.1% YoY) and organic & inorganic
chemicals (-21.1% YoY).
 …resulting in trade deficit seeing a modest expansion on a MoM basis in November: While imports fell sharply,
a modest decline in exports led to an increase in trade deficit from US$11bn in October to US$12.1bn in November
2019. This has translated into a monthly trade deficit run-rate of US$13.8bn in the fiscal thus far vs. US$16.7bn
in the same period of FY19. While oil trade deficit has declined by 20.9% YoY in November (-13.2% YoY in Apr-
Nov 2019), non-oil non-gold trade deficit has also been sharply coming off, largely attributed to electronic goods.
 Weak domestic demand to keep trade deficit in check: Imports are expected to remain under the overhang of
a weak domestic demand even as the recent spike in crude oil prices poses upside pressure. Exports, on the other
hand, are likely to benefit from the recent steps taken by the Government, further supported by stabilising global
environment. Net-net, a sharper decline in imports than exports is likely to keep trade deficit in check. This, along
with sustained FDI inflows and strong foreign portfolio inflows in the wake of easy global liquidity, bodes well for
the INR, even as depreciating bias remains amid weak domestic growth and mounting fiscal pressures.
45
Market Pulse
Figure 66: India monthly trade balance for November 2019

Trade
Exports Imports
balance
Oil Non-oil Gold
Total
US$bn %YoY %YoY imports %YoY imports %YoY Import %YoY US$bn
(US$ bn)
(US$bn) (US$bn) (US$bn)
Nov-19 26.0 -0.3 38.1 -12.7 11.1 -18.2 27.0 -10.3 2.9 6.6 -12.1
Oct-19 26.4 -0.9 37.4 -16.3 9.6 -31.7 27.8 -9.2 1.8 4.7 -11.0
Nov-18 26.1 -0.8 43.7 5.5 13.5 41.6 30.1 -5.4 2.8 -15.5 -17.6
FY20TD 211.7 -2.1 322.3 -7.9 85.6 -12.4 236.6 -6.2 20.6 -7.1 -110.6
Source: Ministry of Commerce, CMIE Economic Outlook, NSE
Figure 67: India monthly trade balance
30 Exports (%YoY, 3MMA) Imports (%YoY, 3MMA) Trade balance (US$bn, RHS)
0
20
-5
10
-10
0
-2.7
-12.1
-10 -15
-14.3
-20 -20
2018 2019
76 Trade balance (US$bn, RHS) USDINR -8
74 -10
72
-12
71.3
70 -12.1
-14
68
-16
66
64 -18
62 -20
2018 2019
Figure 68: Weak domestic demand has kept non-oil Figure 56: …and so has the trend been in oil imports…
non-gold imports muted…
US$bn % US$bn %
Non-oil non-gold imports Oil imports trend
35 Non-oil non-gold imports % YoY (R) 55 35 Oil Imports % YoY (R) 150
30 45 30
100
35
25 25
25 50
20 20
15
15 15 0
5
10 10
(5)
(50)
5 (15) 5
0 (25) 0 (100)
Source: Ministry of Commerce, CMIE Economic Outlook, NSE

46
Market Pulse
Figure 69: …supported by benign crude oil prices

Oil imports vs. prices (US$)
16
120
WTI
Brent 14
India oil imports US$bn (RHS)
100 12
10
80
8
60 6
4
40
2
20 0
2013 2014 2015 2016 2017 2018 2019
47
Market Pulse
CAD contracts in Q2FY20; weak demand to keep it under check in FY20

India’s Current Account Deficit (CAD) contracted to US$ 6.3bn or 0.9% of GDP in Q2FY20 from US$ 14.2bn/US$ 19.1bn
or 2.0%/2.9% of GDP in Q1FY20/Q2FY19. This was primarily on account of a 17.5% YoY and 23.9% QoQ decline in
trade deficit, thanks to a sharp plunge in oil as well as gold imports, even as exports also registered a modest decline
amid weak global demand. Services exports expanded modestly led by higher travel-related and software services
receipts. However, capital account balance fell to the lowest in over five quarters led by moderation in FDI as well as FII
inflows, banking capital outflows and decline in ECB inflows. This, in turn, resulted in the Balance of Payments (BoP)
surplus declining from US$14bn in Q1FY20 to US$5.1bn in Q2FY20.
Sustained weakness in domestic consumption demand is expected to keep imports in check even as the recent spike in
crude oil prices owing to renewed geopolitical tensions poses upside risks. Exports, on the other hand, are likely to
benefit from the recent steps taken by the Government, further supported by stabilising global environment. The
monthly merchandise trade performance points to an even lower CAD in Q3FY20, with the full-year number expected
at sub-1.5%. Moreover, foreign portfolio inflows, particularly in equities, have improved significantly in the last quarter
amid renewed risk-on sentiments. This, along with sustained FDI inflows, bodes well for financing the CAD and
eventually the INR. Key downside risks include a significant surge in crude oil prices on account of geo-political risks
and further deterioration in economic growth leading to foreign capital outflows.
 Trade deficit declines amid weak domestic demand…: India’s trade deficit contracted to US$ 38.1bn in Q2FY20
from US$ 46.2bn in Q1FY20 and US$ 50bn in Q2FY19. This was largely led by a huge 16% QoQ and YoY decline
in oil imports. Gold imports also registered a huge 62% QoQ/53% YoY decline as a sharp surge in gold prices
adversely affected domestic demand. Non-oil non-gold imports also declined by a modest 0.5% QoQ/6.4% YoY,
reflecting weak domestic demand conditions. Exports also fell by 3.3% QoQ/4.1% YoY, thanks to continued global
trade war concerns during the quarter and with weak global demand.
 …Leading to contraction in CAD: While merchandise exports contracted, services receipts remained steady on
a sequential basis, as a meaningful jump in receipts from travel related services and a modest growth in software
earnings more than offset a sharp decline in financial services exports. While remittances grew by a strong 10.8%
QoQ/3.5% YoY, investment income witnessed a sharp sequential decline, resulting in Invisibles falling by 0.5%
QoQ. Lower merchandise trade deficit, coupled with steady Invisibles, led to a contraction in CAD from US$
14.2bn/US$ 19.1bn or 2.0%/2.9% of GDP in Q1FY20/Q2FY19 to US$ 6.3bn or 0.9% of GDP in Q2FY20
 Moderation in foreign inflows leads to narrowing of BoP surplus in Q2: Despite a contraction in CAD, the BoP
surplus declined from US$ 14.0bn in Q1FY20 to US$ 5.1bn in Q2FY20, led by a decline in foreign inflows across
channels. While foreign direct investments fell from an 11-quarter high of US$ 13.8bn in Q1FY20 to US$ 7.4bn in
Q2FY20, foreign portfolio inflows also moderated to U$ 2.5bn in Q2FY20 on account of negative sentiments
around the levy of enhanced surcharge on long and short-term capital gains, announced in the Union Budget in
July 2019 but later rolled back in late August. After remaining quite strong over the previous two quarters, ECB
inflows also declined in Q2FY20 to US$ 3.4bn, thanks to a sharp surplus domestic systemic liquidity.
 CAD to remain low; renewed foreign inflows bodes well for the INR: With global trade concerns abating and
economic environment stabilising, exports are expected to gradually pick-up, with recent measures taken by the
Government providing further support. Imports on the other hand are expected to remain tepid in the wake of a
sustained weakness in domestic demand, partly offset by temporary surge in crude oil prices. The monthly
merchandise trade performance, coupled with expectations of resilient services receipts and steady remittances,
points to a further decline in CAD in Q3FY20, with the full-year figure now expected to fall to sub-1.5%. Moreover,
with recent reforms announced by the Government, including the cut in corporate tax rates, adding to India’s
attractiveness as an investment destination, FDI inflows are expected to remain strong. FPI inflows have also
picked up meaningfully in Q3FY20, facilitated by renewed global risk-on sentiments. This, in turn, bodes well for
CAD financing and the INR. Key downside risks include a sharp surge in crude oil prices on account of renewed
geo-political risks and further deterioration in economic growth leading to foreign capital outflows.
48
Market Pulse
Figure 70: Balance of Payments – Quarterly account

US$ bn Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20
Current account -15.8 -19.1 -17.8 -4.6 -14.2 -6.3
CAD/GDP (%) -2.3 -2.9 -2.7 -0.7 -2.0 -0.9
Trade balance -45.8 -50.0 -49.3 -35.2 -46.2 -38.1
Merchandise exports 83.4 83.4 83.1 87.4 82.7 80.0
Merchandise imports 129.1 133.4 132.4 122.6 128.9 118.1
Oil imports 34.8 35.3 38.4 32.4 35.4 29.6
Non-oil imports 94.3 98.2 94.0 90.1 93.5 88.5
Net services 18.7 20.3 21.7 21.3 20.1 20.4
Software earnings 18.6 19.3 19.9 19.9 21.0 21.1
Transfers 17.0 19.3 17.4 16.2 18.0 20.0
Other invisibles -5.8 -8.6 -7.6 -6.9 -6.1 -8.6
Capital account 4.8 16.6 13.8 19.2 27.9 12.1
Foreign investments 1.4 7.6 5.2 15.9 18.7 9.9
FDI 9.6 7.4 7.3 6.4 13.8 7.4
FII -8.1 0.2 -2.1 9.4 4.8 2.5
Banking capital 10.1 0.5 4.9 -8.1 3.4 -1.8
NRI deposits 3.5 3.3 0.1 3.4 2.8 2.3
Loans -4.3 6.9 2.9 10.3 9.6 3.2
ECBs -1.3 2.2 2.0 7.5 6.1 3.4
Others -8.9 3.0 1.5 0.5 -3.1 -1.7
Errors & Omissions -0.3 0.6 -0.3 -0.4 0.3 -0.7
Overall balance (BoP) -11.3 -1.9 -4.3 14.2 14.0 5.1
Source: CSO, MOSPI, NSE
Figure 71: Balance of Payments – Annual account

US$ bn FY16 FY17 FY18 FY19
Current account -22.2 -15.3 -48.7 -57.3
CAD/GDP (%) -1.1 -0.7 -1.8 -2.1
Trade balance -130.1 -112.4 -160.0 -180.3
Merchandise exports 266.4 280.1 309.0 337.2
Merchandise imports 396.4 392.6 469.0 517.5
Oil imports 82.9 86.9 108.7 140.9
Non-oil imports 313.5 305.6 360.3 376.6
Net services 69.7 67.5 77.6 81.9
Software earnings 71.5 70.1 72.2 77.7
Transfers 62.6 56.0 62.4 69.9
Other invisibles -24.4 -26.3 -28.7 -28.9
Capital account 41.1 36.5 91.4 54.4
Foreign investments 31.9 43.2 52.4 30.1
FDI 36.0 35.6 30.3 30.7
FII -4.1 7.6 22.1 -0.6
Banking capital 10.6 -16.6 16.2 7.4
NRI deposits 16.1 -12.4 9.7 10.4
Loans -4.6 2.4 16.7 15.9
ECBs -4.5 -6.1 -0.2 10.4
Others 3.2 7.5 6.1 1.0
Errors & Omissions -1.1 0.4 0.9 -0.5
Overall balance (BoP) 17.9 21.6 43.6 -3.3
Source: CSO, MOSPI, NSE
49
Market Pulse
Figure 72: Quarterly current account deficit (CAD) contracts in Q2FY20 thanks to lower trade deficit…
0.0 76
0
74
(0.5)
72
(5) (0.9) 71.4
(1.0)
(6.3)
70
(1.5) 68
(10)
66
(2.0)
(15) 64
(2.5)
Current account deficit (% GDP, R1) 62
CAD (US$ -6.3bn in Q3 19)
USDINR (R2)
(20) (3.0) 60
2015 2016 2017 2018 2019
Figure 73: …and is expected to fall to sub-1.5% of GDP in FY20 from 2.1% in FY19
India CAD as % of GDP
0 0%
-20 -1%
-40 -2%
-2.1%
-60 -3%
-80 CAD (US$ -57.2 bn in FY19) -4%

CAD (%GDP, R)
-100 -5%
12 13 14 15 16 17 18 19
50
Market Pulse
Figure 74: FDI as well as ECB inflows moderated in Q2FY20…

Foreign direct investments into India
20 76
FDI Inward Net US$bn ECB Net Inflow US$bn USDINR (R)
74
15
72
70
10
68
5
66
64
0
62
-5 60
2015 2016 2017 2018 2019
Figure 75: …and so did foreign portfolio inflows even as they have picked up meaningfully in Q3FY20…
Cumulative FII net flows over last five years (FY)
x 1,000 Equity Inflows (US$mn) x 1,000 Debt Inflows (US$mn)

15 25
FY16
FY17
FY18 20
10 FY19
FY20TD
15 FY16
FY17
5 FY18
10 FY19
FY20TD
5
0
0
-5
-5
-10 -10
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
51
Market Pulse
Figure 76: …resulting in a decline in BoP surplus in Q2FY20

India Balance of Payments by Channel (Quarterly, US$bn)
40 40 40
Current Account Balance (-6.3) Capital Account Balance (12.1)
Overall Balance (5.1) USDINR (RHS)
30 30
45
20 20
50
10 10
55
0 0
60
-10 -10
65
-20 -20
70
-30 -30
-40 -40 75
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 77: Forex reserves are all all-time high levels, leading to a rise in import cover
India Forex Reserves and Import Cover (Months)
x 1,000
500 FX Reserves (US$bn) 20
Import Cover (Months, RHS)
Average Import Cover (Months, RHS)
400
15
300
10
200
5
100
0 0
1990 1995 2000 2005 2010 2015
52
Market Pulse
December MPC Policy Minutes: Sharp rise in inflation trajectory keeps RBI on pause
The RBI’s Monetary Policy Committee in its December policy review meeting unanimously decided to keep the policy
rates unchanged, citing near-term concerns on the inflation trajectory. The household inflationary expectations have
witnessed a sharp increase of 120bps and 180bps for three months and 12 months ahead horizon. The MPC also awaits
clarity on the impact of fiscal and monetary measures taken thus far, evolving food inflation dynamics and its second-
order impact and the outcome of the forthcoming Union Budget. With monetary transmission to the real economy being
inadequate thus far (weighted average lending rate on fresh loans fell by 44bps vs reduction in policy rates by 135bps
during February-October 2019), the MPC viewed prudence in maintaining a pause at the current juncture. The
Committee, at the same time, acknowledged the space available for further monetary easing which needs to be
appropriately timed for ensuring an optimal impact.
The sharp cut in growth forecasts by the MPC acknowledges the seriousness of current economic slowdown, with an
impending recovery expected to be shallow and gradual. Further, inflation is expected to fall again in Q1FY21 following
an expected temporary spike over the next few months. This is likely to keep the room open for further monetary easing;
we expect another 25-50bps cut in policy rates in the current easing cycle, ceteris paribus.
Figure 54: Word cloud of the minutes of June 2018 and December 2019 MPC review meetings
We have compared the word clouds of the minutes of the recent MPC review meeting (December 2019) with the one in
June 2018 when the MPC hiked the policy rates by 25bps for the first time in nearly five years in the wake of rising
concerns on inflation. The analysis shows that while growth has taken over inflation in the commentary of all MPC
members, inflation still continues to remain fairly relevant. A sharp increase in the number of times ‘food’ has been
mentioned now (fourth highest number of mentions) points to the Committee’s concerns around the recent spike in food
inflation trajectory. The other word that has gained significantly more eyeballs this time is ‘transmission’, and
understandably so, given inadequate reduction in lending rates in the current easing cycle, thereby inhibiting the
effectiveness of an easy monetary policy. Having said that, with the mention of ‘growth’ still outnumbering ‘inflation’,
we believe there is room available for further monetary easing, the timing of which remains uncertain at this point.
June 2018 MPC review meeting December 2019 MPC review meeting
53
Market Pulse
Figure 78: Views of MPC members

Members June 2019 MPC August 2019 MPC October 2019 MPC December 2019 MPC
Dr. Chetan Ghate
Economic growth remains
Global economic growth Output gap has widened
Compared to the last review, lacklustre amid a broad-based
remains tepid. further. External demand
several indicators are flagging weakness. The Industrial
Growth Domestically, a variety of conditions have worsened,
red, reflected in a further Outlook Survey by RBI shows
growth indicators have and domestic sentiments
widening in the output gap. persistence of pessimistic
weakened further. remain weak.
demand conditions in Q3FY20.
Headline inflation in-line with Benign inflation conditions Inflationary expectations have Inflationary expectations have
projections but uptick in food continue to be manifested in seen an uptick. Headline risen sharply. “…have been
Inflation inflation posing upside risk. CPI-headline. A pick-up in inflation was flat in August concerned about food inflation
INR and crude pose upside growth to put a “floor” on despite an increase in food trajectory…”. Low service
risk. core inflation. inflation. inflation is unlikely to sustain.
25bps cut; stance:
Policy 25bps cut; stance: 25bps cut; stance: Pause; stance:
accommodative (erstwhile
action accommodative accommodative accommodative
neutral)
Dr. Pami Dua
Economic activity has Consumption and investment
Q4 GDP fell to 5Y lows on "..private consumption and
softened due to muted activity remain weak. Steeper
weak investment and private investment activity are weak,
consumption and investment decline in imports vs. exports
Growth consumption. A sharper dip in and business and consumer
activity. Concerns regarding indicates a more acute
exports reflects weak global sentiment are somewhat
global slowdown and trade slowdown in domestic demand
demand and trade tensions. downbeat."
tensions persist. vs. weakness in global growth.
While the actual scenario and
Headline inflation stable; Headline inflation is projected
Inflation is benign; projected outlook for inflation seem
projected headline inflation to to rise in the near-term, but
Inflation to remain below target in benign, disruptions in the
remain below the target in moderate to below target by
2019-20. global oil market may impart
2019-20. Q2FY21.
upside risks.
25bps cut; stance:
neutral)
Dr. Ravindra H. Dholakia
Growth has seriously dipped; Growth impulses are weak. Green shoots of growth
Growth slowdown may
expected to remain below- Investment activity needs a recovery visible. RBI’s forecast
continue in Q2FY20. "..output
potential for next 3-4 boost through economic points at growth slowdown
Growth gap would continue to be
quarters. Real policy rates reform measures and bottoming in Q2FY20 and
negative for at least next 3 to
should be brought down to correction of high real interest recovering gradually in Q3/Q4
4 quarters"
1.5% sooner than later. rates. and FY21.
“…sharp spike in food inflation
Inflationary expectations are Recent inflation readings as may continue for the next two-
"..inflation rate crossing the
getting anchored. Core per RBI projections. three months driving the
mid-point target of 4% during
Inflation inflation is on a declining Inflationary expectations for headline inflation above the
the next year or so has very
trend, weighed down by weak one-year ahead have been mid-point target and closer to
little probability."
growth. declining. the upper bound of the flexible
target range”.
25bps cut; stance:
neutral)
Dr. Michael Debabrata Patra
High frequency indicators Economy has weakened since Weakness in overall activity
Economic downturn is deeper
point to a broad-based June. While investment may likely prolong into Q3.
and more pervasive than
slowdown. The evolving remains weak, private However, the upturn in retail
Growth expected, with the state of
macroeconomic configuration consumption is also losing inflation calls for a pause,
the economy expected to get
imparts urgency to strong momentum, reflected in leaving scope for calibrated
worse before it gets better.
policy support. declining imports. policy actions in future.
Deteriorating economic Inflation is expected to rise
Inflationary expectations are "..inflation continues to trail
activity visible in inflation further over next 2-3 months.
better anchored than before. below target and is projected
Inflation prints. Core inflation has Persistence of high food
Risks to the target are to remain so over the 12
persisted softness, reflecting inflation and its spill-over into
distinctly on the ebb. months ahead horizon"
weak demand. non-food remains a key risk.
25bps cut; stance:
neutral)
54
Market Pulse
Shri Bibhu Prasad Kanungo

Domestic growth slowing GDP growth slowdown in Q1 Q2 GDP growth has turned out
down. Moderation in private has been underpinned by weaker than projected earlier.
consumption, as signalled deficient domestic demand. High frequency indicators
Growth
from continued contraction in High frequency indicators point to continued weakness
demand indicators, is suggest continued loss in in Q3. However, some signs of
worrisome. growth momentum in Q2. green shoots are emerging.
Inflation remained soft in Temporary demand-supply
Inflation trajectory has
July-Aug, though there was a imbalance led to a sharp rise in
evolved on expected lines;
Inflation pick-up in food inflation. It is food inflation. CPI inflation
expected to remain below 4%
projected to remain below 4% projected to rise in H2 but fall
for the next four quarters.
till Q1 FY21. below the target in Q2FY21.
Shri Shaktikanta Das
Economic activity has
Economic activity losing Economic activity has
Economic activity has continued to weaken with GDP
traction, with Q4 GDP growth weakened further.
deteriorated further. High growth decelerating for the 6th
Growth falling to 5.8%, thanks to a Performance of several high
frequency indicators suggest straight quarter for Q2FY20.
sharp drop in investment frequency indicators has
that economic activity Beyond Q2, however, some
activity. worsened in recent months.
remained weak in Q2. positive signs have emerged.
CPI inflation remained
CPI inflation has surged in last
unchanged, though there Household inflation Near-term inflation scenario
three months reflecting a spike
were significant expectations down by a total remains subdued, with
in vegetable prices, translating
compositional shifts. of 180/190 bps for 3M/1Y inflation projected to remain
Inflation into rise in inflationary
Moderation in core inflation horizon over last five surveys, below 5% until Q1FY20, even
expectations. However, benign
was broad-based. Household suggesting better anchoring of as inflationary expectations
core inflation suggests weak
inflationary expectations inflationary expectations. have moved up.
domestic demand conditions.
softening.
25bps cut; stance:
neutral)
Dr. Viral Acharya
Growth has slowed down but
easing financial conditions
Growth should help investment
activity revive on steadily
improving capacity utilisation.
Compared to the April policy,
short-term headline inflation
trajectory has risen but 6-to-
Inflation
12-month trajectory has
softened. Fiscal slippage
remains a key risk.
25bps cut; stance:
Policy
action
neutral)
Source: RBI
55
Market Pulse
Cumulative gross fiscal deficit surges in November to reach 115% of the budgeted target
The Centre’s gross fiscal deficit rose sharply in November, reaching Rs 8.1trn during April-November 2019, accounting
for 114.8% of the annual budgeted target, in-line with the same period last year. This was primarily on account of a
significant shortfall in direct as well as indirect tax collections, even as capital expenditure declined further in November.
While net tax revenues grew by a modest 2.6%, falling significantly short of the required growth rate of 25.3% (on actual
FY19 figures) to meet the budgeted targets, non-tax revenues grew by a strong 67.8% YoY on higher dividends and
profits. On the positive side, GST collections saw a pickup in November, up 6% YoY, reflecting the impact of a higher
festive-led demand. The Centre’s spending came off in November, even as the cumulative growth still stands at 12.8%,
lower than the budgeted growth of 20.5%. While revenue expenditure grew at 13.0%, capital expenditure grew at a tad
lower 11.7%, with the latter largely targeted towards roads, railways and defence.
A sharp shortfall in tax collections thus far poses significant pressure on the Government’ finances this year, limiting its
ability to support the ailing economy over the next few months, something that came as a rescue for the Indian economy
in the second quarter of this fiscal. While one-time transfer of dividend and surplus from RBI has bumped up non-tax
revenues this year, fiscal slippage seems inevitable sans significant expenditure cuts. The IMF, in its recent Article IV
Consultation Report on India, has estimated FY20 fiscal deficit at 3.8% vs. the budgeted target of 3.3%.
• Centre’s cumulative gross fiscal deficit reaches 115% of the budgeted target: The Centre’s fiscal deficit during
Apr-Nov 2019 came in at Rs 8.1trn or 114.8% of the government’s full-year budgeted target, in-line with the
figure seen for the same period last year, but much higher than ~92% over the last 10 years. Revenue deficit,
however, is much higher at ~128% of the full-year target, amid high fertilizer subsidy outgo and lower-than-
budgeted tax collections, partly offset by lower interest expenses, thanks to lower interest rates.
• Tax collections remain weak and significantly short of targets: Gross tax revenues during April-November 2019
grew by a muted 0.8% YoY to Rs 11.8trn, accounting for 48% of the budgeted target vs. 51.6% in the same period
last year. While direct tax collections grew at a meagre 2.7%, thanks to lacklustre corporate tax receipts, indirect
tax collections registered a decline of 0.9% YoY vs. the budgeted growth target of 18.6% and 17.9% respectively,
reflecting a serious slowdown in the economy.
• GST collections remained strong in December: GST collections remained steady in December at Rs 1.03trn,
registering a growth of 8.9% YoY—the highest growth in last eight months, translating into a growth of 7.4% YoY
during the festival season of Nov-Dec 2019. While a part of this was on account of higher festival-led demand,
compliance also improved significantly, with total number of filings rising to the highest level since the
implementation of GST. Cumulative GST collections in the fiscal year thus far stands at Rs 9.1trn, up by a modest
4.2% YoY. While GST collections have picked up, the average monthly run-rate is still 9.5% short of the average
required monthly run-rate of Rs 1.11trn 3 to meet budget estimates. This not only poses upside risks to the
Centre’s fiscal deficit target but may also trigger spending cuts by the states.
• Government capex comes off further in November: The Centre’s expenditure came off in further in November,
even as the growth in cumulative expenditure in the fiscal this far still stands at 12.8%, albeit much lower than
the budgeted target growth of 20.5%. While cumulative interest expenses have declined by 1.8% YoY, thanks to
lower sovereign bond yields, cumulative subsidy outgo on fertilizers has increased sharply (+37.1% YoY vs. the
budgeted growth of 14.1%), translating into revenue expenditure growth of 13% YoY during April-Nov 2019.
Capital expenditure also declined by 8.5% MoM in November, translating into a growth of 11.7% YoY in the fiscal
thus far vs. 13.6% during Apr-Oct 2019, largely targeted towards roads, railways and defence.
• Fiscal slippage inevitable: Gross tax collections thus far have significantly fallen short of budgeted targets for
the year. The Govt. has also garnered a mere 17.2% of its budgeted target of Rs 1.05trn from disinvestment in the
fiscal thus far. As such, amid faltering tax collections, further aggravated by cut in corporate tax rates, some
slippage from the budgeted fiscal deficit target of 3.3% in FY20 seems inevitable, unless the Government resorts
to expenditure cuts, which seems unlikely in the current weak macroeconomic environment.
3
Required average gross monthly GST collections (including refunds) in FY20 to meet the year’s budget estimate is based on the assumption that the
ratio of gross GST to net GST collections by the Centre remains the same as that in FY19.
56
Market Pulse
Figure 79: Yearly trend of India’s fiscal balances
x 1,000 India fiscal balances (Rs bn) x 1,000

-10 -10
-8 -8
FY20BE = Rs7038bn
FY19BE = Rs6243bn
-6 -6
-4 -4
FY16
FY17
-2 FY18 -2
FY19
FY20TD
0 0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
igure 80: Gross fiscal deficit as % of budget targets during April-November

% Gross fiscal deficit as a % of budget target during Apr-Nov
140.0
112.0 114.8 114.8

120.0
98.9
100.0 93.9
85.6 87.0 85.8
80.4
80.0
60.0 48.9
40.0
20.0
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: CMIE Economic Outlook, CGA, NSE
Figure 81: Centre’s gross fiscal trend Figure 82: A quick glance at FY20 budget estimates
Fiscal deficit trend (% of GDP) Rs bn FY19A %YoY FY20BE %YoY

(2.0)
Net tax revenues 13,170 6 16,495 25.3
Non-tax revenues 2,462 27.7 3,132 27.2

(3.0)
Non-debt cap receipts 1,029 -11.1 1,198 16.5
(3.3)
(3.5) (3.5) (3.4) (3.4) (3.4)
(4.0) Total receipts 16,661 7.4 20,825 25
(3.9) (3.9)
(4.3) Revenue Expenditure 20,085 6.9 24,478 21.9
(5.0) (4.7) Capital Expenditure 3,030 15.1 3,386 11.8
Total expenditure 23,114 7.9 27,863 20.5

(6.0) (5.7)
Fiscal deficit -6,454 9.2 -7,038 9.1
% GDP -3.4 -3.3
Figure 83: Direct tax collections trend during Apr-Nov Figure 84: Indirect tax collections trend during Apr-Nov
57
Market Pulse
Rsbn Direct tax collections during Apr-Nov % Rsbn Indirect tax collections during Apr-Nov %
6000 Direct tax collections % YoY (R) 18 Indirect tax collections % YoY (R)
7000 45
16 40
5000 6000
14 35
5000 30
4000 12
4000 25
10
3000 20
8 3000 15
2000 6
2000 10
4 5
1000 1000
2 0
0 0 0 -5
Figure 85: Gross tax collections trend during Apr-Nov Figure 86: Monthly trend of GST collections
Rsbn % Rs bn Monthly trend of GST collections
Gross tax collections during Apr-Nov
Gross tax collections % YoY (R) FY20 Required monthly target % YoY
14000 30
1200 10.1 Required monthly run-rate: Rs 1.11trn 12.0
12000 8.9
25 10.0
1000 6.7
5.8 6.0 8.0
10000
20 4.5 4.5 6.0
800
8000 4.0
15
600 2.0
6000 1,139
1,003 999 1,021 982 1,035 1,032 0.0
10 916 954
4000 400
-2.0
-3.0 -5.3 -4.0
2000 5 200
-6.0
0 0 0 -8.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY20 April May June July Aug Sep Oct Nov Dec
Source: CMIE Economic Outlook, CGA, PIB, NSE
Figure 87: Revenue and capital expenditure trend Figure 88: Trend of share of revenue and capital
expenditure in total expenditure during Apr-Nov
Rs trn Share of revenue and capital expenditure in total % Share of revenue and capital expenditure in total
expenditure during Apr-Nov expenditure during Apr-Nov
Capital exp Rev exp
Revenue expenditure
% YoY growth in rev exp % YoY growth in capital exp 100
20 40 10.7 11.5 11.8 12.3 11.3 13.9 11.1 12.5 11.7
2.1 30 80
15
1.8 20
1.4 60
10 1.2 1.6 10
1.3 89.3 88.5 88.2 87.7 88.7 86.1 88.9 87.5 88.3
1.0 16.1 40
0.9 0
0.7 12.9
11.4
5 9.5 9.8
9.0 20
6.7 7.7 -10
6.2
0 -20 0
Source: CMIE Economic Outlook, CGA, PIB, NSE
58
Market Pulse
Figure 89: A snapshot of government finances for April-November 2019

Items (Rs bn) Apr-Nov 2018 Apr-Nov 2019 FY20BE
Rs bn % of BE Rs bn % of BE % YoY Rs bn % YoY over FY19A
Net tax revenues 7,317 49.4 7,506 45.5 2.6 16,495 25.3
Gross tax revenues 11,743 51.6 11,838 48.0 0.8 24,680 17.8
Of which:
Direct Tax 5,417 47.1 5,565 41.7 2.7 13,350 18.6
Corporation tax 2,913 46.9 2,886 37.7 -0.9 7,660 15.4
Income tax 2,504 47.3 2,679 47.1 7.0 5,690 23.3
Indirect Tax 6,230 55.6 6,176 54.8 -0.9 11,261 17.9
Goods and service tax 3,829 51.5 3,986 60.1 4.1 6,633 13.6
Custom Duties 868 77.1 759 48.7 -12.5 1,559 32.2
Excise Duties 1,381 53.2 1,329 44.3 (3.8) 3,000 29.9
Others 96 184.0 96 139.2 0.4 69 (54.6)
States Share (4,320) 54.8 (4,219) 52.1 (2.3) (8,091) 6.3
Transferred to NCCD (11) 42.1 (17) 67.7 59.4 (25) 37.9
Non-Tax Revenue 1,386 56.6 2,326 74.3 67.8 3,132 27.2
Dividends and profits 553 51.5 1,584 96.9 186.7 1,635 44.2
Other non-tax revenues 834 60.5 742 49.6 (11.0) 1,497 12.7
Central govt. revenue receipts 8,703 50.4 9,832 50.1 13.0 19,627 25.6
Non-Debt Capital Receipts 263 28.5 290 24.2 10.4 1,198 16.5
Recovery of Loans 105 85.8 109 73.6 4.2 148 (16.9)
Misc. Receipts (inc. divestment) 158 19.8 181 17.2 14.5 1,050 23.5
Total Receipts 8,966 49.3 10,122 48.6 12.9 20,825 25.0
Revenue Expenditure 14,218 66.4 16,062 65.6 13.0 24,478 21.9
Interest Payments 3,482 60.5 3,418 51.8 -1.8 6,605 13.4
Major subsidies 2,190 82.9 2,350 77.9 7.3 3,017 13.3
Food 1,425 84.1 1,322 71.7 (7.2) 1,842 7.5
Fertilizer 534 76.3 733 91.6 37.1 800 14.1
Petroleum 231 92.8 296 78.9 27.7 375 50.9
Capital Expenditure 1,914 63.7 2,138 63.2 11.7 3,386 11.8
Total Expenditure 16,132 66.1 18,201 65.3 12.8 27,863 20.5
Fiscal Deficit 7,166 114.8 8,078 114.8 12.7 7,038 9.1
Fiscal Deficit/GDP 3.8 3.8 3.3
Source: CMIE Economic Outlook, CGA, Budget Documents, NSE
59
Market Pulse
RBI announces India’s version of ‘Operation Twist’ to reduce long-term yields

The RBI announced three rounds of bond swapping programme, coined as India’s own version of ‘Operation Twist’,
during December 2019-January 2020 through simultaneous sale and purchase of government securities under Open
Market Operations (OMOs). This was undertaken after a review of the current liquidity, market situation, and evolving
financial conditions. Under this programme, the RBI bought long-term bonds worth Rs 300bn in three tranches and sold
short-term ones of an equivalent amount or lower, with an aim to bring down long-end rates, which otherwise have not
fallen commensurate to the reduction in policy rates, thanks to concerns around Government’s fiscal balances in the
wake of lacklustre tax collections. Monetary transmission in the banking sector has also been inadequate thus far,
thereby inhibiting the effectiveness of an easy monetary policy. In this context, the so-called ‘Operation Twist’ is
expected to result in the flattening of the yield curve as the long-end rates would come off and the short-end may rise.
Having said that, a sharper-than-expected rise in short-end of the curve is a risk amid already muted demand,
particularly in the wake of higher concentration of corporate bond issuances in the 1-5 year bucket.
• Fiscal concerns have kept long-end of the curve elevated: Concerns regarding fiscal slippage this year are
mounting in the wake of muted tax collections and significant shortfall in divestment proceeds. The IMF, in its
recent Article IV consultation report on India, has projected fiscal deficit at 3.7% and 3.8% for FY20 and FY21
respectively. This, in turn, has resulted in a significant steeping of the sovereign yield curve. In this year until
December 19th, 2019, when the first bond swapping programme was announced, the long-end rates (maturity of
10-years and above) fell by an average of mere ~40bps, despite a 135bps cut in in policy rates, while the short-
end rates (less than 2-year maturity) have fallen by an average of ~145bps. Monetary transmission in the banking
sector has also remained quite weak, with banks reducing their weighted average lending rates (WALR) by just
44bps during Feb-October 2019.
• ‘Operation twist’ aimed at reducing the term premium: A liquidity-neutral measure, the ‘Operation Twist’—the
name given to a US Federal Reserve monetary policy operation—involves the simultaneous purchase and sale of
government securities with an aim to bring down long-term interest rates and provide a fillip to investment
demand in the economy. The RBI has announced three such tranches of this programme since last month. The
first tranche was announced on December 19th and second on December 23rd, involving the purchase of the long-
term 10-year bond (6.45% GS 2029) worth Rs 100bn on each occasion and sell four short-end securities of the
same amount, all of which are set to mature in 2020. In the third round, the purchase amount of Rs 100bn was
spread across 4-10 year maturity papers, while sale was concentrated in the shorter-end (< 1-year maturity).
This special OMO programme is expected to increase demand for the long-end securities, thereby resulting in a
decline in long-term yield, while that of the short-end securities is expected to fall, thereby pushing the short-end
rates higher. Since the announcement of the first round on December 19th until December 31st, the 3-month
Government bond yield rose by a modest 3bps, while the 10-year Government bond yield fell by 19bps.
• The US experience: The US Federal Reserve was the first central bank that attempted this bond-swapping
programme involving buying and selling of government securities at the same time. This first happened in 1961,
and later between September 2011 to December 2012, following the aftermath of global financial crisis. The latter
was the third major policy response by the Fed to 2008 financial crisis, involving the redeployment of US$667bn
in Fed assets, where the Federal Reserve purchased government securities with maturities varying from six to 30
years and sold securities with maturities of three years or less. The idea was to reduce lending rates for
households and corporates and thereby spur investment demand in the economy. While the long-end yields did
fall but only for a brief period, with the market seeing this as too weak to revive the economy. As such, in December
2012, the Fed ended this programme and replaced it with a stronger version of "quantitative easing" called QE3
that involved open-market purchases of longer-dated US treasuries and mortgage-backed securities.
• More such special OMOs could be in the offing: With transmission of monetary easing at the medium as well as
long-end being inadequate, this bond-swapping programme seems to be the RBI’s last resort to bring down rates.
Having said that, the RBI may have to continue with this programme to sustain lower yields at the long-end of the
curve, given rising concerns on fiscal slippage and additional borrowings.
60
Market Pulse
Figure 90: Change in sovereign bond yields across tenors between Dec 31st, 2018 and Dec 19th, 2019
bps
Change in soveriegn bond yields acros tenors between Dec 31st, 2018 and Dec 19th, 2019
3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y 15Y 19Y 24Y 30Y
0
-20
-40 -32 -31 -32 -29

-39 -35 -37 -36
-60 -44 -47
-52 -49
-62
-80 -69 -70
-75
-100
-120
-123 -120
-140
-160
-180 -165 -169
Figure 91: India sovereign yield curve Figure 92: Movement in sovereign bond yields
% India sovereign yield curve Movement in sovereign bond yields
31-Dec-18 19-Dec-19 31-Dec-19 7.00 1Y 10Y
7.8
7.6
7.3 7.3 6.50 1st bond- 2nd bond-
7.1
swapping swapping
6.8 programme programme
6.7 6.00 announced for
announced
for Rs100bn Rs100bn
6.3
5.50
5.8
5.3 5.00
5.0
15 Dec/19
16 Dec/19
17 Dec/19
18 Dec/19
19 Dec/19
20 Dec/19
21 Dec/19
22 Dec/19
23 Dec/19
24 Dec/19
25 Dec/19
26 Dec/19
27 Dec/19
28 Dec/19
29 Dec/19
30 Dec/19
31 Dec/19
5.1
4.8
3M 6M 1Y 3Y 5Y 8Y 10Y 15Y 30Y
61
Market Pulse
The INR 105trn ‘National Infrastructure Pipeline’ unveiled; execution remains the key
The Government released the report of the Task Force on the National Infrastructure Pipeline (NIP) 4 early this month
that was constituted in August 2019 to draw the investment pipeline on social and economic infrastructure projects over
the next five years. The Task Force has identified investments worth Rs 102trn over the next five years, with nearly 60%
at under implementation/development stage. The balance Rs3trn worth of projects would be announced in a few months
following the confirmation from states. While the Centre and states would fund 39% each, the balance 22% would be
funded by the private sector. Roads, urban and housing, railways, power and irrigation comprise ~80% of the NIP. The
Plan expects the Centre’s budgetary support to increase from 0.74% of GDP in FY20 to 1.11% in FY25, assuming a
nominal GDP CAGR of 12.2% during this period.
Besides the identification of projects, the Committee was also tasked with guiding ministries in identifying financing
sources and suggesting an effective monitoring mechanism to minimise time and cost overruns. The Task Force has also
recommended several policy measures to be initiated by the Centre and States to facilitate infrastructure investments.
The Government’s ambition to make India a US$5trn economy by 2025 requires massive infrastructure investments,
which in turn facilitates employment generation and fuels domestic demand in the economy. In that context, the NIP is
a step in the right direction. Having said that, execution and funding remain key challenges particularly in the wake of
weak private sector participation over the last few years, risks to fiscal balances amid optimistic GDP growth projections
and currently weak financing environment.
• Infrastructure investment crucial for sustainable growth: The NIP has acknowledged poor quality of
infrastructure as the one of the biggest hurdles to enhancing India’s manufacturing capabilities. Infrastructure
development not only helps remove inefficiencies that hurt corporate growth and investments in the economy,
but also support long-term growth by creating employment opportunities. Estimates suggest that India needs
US$4.5trn worth of infrastructure investments by 2030 to sustain its growth rate. The ongoing clean-up of the
financing sector, corporate tax cuts enabling faster deleveraging by corporates and payoffs from reforms such as
the GST and the IBC create a conducive environment for the next leg of infrastructure investments in the economy.
• Historical trend of infrastructure investment in India: Infrastructure investments during FY08-FY17 stood at
Rs 60trn—Rs 24trn in the 11th Five-year Plan and Rs 36trn in the 12th Five-year Plan, even as the share of
infrastructure investments to GDP fell from 7% during the 11th Five-year Plan to 5.8% in the 12th. Infrastructure
investment in FY18 and FY19 is estimated at Rs 10.2trn and Rs 10trn respectively, with Government accounting
for nearly 75%. Sector-wise, power, roads and bridges, urban infrastructure, digital infrastructure and railways
constituted ~85% of the total infrastructure investment in India during FY08-19.
• NIP lays the path for Rs 105trn investments: The Task Force has adopted a bottom-up approach by looking at
all projects under construction, proposed greenfield projects and brownfield projects and projects at
conceptualisation stage to lay down the NIP. It has identified investments worth Rs 102trn over the next five
years, with another Rs 3trn to be announced in due course following confirmation from a few states. Centre and
States would fund 39% each, with the balance to be funded by the private sector. Roads, urban and housing,
railways, power and irrigation comprise ~80% of the NIP. A governance framework for monitoring of investments
would be put in place to minimise time and cost overruns.
• Reforms and Policy measures to be undertaken to ramp up investments: The Task Force has recommended
the following reforms and policy initiatives to be undertaken to facilitate the execution of infrastructure
investments: 1) improving project preparation process, 2) Enhancing execution capacity of private sector
participants, 3) creating a robust enabling environment including optimal risk sharing between the public and
private sector entities and honouring of the contracts entered, 4) institutionalising dispute resolution mechanism,
4
Please click on the link below for the detailed report.
https://pib.gov.in/PressReleseDetail.aspx?PRID=1598055
62
Market Pulse
5) improving capacity development of Project Execution Agencies, including establishing a robust project
governance structure, 6) strengthening infrastructure quality by laying down a National Framework for
Infrastructure Quality in each sector within the next three months, based on global and national standards, 7)
promoting competition, 8) undertaking financial sector reforms including revitalising the bond and credit markets,
strengthening the municipal bond markets, revitalising asset monetisation, enabling User charges to finance
infrastructure and improving long-term financing landscape.
• Intention is right, execution and financing are the key: Private participation has remained quite muted over the
last few years, with the Government driving the bulk of investments. In that context, an improvement in private
share is crucial to achieve the laid objective. Moreover, the Plan’s assumption of an increase in budgetary support
from 0.73% of GDP in FY19 to 1.11% in FY25 faces downside risks in the wake of optimistic GDP growth
projections (12.2% CAGR over FY20-25). Lastly, execution is extremely crucial given the historical evidence of
significant time and cost overruns, entailing effective mobilisation of resources, faster regulatory and
environmental clearances and enhanced coordination between various stakeholders.
Figure 93: Infrastructure investments in India since Figure 94: Government vs. private share in
FY13 (Rs trn) infrastructure investments since FY13
Trend of infrastructure investments in India (Rs trn) Share of infrastructure investments in India (%)
Private States Centre
12.0 Private States Centre Total 100.0
10.2 10.0 90.0
28.3 25.4 24.3 23.5 25.0
10.0 9.2
8.5 80.0 38.2 38.0
3.9 70.0
8.0 7.0 2.3 3.8
6.3 2.0 60.0
42.9 42.9 41.2
6.0 5.3 1.7 50.0 45.3 46.7
1.6 37.3 37.0
3.5 4.3 40.0
1.5 3.8 3.7
4.0 3.0 30.0
2.7
2.4 20.0
2.0 31.7 32.9 35.3
26.4 28.3 24.5 25.0
3.0 2.6 2.5 2.5 10.0
2.0 2.3
1.4
0.0 0.0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Appraisal documents for five-year plans, CRIS estimates (investments mentioned are at current prices)
Figure 95: Infrastructure investments in India since FY13 (Rs trn)
Sector-wise share of infrastructure investments during FY08-19

35% 32%
30%
25%
20% 18%
15% 13% 13%

10% 9%
10%
5% 3%
1% 1%
0%
Source: Appraisal documents for five-year plans, CRIS estimates (investments mentioned are at current prices)
63
Market Pulse
Figure 96: Department-wise projected NIP infrastructure investments over the next five years
Ministry/Department (Rs bn) FY20 FY21 FY22 FY23 FY24 FY25 No phasing FY20-25
Energy 1,732.3 3,353.6 3,216.5 3,263.5 3,463.6 3,250.1 6,262.9 24,542.5
Power 1,040.7 1,196.5 1,014.0 817.5 738.1 691.6 6,261.7 11,760.0
Renewable energy 305.0 1,510.0 1,440.0 1,700.0 2,170.0 2,170.0 0.0 9,295.0
Atomic energy 111.5 210.5 278.6 330.7 326.7 282.8 0.0 1,540.9
Petroleum & natural gas 275.1 436.7 483.9 415.3 228.8 105.6 1.2 1,946.7
Roads 3,244.3 3,697.0 3,437.9 2,368.5 2,294.5 3,249.2 1,348.2 19,639.4
Railways 1,332.3 2,625.1 3,093.6 2,741.8 2,213.7 1,678.7 0.0 13,685.2
Ports 120.7 161.3 187.6 152.7 71.3 92.5 223.1 1,009.2
Airport 188.3 216.7 247.8 212.9 253.5 50.4 264.5 1,434.0
Urban 2,947.8 4,135.1 3,268.8 1,614.6 1,462.1 1,090.2 1,771.6 16,290.1
Irrigation 1,016.9 1,693.8 1,577.4 1,076.5 925.0 642.2 795.0 7,726.8
Water & sanitation 362.0 607.1 1,007.3 841.8 800.0 0.0 0.0 3,618.1
Rural infrastructure 1,035.6 1,163.1 1,099.3 270.6 270.6 270.6 0.0 4,109.6
Digital infrastructure 838.9 638.3 553.7 395.8 389.8 388.6 0.0 3,205.0
Agriculture and food processing infra 89.5 81.6 74.1 59.3 56.3 53.7 140.9 605.5
Social infrastructure 554.5 724.4 767.7 463.6 354.3 189.1 0.0 3,567.0
Higher education 131.7 184.7 227.1 189.8 171.7 52.7 225.7 1,183.5
School education 50.5 71.3 70.8 64.0 65.7 55.6 0.0 377.9
Health and family welfare 344.6 436.6 430.8 179.1 94.4 63.8 136.9 1,686.2
Sports 11.9 11.8 12.1 10.0 8.8 8.4 13.3 76.2
Tourism 15.8 20.0 27.0 20.7 13.7 8.6 0.0 243.2
Industrial infrastructure 172.4 406.9 429.0 341.7 227.7 103.9 1,393.1 3,074.6
Total 13,635.3 19,504.0 18,960.6 13,803.3 12,782.4 11,059.0 12,217.3 1,02,507.0
Source: Report of the Task Force on National Infrastructure Pipeline.
Figure 97: Sector-wise share of projected NIP infrastructure investments over the next five years
Roads & railways, urban and rural infrastructure, power, renewable energy and irrigation comprise ~80% of NIP
Sector-wise share of investments under NIP (%)
Sports 0.1
Tourism 0.2
School education 0.4
Agriculture and food processing infrastructure 0.6
Ports 1.0
Higher education 1.2
Airport 1.4
Atomic energy 1.5
Health and family welfare 1.6
Petroleum & natural gas 1.9
Industrial infrastructure 3.0
Digital infrastructure 3.1
Water & sanitation 3.5
Rural infrastructure 4.0
Irrigation 7.5
Renewable energy 9.1
Power 11.5
Railways 13.4
Urban 15.9
Roads 19.2
0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0
Source: Report of the Task Force on National Infrastructure Pipeline.

64
Market Pulse
Figure 98: Infra investments to peak in FY21/22 Figure 99: Private share pegged at 22%; Govt. 78%
Rs trn
Annual investment phasing Share of implementing agency
25.0
19.5 19.0
20.0 22%
13.6 13.8 39%

15.0 12.8
11.1
10.0
5.0
39%
0.0
FY20 FY21 (P) FY22 (P) FY23 (P) FY24 (P) FY25 (P)
Centre States Private
(est.)
Source: Report of the Task Force on National Infrastructure Pipeline
Figure 100: Distribution of NIP projects by stage

Stage Value Share Key sectors/projects
Under implementation 43 42 Expressways, national gas grid and PMAY-G.
Key sectors include urban, roads, and renewable energy.

Under development 20 19
Key projects include those in renewable energy under the 175 GW by 2022 mission
At conceptual Stage 32 31 Expressways, freight corridors, river inter-linking and renewable energy
Unclassified 8 8 Key sector is power

Figure 101: Share of implementing agency by sectors and major projects under NIP
Sectors Centre States Private Major projects
Roads 25 36 39 Delhi-Mumbai Expressway and Chennai-Bengaluru Expressway
Energy
Power 37 57 6 Dibang Hydel Power Project and HVDC Bipole Link Project (transmission)
Renewable energy 0 0 100 450GW by FY25
Atomic energy 100 0 0 Four new reactors at the Kudankulam Nuclear Power Project
Petroleum & natural gas 74 11 15 Petroleum Reserve at Chandikhol, Jagdishpur-Haldia & Bokaro-Dhamra NG Pipeline
Railways 87 1 12 Dedicated freight corridors and high-speed rail
Ports 39 50 11 Vadhavan port
Airport 23 38 39 Navi Mumbai and Jewar airports
Urban 31 68 1 Surat Metro Rail, Kanpur metro, Affordable Housing and Jal Jeevan Mission (Urban)
Digital infrastructure 24 5 71 Driven by private player capex and Bharat Net
Irrigation 22 78 0 Ken-Betwa, Godavari-Cauvery river linking, Clean Ganga, and reservoir projects
Rural infrastructure 76 24 0 Jal Jeevan Abhiyan (Rural), PMGSY and PMAY-G
Agriculture infrastructure 54 46 0 Conversion of Rural Haats to Grameen Agricultural Markets (GRAMS)
Social infrastructure
Higher education 38 62 0 Setting up of AIIMs medical colleges, IITs and school infrastructure
Health & family welfare 29 71 0 Setting up of AIIMs medical colleges
65
Market Pulse
Figure 102: Sector-wise distribution of NIP projects by stages

Sectors Under implementation Under development At conceptual stage Unclassified
Roads 34 27 36 3
Energy
Renewable energy 3 16 81 0
Atomic energy 100 0 0 0
Petroleum & natural gas 61 18 21 0
Railways 60 10 30 0
Ports 16 31 50 3
Airport 31 15 54 0
Urban 46 39 15 0
Digital infrastructure 95 3 2 0
Irrigation 34 11 55 0
Rural infrastructure 100 0 0 0
Agriculture infrastructure 8 10 82 0
Social infrastructure
Higher education 35 15 50 0
Health & family welfare 65 10 25 0
66
Market Pulse
STOP PRESS: Macro data update (Data released between December 1st and 15th) 5
CPI inflation for December 2019: Spike in vegetable prices causes retail inflation to jump to 65-month high
Headline CPI inflation shot up to 65-month high of 7.4% in December, higher than market expectations (Refintiv
Datastream poll: 6.2%), rising 180bps on a sequential basis, and overshooting the RBI’s upper target limit of 6%. This
was largely on account of a sharp rise in food inflation which surged to 6-year high of 12.2%, a large part of which was
led by vegetables (+60.5% YoY), pulses (+15.4% YoY) and cereals (+4.4% YoY) as well as higher telecom tariffs (telecom
players hiked tariffs by 40-50% in December). Excluding vegetables, headline inflation came in at 4.1% in December
2019, rising by 60bps MoM. Core inflation, on the other hand, has remained fairly benign, rising by modest 20bps MoM
on account of telecom tariff hikes, reflecting weak demand environment.
WPI inflation for December 2019: WPI inches up to 7-month high

Wholesale price inflation (WPI) inched up for the second consecutive month, rising to a 7-month high of 2.6% in
December, marginally higher than market expectations (Refinitiv Datastream poll: 2.2%). This was mainly due to a
significant increase in food inflation, reversal in deflationary trend seen in crude, petroleum & natural gas over the
previous seven months and easing deflation in fuel & power index and manufacturing products. Within primary articles,
food inflation spiked to 6-year high of 13.2%, whereas crude, petroleum and natural gas saw a price rise of 3.2% YoY in
December and non-food articles jumped to 41-month high of 7.7% in December. While wholesale prices of
manufacturing products declined by 0.3% YoY—the fourth consecutive month of deflation—fuel & power index also
witnessed an YoY decline for the seventh consecutive month, even as deflation has eased in both the categories.
IIP for November 2019: Industrial production growth turns positive after three months
Industrial production growth recovered to 1.8% in December, better than the Consensus estimate -0.6%, albeit off a
low base (0.2% in November 2018). The recovery has been on account of a rebound in the mining as well as
manufacturing sectors, even as electricity production growth remained negative for the fourth consecutive month.
Manufacturing production increased by 2.7% YoY in November, after witnessing a contraction over the previous three
months, even as only five out of 23 industry groups registered a growth, same as in the previous month led by chemical
& chemical products (+31.8%) and basic metals (+9.4%). Sectors that posted the highest decline include computer,
electronic & optical products (-31.3% YoY) and motor vehicles (-27.9%). Mining sector growth also improved to 1.7%,
while electricity production declined by 5.0% YoY—the second highest pace of decline since the commencement of the
series.
The slowdown in investment and consumption was visible in the lacklustre performance of capital goods,
infra/construction goods and consumer durable goods that declined by 8.6%, 3.5% and 1.5% respectively in November,
even as the extent of decline came off significantly, partly explained by a low base.
Trade data for December 2019: Trade deficit contracts on weak domestic demand
Trade deficit in December contracted by 7.5% MoM to US$11.3bn vs. US$12.2bn in the previous month. This was largely
on account of a continued decline in imports (down 8.8% YoY), even as exports also registered a modest YoY decline (-
1.8% YoY) for the fifth consecutive month. While oil imports fell by a modest 0.8% YoY, gold imports declined by 3.9%
YoY despite a low base (-24.3% in December 2018). Notably, non-oil non-gold imports declined by a huge 12.2% YoY—
the steepest pace of decline in 44 months—reflecting weak domestic demand. Exports also fell by a modest 1.8% YoY,
largely led by lower exports of petroleum products, engineering goods and gems & jewellery, partly offset by strong
growth in exports of electronic goods.
5
A detailed note on these would be included in the next month’s edition of Market Pulse.
67
Market Pulse
Insights
Banks witnessing a turnaround but not out of the woods yet
Key takeaways from “Trends and Progress of Banking in India 2018-19” and “Financial Stability Report”
The RBI recently released the report on “Trends and Progress of Banking in India 2018-19” and 20th Issue of the
Financial Stability Report. Key takeaways are as follows: 1) The Scheduled Commercial Banking sector (SCBs) is slowly
turning around, thanks to an improvement in asset quality, strengthening of capital position and improvement in
profitability even as the credit offtake has declined and NPA overhang remains high. 2) The Urban Cooperative Banking
sector (UCBs) witnessed consolidation and balance sheet expansion and improvement in asset quality and provisioning
in FY19, but the performance deteriorated in H1FY20. Moreover, internal weaknesses including weak corporate
governance, inability to prevent frauds and inadequate system of checks and balances remain. 3) Non-banking financial
companies (NBFCs) grew at a slower pace in FY19 and H1FY20 mainly due to rating downgrades, tight liquidity
conditions post the IL&FS default, and weak credit offtake owing to muted consumer demand, accompanied with a
deterioration in asset quality and rising delinquencies in retail lending. 4) Housing Finance Companies (HFCs)
experienced deceleration in credit growth and muted profitability as the liquidity stress faced by NBFCs spilled over to
HFCs. Transfer of HFC regulation to the RBI is expected to revive confidence in the sector.
• SCBs—Asset quality and profitability improving but NPA overhang remains: The momentum of credit growth
continued in FY19, but slowdown down in H1FY20, falling from 13.2% in March 2019 to 8.7% in September 2019,
largely led by public sector banks. Sector-wise, deployment of bank credit to Agriculture, Industry and Services
saw a moderation. On the positive side, following previous seven years of deterioration, the overhang of stresses
assets in India’s commercial banking sector reduced in FY19. The gross non-performing asset (GNPA) ratio
improved from 11.6% in FY18 to 9.3% in FY19 and remained stable at 9.3% at end-September 2019. However,
an increase in special mention accounts (SMA 1 and SMA 2) in H1FY20 points to continued asset quality overhang
on the sector. Macro-stress tests for credit risk indicate that under the baseline scenario, SCBs’ GNPA ratio may
increase from 9.3% in September 2019 to 9.0% September 2020.
However, with a sharp improvement in provisioning coverage ratio—from 48% in March 2018 to 60.6% in March
2019 and further to 61.5% in September 2019—the banking sector returned to profitability in the first half of FY20
after witnessing losses in the previous two years (FY18/19). The capital position has also improved, facilitated by
recapitalisation of PSBs and enhanced resolutions by the Insolvency and Bankruptcy Code (IBC), with the capital
to risk-weighted assets ratio (CRAR) improving from 13.8% in FY18 to 14.3%/15.1% in FY19/H1FY20.
Figure 103: YoY credit growth trend—distribution Figure 104: YoY deposit growth trend—
by bank groups distribution by bank groups
% YoY credit growth % YoY deposit growth
Mar-17 Mar-18 Sep-18 Mar-19 Sep-19 25 Mar-17 Mar-18 Sep-18 Mar-19 Sep-19
25
19.0
20 16.5
20
15
15
7.8 8.7
10 11.3
4.8 10.2
5 10
6.6
0
5
-5
-10 0
PSBs PVBs FBs All SCBs PSBs PVBs FBs All SCBs
Source: RBI, NSE. PSBs = Public Sector Banks, PVBs = Private Sector Banks, FBs = Foreign Banks
68
Market Pulse
Figure 105: Asset quality of SCBs remained stable Figure 106: Services and Agriculture sectors saw
in H1FY20 but expected to deteriorate an increase in NPAs
% SCBs GNPA ratios % Asset quality of broad sectors
Mar-17 Mar-18 Sep-18 (% to total advances of the respective sector)
18 Mar-17 Mar-18 Sep-18 Mar-19 Sep-19
Mar-19 Sep-19 Sep-20E 25
15 13.2
12.7 20 17.3
12
9.9
9.3 15
9 10.1
10
6 4.2 6.3
3.9 3.1
2.9 5
3 1.8
0 0
PSBs PVBs FBs All SCBs Agriculture Industry Services Retail
Figure 107: Stress in Large Borrowal Accounts

% Stress in Large Borrowal Accounts
(As a % of gross advances)
Mar-18 Mar-19 Sep-19
25.0 23.1
20.0 17.6
17.3
15.0
9.5 8.9 9.5
10.0 7.9
4.2 3.7
5.0 2.7 2.8 2.2 2.6 2.8 3.0
1.3 1.6 1.0 0.7 1.7 1.5 1.5 1.8 1.9 1.2
0.3 0.5 0.5 0.5 0.4
0.0
SMA-0 SMA-1 SMA-2 RSA NPAs SMA-0 SMA-1 SMA-2 RSA NPAs
PSBs PVBs
Source: RBI, NSE. PSBs = Public Sector Banks, PVBs = Private Sector Banks.
RSA: Restructured standard Advances
SMA-0: where principal or interest payment was not overdue for more than 30 days, but the account showed signs of incipient stress;
SMA-1: where principal or interest payment was overdue for 31-60 days;
SMA-2: where principal or interest payment was overdue for 61-90 days.
Source: Budget documents, RBI, Financial Stability Report, NSE
Figure 108: Asset quality of SCBs remained stable Figure 109: Services and Agriculture sectors saw
in H1FY20 but expected to deteriorate an increase in NPAs
% Provision coverage ratio % Capital to risk-weighted asset ratio
Mar-18 Sep-18 Mar-19 Sep-19 Mar-17 Mar-18 Sep-18 Mar-19 Sep-19
100 20 18.2
83.2 16.6
80 15.1
15 13.5
61.7 61.5
58.5
60
10
40
5
20
0 0
PSBs PVBs FBs All SCBs PSBs PVBs FBs All SCBs
69
Market Pulse
Figure 110: Components of SCBs’ profitability Figure 111: Annualised Return on Assets
% Components of SCBs' profit: YoY growth % RoA (annualised)
40 Mar-18 Sep-18 Mar-19 Sep-19 Mar-17 Mar-18 Mar-19 Sep-19

2.0 1.7
30 22.7
19.8 1.5
20 13.0 1.0
1.0
10
0.4
0.5
0
-10 0.0
-0.1
-20 -0.5
-19.9
-30 -1.0
Net Other EBPT Provisions
-1.5
Interest Operating
Income Income PSBs PVBs FBs All SCBs
• UCBs undergoing an expansion in balance sheets…: At the end of March 2019, there were 97,792 co-operative
banks of which 1,544 were urban co-operative banks (UCBs) and 96,248 rural co-operative banks (end-March
2018), with the latter accounting for 64.7% of the total assets of co-operatives. While the number of UCBs has
declined over the years, their aggregate asset size has consistently increased from Rs 1.3trn in FY05 to nearly Rs
6trn in FY19, implying a CAGR of more than 11% over this period.
Figure 112: Liabilities and assets of Urban Co-operative Banks
Scheduled UCBs Non - Scheduled UCBs All UCBs All UCBs (% YoY)
Assets & Liabilities (Rs bn)
Mar-18 Mar-19 Mar-18 Mar-19 Mar-18 Mar-19 Mar-18 Mar-19
Liabilities
Capital 41 43 89 92 130 136 7.1 4.7
Reserves 167 184 186 193 353 378 5.5 7.1
Deposits 2,120 2,257 2,445 2,586 4,565 4,843 2.9 6.1
Borrowings 46 49 4 3 50 52 41.6 4.9
Other Liabilities 273 316 262 267 535 583 12.8 9.0
Assets
Cash in Hand 15 13 40 40 55 64 21.7 -1.4
Balances with RBI 104 111 21 27 125 138 8.9 10.2
Balances with Banks 162 171 468 438 630 608 3.6 -3.4
Money at Call and Short Notice 31 43 14 16 45 59 -11.0 31.6
Investments 689 723 809 846 1,498 1,669 5.4 4.7
Loans and Advances 1,368 1,466 1,436 1,564 2,805 3,030 7.4 8.0
Other Assets 279 323 196 211 476 634 -13.3 12.2
Total liabilities/ assets 2,648 2,849 2,985 3,143 5,633 5,992 4.3 6.4
Source: RBI, NSE.
Figure 113: Distribution of UCBs by size of deposits and advances (as of March 2019)
Number of UCBs Amount Number of UCBs Amount
Deposits Advances
Number % Share Rs bn % Share Number %Share Rs bn % Share
0.00 ≤ D < 10 115 7.4 7 0.1 0.00 ≤ Ad < 10 253 16.4 13 0.4
10 ≤ D < 25 216 14 37 0.8 10 ≤ Ad < 25 331 21.4 56 1.8
25 ≤ D < 50 281 18.2 101 2.1 25 ≤ Ad < 50 278 18 99 3.3
50 ≤ D < 100 285 18.5 200 4.1 50 ≤ Ad < 100 248 16.1 180 5.9
100 ≤ D < 250 323 20.9 508 10.5 100 ≤ Ad < 250 225 14.6 353 11.6
250 ≤ D < 500 140 9.1 472 9.7 250 ≤ Ad < 500 101 6.5 351 11.6
500 ≤ D < 1000 100 6.5 674 13.9 500 ≤ Ad < 1000 59 3.8 399 13.2
1000 ≤ D 84 5.4 2,846 58.8 1000 ≤ Ad 49 3.2 1,579 52.1
Total 1544 100 4,843 100.0 Total 1,544 100 3,030 100.0
Source: RBI, NSE. ‘D’ and ‘Ad’ indicates amount of deposits and advances respectively.
70
Market Pulse
• …but capital position deteriorated in H1FY20…: UCBs are governed by Basel 1 regulatory requirements. As
such, they don’t have to comply with liquidity coverage (LCR) requirement and they have to maintain a minimum
statutory CRAR of 9% with no additional requirements like capital conservation buffer or high common equity tier
1 capital ratio unlike SCBs. More than 96% of UCBs maintained a CRAR of 9% and above as of March 31, 2019.
However, the capital base of scheduled UCBs has deteriorated in H1FY20, with the system level CRAR (for a
system of 54 SUCBs) declining from 13.5% in March 2019 to 9.8% in September 2019.
Figure 114: CRAR-wise distribution of UCBs Figure 115: Annualised Return on Assets
Scheduled Non-scheduled
CRAR (%) All UCBs
UCBs UCBs 3.8
3.7 All UCBs
CRAR < 3 4 34 38
7.4
3 <= CRAR < 6 0 7 7
6 <= CRAR < 9 0 14 14

Non-scheduled
9 <= CRAR < 12 6 150 156 UCBs
12 <= CRAR 44 1,285 1,329

92.6
Total 54 1,490 1,544 Scheduled
96.3 UCBs
96.2
CRAR of 9% and above CRAR below 9%

Source: RBI, NSE.
• …accompanied with deterioration in asset quality: Asset quality of UCBs has been gradually improving over the
years, with their GNPA ratio improving marginally from 7.2% in FY18 to 7.1% in FY19. Net NPA ratio improved
from 2.8% to 2.6% on account of increase in provisioning coverage ratio from 63.4% to 65.6%. However, despite
this improvement, non-scheduled UCBs continue to have higher NPAs that scheduled UCBs. Having said that, the
GNPA ratio of scheduled UCBs deteriorated from 6.4% in FY19 to 10.5% in H1FY20, thanks to large delinquencies
in one of the fraud-hit banks, with their provisioning coverage ratio declining from 61.1% to 40.9% during the
same period.
Figure 116: Non-performing assets of UCBs

Scheduled UCBs Non- Scheduled UCBs All UCBs
Items
Mar-18 Mar-19 Mar-18 Mar-19 Mar-18 Mar-19
Gross NPAs (Rs bn) 87 94 114 121 201 216
Gross NPA Ratio (%) 6.3 6.4 7.9 7.7 7.2 7.1
Net NPAs (Rs bn) 34 37 39 74 74 74
Net NPA Ratio (%) 2.6 2.6 2.9 2.5 2.8 2.6
Provisioning (Rs bn) 53 58 75 84 127 141
Provisioning Coverage Ratio (%) 60.5 61.1 65.5 69.1 63.4 65.6
Source: RBI, NSE.
Figure 117: Select profitability indicators of UCBs

Scheduled UCBs Non- Scheduled UCBs All UCBs
Indicators
2017-18 2018-19 2017-18 2018-19 2017-18 2018-19
Return on Assets 0.56 0.69 0.9 0.79 0.74 0.74
Return on Equity 7.14 8.71 9.88 8.62 8.70 8.66
Net Interest Margin 2.56 2.57 3.25 3.62 2.93 3.12
Source: RBI, NSE.
71
Market Pulse
• Weakness in internal processes and corporate governance remain key challenges for UCBs: While the UCBs
have undergone an expansion in their balance sheets and an improvement in asset quality and provisioning
coverage ratio over the years, the unearthing of a large fraud in one of the UCBs has brought several business
issues to fore including low capital adequacy, weak corporate governance and inadequate risk management.
Undertaking reforms aimed at improving the financial health and corporate governance of UCBs is the need of the
hour.
• NBFCs: Tight liquidity and weak consumer demand impacted credit deployment by the sector: After
witnessing a robust growth in FY18 (+26.8%), the NBFC sector grew at a slower pace in FY19 (17.9%) and H1FY20
(13.2%), largely on account of rating downgrades, tight liquidity conditions post the IL&FS default, and
consequent deceleration in credit growth, particularly to sectors like vehicle/auto loans, consumer durables,
MSMEs and commercial real estate. While a part of this was on account of weak consumer demand, decline in
credit offtake to MSMEs and commercial real estate reflected reduced risk appetite of NBFCs in the light of
slowdown in these sectors.
Figure 118: Sectoral credit deployment by NBFCs

% YoY
Items At end March 2018 At end March 2019 At end September 2019
FY18 FY19
I. Gross Advances 19,625 22,766 23,542 31.8 16
II. Food Credit 2 2 1 1856.9 -4.7
III. Non-food Credit 19,622 22,764 23,541 31.7 16
Agriculture & allied activities 468 702 620 18.4 49.9
Industry 11,225 12,553 13,338 30.8 11.8
Micro and Small 645 546 597 32 -15.3
Medium 283 230 200 62.7 -18.8
Large 5,460 6,328 6,377 29.2 15.9
Others 4,837 5,449 6,164 31.1 12.7
Services 3,169 3,672 3,425 35.9 15.9
Of which,
Commercial Real Estate 1,252 1,485 1,294 30.1 18.6
Retail Trade 271 290 279 31.2 7.1
Retail Loans 3,596 4,475 4,749 29.3 24.4
Of which,
Housing Loans 133 155 179 -16.4 16.8
Consumer Durables 86 51 49 59.7 -40.9
Vehicle/Auto Loans 1,645 1,999 2,085 31.3 21.6
Other Non-food Credit 1,164 1,362 1,410 44.2 17
Source: RBI, NSE.
• Liquidity challenges persist for NBFCs, hurting profitability; asset quality and capital positioning worsened:
In the wake of tight market liquidity conditions owing to waning investor confidence, NBFCs’ reliance on bank
borrowings increased. Further, despite low borrowing costs, commercial papers (CPs) remained an unattractive
source of borrowing for NBFCs as the latter preferred for long-term borrowings for better asset-liability
management. However, given tight liquidity environment and an increase in borrowing costs, profitability metrics
worsened for the sector in FY19. Moreover, asset quality deteriorated, with the GNPA ratio rising from 5.3% in
FY18 to 6.1% in FY19 and further to 6.3% in H1FY20. The CRAR ratio also declined from 22.1% in FY18 to
20.0%/19.5% in FY19/H1FY20.
72
Market Pulse
Figure 119: Sources of borrowings for non-deposit taking systemically important NBFCs
Mar-18 Mar-19 Sep-19
Items
Rs bn % YoY % share Rs bn % YoY % share Rs bn % share
Debentures 8,067 18.6 50.4 8,067 0.0 43.8 8,320 43.7
Bank borrowings 3,475 37.4 21.7 5,008 44.1 27.2 5,132 26.9
Borrowings from FIs 286 7.6 1.8 356 24.6 1.9 336 1.8
Inter-corporate borrowings 518 27.6 3.2 690 33.1 3.7 791 4.2
Commercial paper 1,296 10.3 8.1 1,364 5.2 7.4 1,045 5.5
Borrowings from Government 12 -3.1 0.1 154 1219.9 0.8 153 0.8
Subordinated debts 355 6.1 2.2 455 28.1 2.5 461 2.4
Other borrowings 1,992 24.1 12.4 2,325 16.7 12.6 2,809 14.7
Total borrowings 16,001 21.9 100.0 18,419 15.1 100.0 19,047 100.0
Source: RBI, NSE.
Figure 120: Asset quality trend of NBFCs Figure 121: Share of standard assets has been
declining for NBFCs
% NBFCs: Asset quality trend % Classification of NBFCs assets
7.0 Loss assets Doubtful assets
GNPA Ratio NNPA Ratio
6.3 Sub-standard assets Standard assets
6.1 6.1
6.0 100 0.2 0.2 0.1
5.3
99 2.1 2.0 2.3
5.0 4.5 98
4.4
4.1 97
4.0 96 3.0 3.9
3.3 3.4 3.4 3.9
95
3.0 2.6 2.5 2.5 94
93
92 94.7
2.0 1.4 93.9 93.7
91
1.0 90
FY14 FY15 FY16 FY17 FY18 FY19 H1FY20 Mar-18 Mar-19 Sep-19
Source: RBI, NSE.
Figure 122: CRAR for NBFCs Figure 123: Profitability ratios of NBFCs
% CRAR for NBFCs % Proftability ratio of NBFCs
28.0 Return on Assets Return on Equity
26.2 8
6.9
26.0 7 6.6
24.3
5.7
6
24.0 5.1
22.1 5
22.1
22.0
4
20.0
20.0 19.5 3
2 1.6 1.5
18.0
1
16.0
0
FY15 FY16 FY17 FY18 FY19 H1FY20
Mar-18 Mar-19
Source: RBI, NSE.
• NBFCs continue to face higher delinquencies in consumer credit: NBFCs as a group have been leading
delinquency levels in almost all the sub-segments of consumer credit, namely auto loans, home loans and
personal loans, except for loans against property (LAP) where it stands at a close second to PSBs. In fact, NBFCs
have seen an increase in delinquencies across all these segments in the June quarter.
73
Market Pulse
Figure 124: Relative delinquency in consumer credit products

% Mar-17 Mar-18 Mar-19 Jun-19
Auto loans
PSBs 3.5 2.8 2.6 2.6
PVBs 1.7 1.6 0.9 0.9
NBFCs 5.8 4.4 4.3 4.7
Industry 3.7 2.8 2.5 2.7
Home loans
PSBs 2.1 1.9 2.0 1.8
PVBs 0.6 0.7 0.7 0.7
NBFCs 3.8 2.9 3.1 3.2
HFCs 1.0 1.3 1.5 1.8
Industry 1.5 1.5 1.6 1.7
Loans against property
PSBs 4.5 5.1 5.7 6.5
PVBs 1.0 1.1 1.5 1.6
NBFCs 3.4 4.1 4.8 5.2
HFCs 1.2 1.7 2.1 2.6
Industry 2.3 2.6 3.1 3.5
Personal loans
PSBs 0.7 0.4 0.6 0.4
PVBs 0.4 0.5 0.5 0.5
NBFCs 0.6 0.8 1.0 1.0
Industry 0.6 0.6 0.6 0.6
Source: RBI, NSE.
• Increasing reliance of NBFCs on bank funding poses contagion risks on the banking system: Given rising
dependence of NBFCs on the banking system for funds in the wake of weak investor interest, a failure of any NBFC
or HFC will have a solvency shock to its lenders. As per the FSR, Moreover, the failure of the largest of the
NBFC/HFC can cause solvency contagion losses to the banking system comparable to those caused by the
collapse of big banks, underscoring the need for greater surveillance.
Figure 125: Top five banks, NBFCs and HFCs with maximum contagion impact—September 2019
Solvency loss as % Solvency loss as % Solvency loss as %
Bank of Tier-1 capital of NBFCs of Tier-1 capital of HFCs of Tier-1 capital of
banks banks banks
Bank 1 3.2 NBFC 1 2.5 HFC 1 4.6

Bank 2 2.7 NBFC 2 1.7 HFC 2 2.8
Bank 3 2.5 NBFC 3 1.7 HFC 3 2.3
Bank 4 2.4 NBFC 4 1.5 HFC 4 2.2
Bank 5 2.3 NBFC 5 1.3 HFC 5 1.5
Source: RBI, NSE.
• Government and RBI taking steps to restore stability in the NBFC space: The RBI and the Government have
taken several measures to ease liquidity and restore stability and confidence in the sector. The RBI took measures
including augmenting systemic liquidity, enhancing standards of asset-liability management framework, relaxing
ECB guidelines, and strengthening governance and risk-management structures. The new regulation requires
NBFCs to reach a liquidity coverage ratio of 100% over a period of four years commencing from December 2020.
The Government also announced steps including encouraging PSBs to acquire high-rated pooled assets of NBFCs
through partial credit guarantee scheme and empowering RBI to improve governance of NBFCs.
74
Market Pulse
• HFCs: Profitability hit by lower credit offtake: The liquidity stress faced by the NBFC sector spilled over to HFCs
in FY19, leading to a deceleration in credit deployment to the housing sector by HFCs, a part of which was taken
up by SCBs. On the liabilities side, banks and external sources made up for the decline in funding to HFCs from
market instruments such as debentures and commercial papers. borrowings through debentures and commercial
papers declined owing to waning market confidence, while bank borrowings grew at a robust pace. Increase in
financing and operating expenses owing to limited market access, coupled with lower credit offtake, led to a sharp
decline in profitability for HFCs. On the asset quality front, while GNPAs remained stable, NNPA surged, reflecting
a decrease in provisions. Since the shift in regulatory purview of HFCs to RBI in August 2019, a lot of measures
have been taken to improve governance in HFCs, thereby facilitating a revival of market confidence in the sector.
Figure 126: Credit to Housing sector by HFCs & SCBs Figure 127: Resources mobilised by HFCs
% Credit to Housing sector by HFCs and SCBs % Resources mobilised by HFCs
Foreign borrowing NHB
30 HFCs SCBs Others Public deposits
25.8 Banks Debentures
100 1.9 1.6 2.6
4.8 4.2 4.2
25
16.1 17.5 17.4
80
21.1
11.4 9.9 9.5
20 18.8 19 60
21.6 23.7 27.9
16.8
15.2 40
15 13.3 12.7 20 44.2 43.1 38.4
10 0
FY16 FY17 FY18 FY19 FY17 FY18 FY19
Source: RBI, NSE.
Figure 128: Financial parameters of HFCs Figure 129: Asset quality trend of HFCs
% YoY Financial parameters of HFCs % HFCs: Asset quality trend
Income Expenditure 1.5 GNPA ratio NNPA ratio
40 37.6
1.3
1.3
35 1.3
1.1 1.1 1.1
30 27.9 1.1
25 0.9 0.8
20 0.7 0.6
0.5 0.5 0.5
14.5 14.4
15 0.5
10 0.3
FY18 FY19 FY15 FY16 FY17 FY18 FY19
Source: RBI, NSE.
• Market developments: a) Mutual funds: The Mutual Fund AUM has increased by 11.2% YoY as of September 30,
2019, with a sustained growth in SIPs adding stability to the inflows. Exposure of debt-oriented mutual funds to
corporate bonds downgraded during the last six months decreased from 3.6% in March 2019 to 2.4% in
September 2019. b) Trends in capital mobilisation: Primary capital infusion increased by nearly 6% in FY19 to
Rs 9.3trn, with H1FY20 witnessing a growth of nearly 24% to Rs 4.7trn. While funds raised through public issues
in both equities and debt and preferential allotments fell in H1FY20, funds raised through rights issues, QIPs om
equities and private placements in corporate bonds saw a huge jump.
• Regulatory initiatives: Some of the recent regulatory initiatives along with their rationale are highlighted in the
table below.
75
Market Pulse
Figure 130: Important regulatory initiatives (June 2019 - November 2019)

Date Measure Rationale
1. The Reserve Bank of India
June 28, 2019 Implementation of Leverage Ratio as per Basel III regulations: As per the To reduce the risk of
Basel III regulations, minimum leverage ratio of 4% is mandated for excessive leverage and
systemically important banks and 3.5% for others, effective October 01, enhance financial stability.
2019, accompanied with related disclosures on a quarterly basis.
July 30, 2019 Rationalisation of end-use provisions for ECBs: Eligible borrowers To further liberalise the
permitted to raise ECBs for following purposes from recognised lenders with ECB framework.
certain minimum average maturity periods: a) Working capital and general
corporate purposes, and b) Repayment of rupee loans availed domestically
for capex, including corporates in the manufacturing and infrastructure
sectors classified as SMA-2 or NPA, under any one-time settlement with
lenders.
September 03, Report of the Task Force on the Development of a Secondary Market for To enhance the secondary
2019 Corporate Loans: The RBI, in its fifth bi-monthly Monetary Policy, announced market for corporate loans
the the setting up of a self-regulatory body (SRB) as a first step towards the
development of the secondary market for corporate loans.
September 04, External Benchmark Based Lending: RBI has made it mandatory for banks To enhance transmission
2019 to link all new floating rate personal or retail loans (housing, auto, etc.) and of monetary policy rates
SME loans with an external benchmark from October 01, 2019.
September 12, Large Exposures Framework: RBI revised the large exposures framework To harmonise the
2019 (LEF) for all scheduled commercial banks, restricting a bank’s exposure to a counterparty exposure
single NBFC (excluding gold loan companies) to 20% of Tier-1 capital of the limit to a single NBFC with
bank. Under the earlier framework, a bank’s exposure to a single NBFC was that of the general limit.
restricted to 15% of its available eligible capital base, while the general single
counterparty exposure limit was 20%, which could be extended to 25% under
exceptional circumstances.
2. The Securities and Exchange Board of India (SEBI)
June 18, 2019 Design of commodity Indices and product design for Futures on Commodity To develop commodity
Indices. derivatives market, attract
broad based participation,
enhance liquidity, facilitate
hedging and bring in more
depth.
June 20, 2019 Handling of clients’ securities by trading and clearing to protect clients’ funds To protect clients’ funds
and securities. and securities
July 26, 2019 Staggered delivery period in Commodity Futures Contracts. To bring in uniformity in
the length of the staggered
delivery period for
commodity futures’
contracts across
exchanges.
August 07, 2019 Disclosure of encumbrances: Imposition of additional disclosure To bring greater
requirements in the wake of concerns raised about exposure of mutual funds transparency in reasons
to debt and money market instruments through structured obligations, for encumbrance.
pledging of shares, non-disposal undertakings, related party transactions,
corporate/ promoter guarantees and various other complex structures.
August 07, 2019 Product Advisory Committee: Stock exchange dealing in the commodity To bring transparency to
derivatives segment was mandated to constitute a Product Advisory the design process for
Committee (PAC) for each group/complex of commodities having common commodity derivatives’
stakeholders/value chain participants, on which derivatives are traded or contracts.
being proposed to be traded on the exchange.
76
Market Pulse
3. The Insurance Regulatory and Development Authority of India

August 22, 2019 IRDAI (Regulatory Sandbox) Regulations, 2019 To enable innovative
experiments by insurance
companies for fostering
growth by relaxing the
regulatory compliance
norms, without
compromising on
policyholders’ interest
September 24, Strengthening the corporate governance process of the insurers. To strengthen the
2019 guidelines in terms of the
control functions.
4. The Pension Fund Regulatory and Development Authority (PFRDA)
August 24, 2019 Point of presence (PoP) relying on third party client due diligence (KYC) for To easy KYC. However, the
onboarding subscribers in NPS. ultimate responsibility for
KYC/due diligence and
undertaking enhance due
diligence measures as
applicable lies with PoP.
September 24, Utilisation of SEBI’s KYC registration agencies (KRAs) by PoPs for onboarding To ease the onboarding
2019 subscribers to the NPS. facility.
October 04, 2019 Acceptance of CSRF forms or registration under NPS in case of a subscriber To ease registration
who has lost both hands. process for subscribers
who are unable to affix
his/her signature.
October 29, 2019 Enrolment of overseas citizens of India (OCIs) in NPS. This is provided the person
is eligible to invest in India
as per the PFRDA Act and
FEMA guidelines.
5. The Insolvency and Bankruptcy Board of India (IBBI)
July 23, 2019 Insolvency Professionals Regulations: Amendments included creation of To bring transparency in
certain restrictions on insolvency professionals (IPs) on accepting or the enrolment procedure
undertaking any other employment. of IPs and address issues
pertaining to employment
and related parties of IPs.
July 25, 2019 Insolvency Resolution Process for Corporate Persons Regulations: The To bring procedural clarity.
amendments specify the process for withdrawal of applications before the
constitution of the CoC, after constitution of the CoC but before issue of
invitation for expression of interest (EoI) and after issue of invitation for EoI.
July 25, 2019 Liquidation Process Regulations: Amendments pertain to (i) sale of CDs as a To specify the procedural
going concern and (ii) sale of the business of a CD as a going concern under aspects and model
liquidation. It also provides for the constitution of a Stakeholder’s timelines for each task of
Consultation Committee. the liquidation process.
August 16, 2019 The Insolvency and Bankruptcy Code (Amendment) Act, 2019: The To balance the interests of
Amendment makes it mandatory for CIRPs to be completed within a timeline all stakeholders, especially
of 330 days. In case the 330-day overall timeline is breached, an additional OCs and allow
relaxation of 90 days is provided as a transitionary measure. A resolution plan restructuring by way of
approved by the Adjudicating Authority (AA) shall be binding on Central as mergers, amalgamations
well as State Government and any local authority to whom the CD owes debt and demergers.
under any law. The CoC may decide to liquidate a CD at any time during CIRP,
even before preparation of the information memorandum.
Source: RBI, NSE.
77
Market Pulse
How can Designated Market Makers improve market quality? Evidence from the New
York Stock Exchange 6
Almost all trading in cash and derivatives markets is migrated to electronic limit order markets where investors can
supply liquidity in the system according to their own preferences. Nevertheless, designated market makers (DMMs) exist
in many developed as well as developing markets. Notably, they exist in one of the largest stock exchanges in the world,
New York Stock Exchange (NYSE). Here, DMMs are assigned to provide liquidity for a given NYSE security by assuming
risk and displaying quotes in the exchange limit order book. In 2019, DMMs accounted for about 17% of liquidity by
adding volume in NYSE-listed securities on average (NYSE, 2019). 7 Recently, many European stock markets including
those based in Paris, Amsterdam, Stockholm, Oslo and Milan have introduced DMM contracts towards improving
liquidity. Through these contracts, a firm can select a DMM and pay a regular fee in exchange for a requirement that the
DMM will provide required orders to ensure that the quoted bid-ask quote will remain within a specified maximum width.
In case of NYSE, DMMs exist since 2008 and their requirement is to maintain continuous two-sided quotes at some price
that helps to “assist in the maintenance of a fair and orderly market insofar as reasonably practicable” and to “assist the
Exchange by providing liquidity as needed to provide a reasonable quotation” (NYSE, Rule 104). In this regard,
Bessembinder et al. (2020) have examined how DMM participation can affect market quality. The contractual features
encouraging DMM participation are associated with increased market depth, narrower bid-ask spreads, higher rates of
price improvement, and improved price efficiency.
The study used data from the Trade-and-Quote (TAQ) database for the period of September 2009 to December 2013.
NYSE amended its Rule 104 to increase the amount of time the DMM is required to maintain a bid and offer at the
National Best Bid and Offer (NBBO) from 10% to 15% for less traded securities and from 5% to 10% for more active
securities. The study has therefore taken data since September 2009. The sample contains a total of 756 stocks for
which the average consolidated daily trading volume is both less than and greater than one million share threshold for
at least one sample month. DMM generally receives a rebate of $0.0030 per share when supplying active stocks and
$0.0035 per share for less active stocks. A stock is identified as active if its trading volume is less than one million in the
prior month.
A regression discontinuity research design is used, focusing on the discrete shift in DMM obligations and compensation
at one million shares average daily trading volume. In this study, the treatment group with enhanced DMM contract
consists of shares with average daily trading volume less than one million in the previous month, because in such
scenario DMMs are required to maintain quotes at the NBBO for at least 15% of the time and receives a higher liquidity-
supply rebate if average trading volume is less than one million. The remaining shares with more than one million
average daily trading volume constitute the control group where the DMMs are required to maintain quotes at the NBBO
for only 10% of the time and receives a lower rebate. As the function that can capture the distance between the average
daily trading volume of a stock and the threshold into the treatment is discontinuous in nature, they applied a regression
discontinuity method to estimate the impact of DMM participation on market quality.
The study found several interesting results on how change in contractual features encouraging DMM participation has
helped to improve market quality from different perspectives.
i) The quoted bid-ask spread has reduced by 0.94 bps when DMMs have stronger obligation. This has also
resulted in a fall in effective bid-ask spreads by 0.87 bps under stronger DMMs obligation, compared to a
sample average effective spread near the threshold of 8-9 bps. In other words, investors enjoy lower trade
execution cost when an NYSE DMM is required to provide more liquidity and receives higher rebates. With an
average share price of $38.45, average daily turnover of 974,000 shares, the decline in effective bid-ask
6
Hendrik Bessembinder, Jia Hao and Kuncheng Zheng. 2020. Liquidity Provision Contracts and Market Quality: Evidence from the New York Stock
Exchange. The Review of Financial Studies, Volume 33, Issue 1, January 2020, Pages 44–74. https://doi.org/10.1093/rfs/hhz040
7
https://www.nyse.com/publicdocs/nyse/markets/nyse/designated_market_makers.pdf
78
Market Pulse
spreads by 0.87 bps may help to decline total transaction cost by about $817,000 per year with 252 trading
days.
ii) In addition, higher DMM obligation helps to increase market depth in terms of both average daily trading
volume and turnover.
iii) The enhanced DMM contract is associated with a higher rate of trade executions at prices better than the
NBBO quotes, which is quite interesting as the DMM is required to maintain with, but not make an
improvement on, the NBBO quotes. This may perhaps indicate that “the more frequent required presence of
the DMM alters order submissions and the equilibrium in the market for liquidity provision”.
iv) Improved market quality has further increased trading activity for shares with low prior-month trading
volume as a result of enhancement of the DMM contract. The point estimates for both trade volume and
turnover are greater for narrower bandwidth of share volume. The coefficient increased from 0.0125 with a
bandwidth of 0.27million shares to 0.0326 with a bandwidth of 0.07 million shares when explaining through
the log of trade volume.
v) Moreover, the enhanced criteria have improved price efficiency in the market. Price efficiency is assessed
using variance ratios of the weekly stock return variance to five time the daily stock return variance. Theory
suggests that the underlying stock market is efficient if the variance ratio follows random walk and it should
not differ systematically from a benchmark of one. The study shows that the variance ratios tend to follow
random walk more closely with stronger DMM contracts obligations.
The study has also examined how stronger DMM contracts affected market quality for trades executed off the NYSE as
compared to those which were traded on NYSE. Result shows that the enhanced DMM criteria has greater impact on
effective bid-ask spreads for trades those were traded off the NYSE than the trades happened on NYSE. In case of market
depth measured in shares and in dollars, more DMM requirements have positive and significant impact for non-NYSE
quotes, whereas it is insignificant while considering market depth computed from NYSE quotes. This may be due to the
change in behaviour of other market participants and the resulting market equilibrium is altered by the knowledge that
the NYSE DMM will be present more frequently.
79
Market Pulse
Market performance across asset classes

Figure 131: Performance across equity indices, fixed income, currency and commodities
Indicator Name Dec-19 1M ago 3M ago 12M ago 1M (%) 3M (%) 6M (%) 12M (%) YTD (%)
Equity Indices
NIFTY 50 12,168 12,056 11,474 10,863 0.9 6.1 3.2 12.0 12.0
NIFTY 500 9,873 9,814 9,341 9,170 0.6 5.7 2.2 7.7 7.7
MSCI INDIA 1,370 1,356 1,294 1,263 1.0 5.8 2.5 8.5 8.5
India Volatility Index (%) 12 14 16 16 -16.1 -26.5 -22.0 -27.1 -27.1
MSCI WORLD 2,358 2,292 2,180 1,884 2.9 8.2 8.3 25.2 25.2
S&P 500 COMPOSITE 3,231 3,141 2,977 2,507 2.9 8.5 9.8 28.9 28.9
DOW JONES INDUSTRIALS 28,538 28,051 26,917 23,327 1.7 6.0 7.3 22.3 22.3
HANG SENG 28,190 26,346 26,092 25,846 7.0 8.0 -1.2 9.1 9.1
FTSE 100 7,542 7,347 7,408 6,728 2.7 1.8 1.6 12.1 12.1
NIKKEI 225 23,657 23,294 21,756 20,015 1.6 8.7 11.2 18.2 18.2
Fixed Income
India 10YR Govt Yield (%) 6.6 6.5 6.7 7.4 9bps -14bps -32bps -82bps -82bps
India 5YR Govt Yield (%) 6.5 6.3 6.5 7.1 23bps 1bps -29bps -62bps -62bps
India 1YR Govt Yield (%) 5.6 5.3 5.8 6.8 24bps -20bps -63bps -125bps -125bps
India AAA Corporate Bond Yield (%) 7.6 7.7 7.9 8.5 -11bps -25bps -44bps -89bps -89bps
India T-Bill Yield Curve 3 Months (%) 5.0 4.9 5.2 6.8 16bps -20bps -94bps -171bps -171bps
US 10YR Govt Yield (%) 1.9 1.8 1.7 2.7 14bps 25bps -9bps -77bps -77bps
Germany 10YR Govt Yield (%) -0.2 -0.4 -0.6 0.2 18bps 39bps 14bps -43bps -43bps
China 10YR Govt Yield (%) 3.1 3.2 3.1 3.3 -3bps 0bps -9bps -17bps -17bps
Japan 10YR Govt Yield (%) 0.0 -0.1 -0.2 0.0 6bps 20bps 14bps -2bps -2bps
Currency
USD/INR 71.4 71.7 70.9 69.8 -0.5 0.7 3.4 2.2 2.2
EUR/USD 1.1 1.1 1.1 1.1 1.8 3.0 -1.4 -1.8 -1.8
GBP/USD 1.3 1.3 1.2 1.3 2.4 7.5 4.1 4.0 4.0
USD/YEN 108.7 109.5 108.1 109.7 -0.8 0.6 0.9 -0.9 -0.9
USD/CHF 1.0 1.0 1.0 1.0 3.2 3.0 0.7 1.8 1.8
USD/CNY 7.0 7.0 7.1 6.9 -0.9 -2.4 1.4 1.5 1.5
Commodities
Brent Crude Oil (US$/bbl) 66.0 62.4 60.8 53.8 5.7 8.6 -0.8 22.7 22.7
LME Aluminium (US$/tonne) 1,810 1,770 1,722 1,846 2.3 5.1 0.6 -2.0 -2.0
LME Copper (US$/tonne) 6,174 5,864 5,725 5,965 5.3 7.8 3.0 3.5 3.5
LME Lead (US$/tonne) 1,927 1,937 2,135 2,021 -0.5 -9.7 -0.3 -4.7 -4.7
LME Nickel (US$/tonne) 14,025 13,670 17,050 10,690 2.6 -17.7 10.5 31.2 31.2
LME Tin (US$/tonne) 17,175 16,495 15,925 19,475 4.1 7.8 -8.8 -11.8 -11.8
LME Zinc (US$/tonne) 2,272 2,274 2,378 2,467 -0.1 -4.5 -8.9 -7.9 -7.9
SGX Iron Ore 1M Future (US$/tonne) 91 83 81 64 8.9 11.1 -2.2 41.6 41.6
Gold Spot Price (US$/troy ounce) 1,517 1,464 1,472 1,282 3.6 3.0 7.6 18.3 18.3
Silver Spot Price (US$/troy ounce) 18 17 17 15 4.8 5.0 16.6 15.2 15.2
Platinum Spot Price (US$/ounce) 967 896 883 796 7.9 9.5 15.8 21.5 21.5
Palladium Spot Price (US$/ounce) 1,946 1,842 1,676 1,262 5.6 16.1 26.5 54.2 54.2
Source: Refinitiv Datastream, Bloomberg, NSE
80
Market Pulse
Figure 132: Performance across NSE sector indices

Sector Dec-19 1M ago 3M ago 12M ago 1M (%) 3M (%) 6M (%) 12M (%) YTD (%)
Auto 8,248 8,086 7,493 9,236 2.0 10.1 4.0 -10.7 -10.7
Bank 32,162 31,946 29,103 27,160 0.7 10.5 3.4 18.4 18.4
FMCG 30,122 30,976 31,135 30,517 -2.8 -3.3 2.0 -1.3 -1.3
IT 15,652 14,998 15,540 14,440 4.4 0.7 -1.8 8.4 8.4
Media 1,804 1,835 1,800 2,566 -1.7 0.2 -11.6 -29.7 -29.7
Metals 2,801 2,626 2,440 3,155 6.7 14.8 -6.0 -11.2 -11.2
Pharma 8,040 8,190 7,548 8,869 -1.8 6.5 -0.3 -9.3 -9.3
Real Estate 299 282 259 232 5.9 15.4 4.8 28.5 28.5
Figure 133: NIFTY sector performance over the last month (rebased to 0)
6 6
Bank Nifty 50 Auto Nifty 50
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
2 9 16 23 30 2 9 16 23 30
Dec 2019 Dec 2019
6 6
Pharma Nifty 50 IT Nifty 50
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
2 9 16 23 30 2 9 16 23 30
Dec 2019 Dec 2019
6 6
Media Nifty 50 FMCG Nifty 50
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
2 9 16 23 30 2 9 16 23 30
Dec 2019 Dec 2019
6 6 Real Estate Nifty 50
Metal Nifty 50
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
2 9 16 23 30 2 9 16 23 30
Dec 2019 Dec 2019 Source: Refinitiv Datastream
81
Market Pulse
Figure 134: India 10Y G-sec yield—long-term trend Figure 135: India 10Y G-sec yield—last one-year trend
% %
India 10-year benchmark g-sec yield-long-term India 10-year benchmark g-sec yield movement over
trend 8.0 last one year
10
7.5
8 Issue of new
10-year
7.0
6.5
4
6.0
Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19
Figure 136: India sovereign yield curve

The India sovereign yield curve has steepened sharply over the last one year, with the spread between 1-year and 10-
year G-sec nearly doubling from 60bps as of December 31, 2018 to 120bps as of December 19, 2019. However, post
the announcement of bond-swapping programme by the RBI, coined as India’s own version of ‘Operation Twist’ (please
refer to the write-up on “RBI announces India’s version of ‘Operation Twist to reduce long-term yields’” in this note),
spread between 1-year and 10-year G-sec fell to 100bps by December 31st, 2019, even as it has risen back to the same
level as of January 15, 2020 amid fiscal slippage concerns.
% India sovereign yield curve
31-Dec-18 19-Dec-19 31-Dec-19
7.8
7.6
7.3
7.3
7.1
6.8
6.7
6.3
5.8
5.3
5.0
5.1
4.8
3M 6M 1Y 3Y 5Y 8Y 10Y 15Y 30Y
82
Market Pulse
Figure 137: Sovereign yield curve across G20 countries as of December 30th, 2019
Dec 2019 3m 6m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 30y
US 1.54 1.59 1.52 1.57 1.60 1.68 1.81 1.90 2.34
Japan (0.10) (0.14) (0.13) (0.13) (0.14) (0.13) (0.13) (0.12) (0.11) (0.09) (0.04) (0.02) 0.41
Germany (0.72) (0.63) (0.64) (0.61) (0.57) (0.52) (0.47) (0.41) (0.35) (0.29) (0.22) (0.18) 0.35
France (0.68) (0.62) (0.60) (0.61) (0.56) (0.48) (0.35) (0.23) (0.15) (0.09) 0.04 0.13 0.93
UK 0.78 0.75 0.64 0.61 0.58 0.63 0.65 0.62 0.67 0.72 0.78 0.87 1.37
Italy (0.36) (0.24) (0.19) (0.04) 0.06 0.38 0.58 0.83 0.93 1.09 1.24 1.42 2.48
Canada 1.66 1.73 1.74 1.68 1.67 1.67 1.66 1.66 1.64 1.71
EU (0.72) (0.63) (0.64) (0.61) (0.57) (0.52) (0.47) (0.41) (0.35) (0.29) (0.22) (0.18) 0.35
Argentina 27.10 92.34 59.67 57.17
Australia 0.93 0.91 0.88 0.91 0.95 1.02 1.09 1.22 1.28 1.31 1.92
Brazil 4.60 4.36 4.44 5.13 5.57 6.38 6.74 6.81
China 2.44 2.71 2.70 2.85 3.08 3.18 3.74
India 5.02 5.20 5.57 5.83 6.34 6.45 6.48 6.63 6.87 6.87 6.77 6.54 7.12
Indonesia 4.86 5.10 5.05 6.24 6.41 7.10 7.66
South Korea 1.34 1.37 1.36 1.47 1.48 1.69 1.68
Mexico 7.31 7.25 7.00 6.76 6.74 6.82 6.85 7.21
Russia 6.13 6.10 4.84 5.64 5.68 6.01 6.19 6.23
South Africa 6.00 6.75 7.25 8.24 10.08
Turkey 10.30 10.47 11.05 11.57 11.25 11.90 12.00
Figure 138: Sovereign yield curve across G20 countries as of December 30th, 2017
Dec 2017 3m 6m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 30y
US 1.39 1.54 1.74 1.89 1.98 2.21 2.33 2.41 2.74
Japan (0.16) (0.15) (0.14) (0.14) (0.12) (0.12) (0.10) (0.07) (0.05) (0.01) 0.02 0.05 0.81
Germany (0.80) (0.83) (0.71) (0.63) (0.50) (0.35) (0.20) (0.10) 0.03 0.14 0.28 0.42 1.26
France (0.73) (0.75) (0.63) (0.45) (0.35) (0.15) (0.06) 0.11 0.28 0.44 0.63 0.79 1.76
UK 0.34 0.41 0.36 0.45 0.49 0.54 0.73 0.87 0.93 1.00 1.10 1.19 1.76
Italy (0.69) (0.46) (0.45) (0.16) 0.10 0.38 0.71 0.99 1.35 1.56 1.78 2.00 3.22
Canada 1.06 1.21 1.53 1.69 1.73 1.77 1.87 1.95 2.04 2.27
EU (0.80) (0.83) (0.71) (0.63) (0.50) (0.35) (0.20) (0.10) 0.03 0.14 0.28 0.42 1.26
Argentina 26.03 17.07
Australia 1.82 1.99 2.15 2.27 2.36 2.49 2.55 2.60 2.65 2.67 3.38
Brazil 6.96 6.74 6.74 7.78 8.63 9.73 10.13 10.27
China 3.80 3.82 3.84 3.86 3.94 3.92 4.39
India 6.22 6.34 6.60 6.73 6.96 7.19 7.14 7.24 7.35 7.42 7.55 7.33 7.64
Indonesia 5.02 5.15 5.36 5.79 5.94 6.31 7.45
South Korea 1.85 2.08 2.13 2.34 2.35 2.47 2.44
Mexico 7.37 7.52 7.60 7.58 7.62 7.72 7.89
Russia 7.54 7.52 6.56 6.85 6.98 7.23 7.24 7.59
South Africa 7.05 7.28 7.92 8.61 9.73
Turkey 12.89 13.45 13.60 13.01 13.00 12.01 11.43
83
Market Pulse
Figure 139: Spreads for 3-month corporate bonds across segments

Following a sharp decline in the previous month, spreads for the shorter tenure corporate bonds have risen significantly
in December, thanks to an unexpected pause by the RBI in the recent policy review meeting and lacklustre demand.
bps
Spreads for 3-month corporate bonds across segments
3M Corp (-) 3M G-sec 3M NBFC (-) 3M G-sec 3M PSU (-) 3M G-sec
190
140
90
40
-10
May-19
Sep-18
Jul-19
Sep-19
Oct-18
Mar-19
Oct-19
Nov-18
Nov-19
Jan-19
Feb-19
Aug-18
Jun-19
Dec-18
Apr-19
Aug-19
Dec-19
Figure 140: Spreads for 3-year corporate bonds across segments

Contrary to 3-month paper, spreads for 3-year corporate bond papers across segments have seen further dip in the
month of December and are now trading below their respective last five-year average spreads.
bps
220
200
180
160
140
120
100
80
60
40
20
May-19
Sep-18
Jul-19
Sep-19
Oct-18
Mar-19
Oct-19
Nov-18
Nov-19
Jan-19
Feb-19
Aug-18
Jun-19
Dec-18
Apr-19
Aug-19
Dec-19
84
Market Pulse

The 5-year corporate bond segment has seen a decline across issuer category, barring some pickup towards the latter
part of the month.
bps
180
160
140
120
100
80
60
40
20
May-19
Sep-18
Jul-19
Sep-19
Oct-18
Mar-19
Oct-19
Nov-18
Nov-19
Jan-19
Feb-19
Aug-18
Jun-19
Dec-18
Apr-19
Aug-19
Dec-19

The premium for the long-end corporate bond segment also came off last month, particularly for non-NBFC corporates
and PSUs, after remaining stubbornly high for most part of last year. This is true for the sovereign paper as well, where
long-end came off a bit following the RBI’s bond-swapping programme, even as the relief was short-lived, thanks to
sustained concerns on the Government’s fiscal balances.
bps
180
160
140
120
100
80
60
40
20
May-19
Sep-18
Jul-19
Sep-19
Oct-18
Mar-19
Oct-19
Nov-18
Nov-19
Jan-19
Feb-19
Aug-18
Jun-19
Dec-18
Apr-19
Aug-19
Dec-19
85
Market Pulse
Figure 143: Net lending under RBI’s liquidity adjustment facility

Rs bn
Net lending under RBI's liquidity adjustment facility
4000
Figure greater than
3000 zero indicates deficit
2000
1000
0
-1000
-2000 Figure less than zero
indicates surplus
-3000
liquidity in the system Systemic liquidity has
-4000 remained in surplus since
June 2019, which in turn
-5000
should aid monetary
-6000 transmission
Dec/2013 Dec/2014 Dec/2015 Dec/2016 Dec/2017 Dec/2018 Dec/2019
86
Market Pulse
Market Statistics: Primary market

Funds mobilised in the primary market
After a significant drop in October, total fund mobilisation utilising the NSE platform more than doubled in November
with a 156% MoM to reach Rs756.7bn (vs. Rs295.7bn earlier). This increased further in the month of December by 1%
to reach Rs763.8bn. After a long time, private placement became the second most preferred channel in the primary
market after preferential allotment. Indian firms raised Rs331bn through private placement over the month of
December, ~7% lower than the previous month. Besides, they raised Rs382bn through preferential allotment (~32% up
from Rs288bn in November). Among other primary sources, firms raised Rs20bn through one QIP, followed by Rs17bn
through five IPOs and Rs14bn through 12 public debt instruments over the month.
Figure 144: Fund mobilised through NSE platform

Particulars Dec-19 Nov-19
Amount Raised Amount Raised Amount Raised Amount Raised
No. of Issues No. of Issues
(Rsm) (USDm) (Rsm) (USDm)
Equity
IPOs 5 16,728 235 1 216 3
Preferential Allotment 16 381,982 5,366 10 288,297 4,034
QIP 1 20,253 285 3 114,000 1,595
Debt
Public issue of NCDs 12 14,079 198 - - -
Private Placement 36 330,732 4,646 35 354,236 4,956
Total 763,773 10,730 756,749 10,588
Note: In case of debt issuances, the above table reports no. of ISINs instead of issues.
Source: NSE
New listings in the month

Out of six companies listed in NSE (as shown in the following table), four listed on the main board and remaining two in
the SME-Emerge platform. All of them except Somany Home Innovation Ltd. and Prince Pipes and Fitting Ltd. registered
a listing gain on the listing day. Notably, Ujjivan Small Finance Bank Ltd. listed with 59% gain, followed by CSB Bank Ltd.
with 41% gain. Others recorded a minor gain on their listing day. Among losers, Somany Home Innovation recorded 28%
loss on its listing day.
Figure 145: Companies listed on NSE in December

Listing Security Name Series Listing Gain Market Cap Gross Turnover Listing
Date % (Rsm) (Rsm)
04-Dec-19 CSB Bank Limited EQ 41.0 52,045 10,961 IPO
06-Dec-19 Ascom Leasing & Investments Limited ST 0.8 236 8 SME-IPO
12-Dec-19 Ujjivan Small Finance Bank Limited EQ 58.8 96,694 14,436 IPO
26-Dec-19 Somany Home Innovation Limited BE -27.6 11,676 3 New Listing
27-Dec-19 DC Infotech and Communication Limited ST 1.1 272 59 SME-IPO
30-Dec-19 Prince Pipes and Fittings Limited EQ -10.1 18,363 3,580 IPO
Source: NSE
Market Statistics: Secondary market

Institutional flows across market segments
Net inflows of foreign institutional investors (FIIs) are shown in the following charts separately for debt and equity
segments over last five financial years. Overall trends are quite different in last five years for both the segments. For
instance, net inflows of FIIs remained quite low in FY16 for both equity and debt segments, whereas it increased rapidly
in the following year in the equity segment with over US$11bn net inflows. In contrast, it remained muted in the debt
segment during the initial months of FY17 which turned negative and ended with a net outflow over the (fiscal) year. The
trend got reversed in FY18 when FIIs preferred debt over equity. Notably, overall net inflows jumped up to US$19bn in
87
Market Pulse
the debt segment in FY18, while net inflows remained negligible in equities. However, the positive trend did not continue
in the following year as net flows were negative initially across both debt and equities and ended the year with net
outflows.
The current financial year set to be another year with divergent flows where the trend of FII net inflows in equities is
quite different than the debt segment. FIIs started the year with a significant net inflows in equity segment whereas
overall flows in debt segment remained negative till mid-June. However the trend reversed in both segments with a
significant drop in net inflows in the equity segment and positive inflows in debt. Notably, FII inflows in the equity
segment continued to decline till September—driven by enhanced market risks globally, further signals of the economic
slowdown in India, and budget-related tax proposals on FPIs registered as trusts. The withdrawal of the proposed tax
on FPIs and decline in corporate tax rate have not had much impact on inflows initially. Recent data also shows that FIIs
net inflows turned positive in equity segment during the end of September which remained positive in the following
month and increased exponentially since October. As a result, FIIs’ preference towards debt over equity has paused
over the month of November and started declining over the month of December. Overall, FII net inflows increased
significantly in the equity segment, whereas it remained quite low in the debt segment over the month of December.
Figure 146: Overall net inflows of FIIs in India

Cumulative FII net flows over last five years (FY)
x 1,000 Equity Inflows (US$mn) x 1,000 Debt Inflows (US$mn)

25 25
FY16
FY17
20 FY18 20
FY19
FY20TD
15 15 FY16
FY17
FY18
10 10 FY19
FY20TD
5 5
0 0
-5 -5
-10 -10
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

* FII/FPI trading activity on NSE, BSE and MSEI.
Overall net inflows of domestic institutional investors (DIIs) remain largely positive in the last five (fiscal) years including
FY20, as can be seen in the following chart. Trends were quite similar during these (fiscal) years except FY17 and FY20.
Specifically, DII net inflows were positive in FY16, FY18 and FY19 throughout the years. In contrast, DIIs started FY17
as net sellers and remained muted till October 2016. Since then DII net investment turned positive and increased
gradually till the end of FY17. Overall trend was somewhat similar in FY20 as well. DIIs started the fiscal year as net
sellers given the ongoing uncertainty about the General Elections and a gradual slowdown in the domestic economy. In
May’19, their net flows turned positive partly driven by the stable mandate of the NDA Government’s return to power.
Unlike FIIs, net DII inflows maintained a steady growth during the period July-Oct’19, which shows a gradual decline
since November partly due to a significant drop in economic growth in the last few quarters and no sign of recovery in
the near future.
88
Market Pulse
Figure 147: Overall net inflows of DIIs in India
Cumulative DII net flows over last five years (FY)**

x 1,000 Equity Inflows (Rs mn)
1200
FY16
FY17
1000 FY18
FY19
FY20TD
800
600
400
200
-200
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

**DII flows are for India as a whole in equity only.
Overall sentiment in the Indian securities market remained gloomy in the month of December as well. In the cash
market, FIIs’ net inflows–invested through NSE–declined significantly from Rs138bn in November to Rs15bn in
December, partly due to base effect and increasing sign of economic slowdown. Similar trend was seen in equity
derivatives as well with 17% decline in net FII flows from Rs224bn to Rs186bn over the month. In contrast, FII net
flows almost doubled in Currency derivatives to reach Rs46bn in December from Rs25bn in the previous month amid
increase in uncertainty globally as well as in the Indian market.
Net investment of DIIs—routed through NSE—remained negative across all segments. Overall situation has somewhat
improved in the Cash market where net sale of DIIs declined from Rs82bn in November to Rs18bn in December, whereas
in other segments net sales increased further. Notably, net sales of DIIs increased in Equity derivatives from Rs45bn in
November to Rs56bn in December. They remained net sellers in Currency derivatives and Interest rate futures with net
sales of Rs8bn and Rs6bn respectively over the month.
Figure 148: Foreign and domestic institutional flows (Rsbn)

Month Dec-19 Nov-19
Category Buy Sell Net Buy Sell Net
Cash Market
DII 615 633 (18) 721 803 (82)
FII 963 947 15 1,456 1,318 138
Futures & Options
DII 906 963 (56) 890 935 (45)
FII 53,287 53,101 186 52,277 52,052 224
Currency Derivatives
DII 44 52 (8) 58 57 1
FII 607 561 46 592 567 25
Interest Rate Futures
DII 17 23 (6) 10 11 (0)
FII 3 3 0 2 2 0
Source: NSE *DII – Domestic Institutional Investors, FII – Foreign Institutional Investors
89
Market Pulse
Segment-wise total turnover

NSE’s total turnover maintained a diverse trend across different segments over the month of December. Total turnover
declined in major segments except in Currency derivatives and Interest rate futures. In Cash market, total turnover
recorded an 18% fall over the month to reach Rs8,821bn from Rs8,345bn in November. Total turnover of Equity
derivatives declined by 11% in the Futures segment and 3% in Options premium to Rs15.4tn and Rs865bn respectively
in December. Similar trends were seen in Commodity futures as well, where total turnover declined from Rs7bn to
merely Rs1bn in December. Total turnover of Interest rate futures increased by 37% to reach Rs307bn over the month.
Currency derivatives recorded 12% and 11% growth in total turnover in futures and options segments to reach
Rs3,925bn and Rs10bn respectively over the month. NSE has launched interest rate options on 10-year government
bonds on December 9, which was traded by Rs20.9mn over the month.
Figure 149: Total turnover in different segments (Rsbn)

Segment Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Cash Market 6,403 7,883 5,962 7,130 6,737 7,107 7,531 8,345 6,821
Equity futures turnover 15,654 19,587 15,283 18,224 18,135 18,866 18,143 17,346 15,352
Equity options premium 717 978 721 891 1,113 1,135 1,109 896 865
Currency futures turnover 3,613 3,568 3,018 3,146.40 4,839 4,006 3,380 3,508 3,925
Currency options premium 11 10 6 7 16 13 9 9 10
Interest rate futures turnover 241 227 361 461 325 289 253 224 307
Commodity futures turnover 5 4 4 5 15 9 9 7 1
Source: NSE.
Average daily turnover

On average, daily turnover in the Cash market declined by 22% from Rs417bn in November to Rs324bn in December,
partly due to decrease in institutional investments from both domestic and international investors in the market. Average
daily turnover declined by ~27% for Exchange Traded Funds (ETFs), 15% for InvITs and 7% for SME emerge over the
month. Investors are turning towards risk free investment like sovereign gold bonds which recorded 26% rise in average
daily turnover in December.
In the Cash market, ICICI Bank, Indiabulls Housing Finance and Yes Bank recorded a sharp fall in total turnover over
the month that has partly resulted such huge decline in average daily turnover in the segment.
Figure 150a: Average daily turnover in Cash market (Rsmn)

Product Dec-19 Nov-19 % Change Current FY Previous FY YTD
Cash Market 324,822 417,230 (22.1) 349,283 320,583 342,640
Exchange Traded Funds 1,114 1,518 (26.6) 1,885 1,748 1,974
SME Emerge 37 40 (6.8) 56 169 68
Sovereign Gold Bonds 8 6 25.9 9 5 8
InvITs 49 58 (15.1) 44 47 45
Mutual Funds (Close Ended) 1 2 (46.8) 1 6 1
Source: NSE.
Average daily turnover for Equity derivatives declined significantly over the month—average daily premium on Stock
options dropped by 29%, whereas average daily turnover declined by 15% in the futures segment. In the Equity futures
segment, turnover dropped mainly for ICICI bank, Bharti Airtel, Bajaj Finance and HDFC, whereas in case of options,
total premium turnover declined mostly for Airtel, Indiabulls Housing Finance, Yes Bank and ICICI Bank over the month.
The index derivatives segment also registered a sharp drop in average daily turnover over the month. In futures segment,
daily turnover of Bank Nifty, Nifty and Nifty IT declined by 20%, 16.2% and 14.5% respectively over the month. In Index
options, average daily premium turnover of Bank Nifty declined by 6%, while it raised for Nifty options by 3.8% in
December.
90
Market Pulse
Figure 150b: Average daily turnover in Equity derivatives (Rsmn)

Single stock derivatives
Stock futures 535,199 628,308 (14.8) 600,305 651,089 596,754
Stock options 7,420 10,462 (29.1) 8,620 8,065 8,448
Index futures
Bank Nifty 90,288 113,059 (20.1) 109,477 93,381 101,725
Nifty 105,479 125,859 (16.2) 145,750 130,636 142,500
Nifty IT 63 73 (14.5) 142 320 188
Index options
Bank Nifty 18,804 19,917 (6) 20,356 13,659 18,827
Nifty 14,950 14,399 3.8 17,062 12,716 16,215
Nifty IT 0 0 0.0 0 0 0
Source: NSE. *premium turnover for options.
USDINR’s share of total turnover in Currency futures increased marginally from 88% in November to 84% in December,
followed by GBPINR and EURINR. Amongst them, average daily futures turnover of USDINR increased by 2.1% in
December, whereas GBPINR and EURINR jumped up by over 68% and 4% respectively over the month.
In Currency options, USDINR contributed about 100% of total turnover over the month. Its average daily turnover
declined marginally by 0.9% over the month to reach Rs462mn in December from Rs466mn in the previous month.
Figure 150c: Average daily turnover in Currency derivatives (Rsmn)

Currency futures
EURINR 6,638 6,365 4.3 6,389 7,167 6,213
EURUSD 258 527 (51.0) 510 1,755 532
GBPINR 19,267 11,416 68.8 13,345 9,274 12,563
GBPUSD 789 258 205.8 488 1,385 598
JPYINR 2,426 2,629 (7.7) 2,798 2,422 2,715
USDINR 157,496 154,196 2.1 157,791 169,509 160,210
USDJPY 11 4 141.4 10 49 11
Currency options
EURINR 0.02 0.02 (4.3) 0.02 0.33 0.03
EURUSD 0.00 0.00 - 0.00 0.00 0.00
GBPINR 0.22 0.07 203.3 0.12 0.30 0.12
GBPUSD 0.03 0.00 - 0.01 0.00 0.01
JPYINR 0.01 0.02 (59.5) 0.02 0.05 0.02
USDINR 461.78 466.20 (0.9) 498.23 600.51 519.56
USDJPY 0.00 0.00 - 0.00 0.00 0.00
Source: NSE. *premium turnover for options
Figure 150d: Average daily turnover in Interest rate futures (Rsm)

645GS2029 5,807 235 2371.5 3,235 - 3,235
726GS2029 8,128 10,826 (24.9) 10,059 73 7,840
795GS2032 662 126 426.2 288 319 291
757GS2033 25 46 (46.2) 35 - 35
Source: NSE. *We have reported only those contracts which were traded in December.
91
Market Pulse
Turnover of top traded symbols

Figure 151a: Top 10 symbols based on total turnover of Cash market (Rsmn)
Symbol Dec-2019 Nov-2019 %Change
YESBANK 298,801 357,488 (16.4)
RELIANCE 268,055 251,867 6.4
IBULHSGFIN 266,857 333,395 (20.0)
SBIN 233,915 242,166 (3.4)
TCS 183,681 127,301 44.3
ICICIBANK 170,980 387,822 (55.9)
HDFC 158,692 170,589 (7.0)
TATASTEEL 153,971 152,893 0.7
HDFCBANK 148,491 141,798 4.7
TATAMOTORS 141,010 94,163 49.8
Source: NSE
Figure 151b: Top 10 symbols based on total turnover of Stock futures (Rsmn)
Symbol Dec-2019 Nov-2019 %Change
SBIN 665,210 611,627 8.8
RELIANCE 549,039 523,118 5.0
ICICIBANK 430,159 554,475 (22.4)
HDFC 319,756 348,613 (8.3)
AXISBANK 307,581 329,328 (6.6)
HDFCBANK 279,457 266,156 5.0
BAJFINANCE 263,788 292,514 (9.8)
TCS 256,255 208,013 23.2
BHARTIARTL 255,013 315,324 (19.1)
TATASTEEL 237,976 218,214 9.1
Source: NSE
Figure 151c: Top 10 symbols based on total turnover of Stock options (Rsmn)
Dec-2019 Nov-2019 %Change
SBIN 17,198 16,033 7.3
RELIANCE 10,140 11,272 (10.0)
YESBANK 8,488 13,597 (37.6)
IBULHSGFIN 7,112 11,970 (40.6)
TATASTEEL 5,793 6,056 (4.3)
ICICIBANK 5,762 7,996 (27.9)
TATAMOTORS 5,699 3,842 48.3
TCS 4,996 3,047 64.0
BHARTIARTL 3,964 7,629 (48.0)
AXISBANK 3,903 3,877 0.7
Source: NSE
92
Market Pulse
Trend of NSE’s turnover in different segments

Across all major segments, cash market and equity derivatives recorded magnificent growth in total monthly turnover
over the last decade. Monthly turnover in this segment doubled from Rs8tn in Jan’11 to Rs16tn in Dec’19. In the Cash
market, monthly turnover increased by a CAGR of 11% from Rs2.7tn in Rs6.8tn over the same time period. Total turnover
in the Currency segment was quite high in 2013 due to increase in macroeconomic uncertainty during the Taper
Tantrum. It declined significantly in 2014 after putting stricter restrictions on FII limits and remained stable till 2017
hovering around Rs2tn on average. It has again started increasing in 2018 as the Indian government increased the
threshold limit of foreign investment in currency segment, and then, its total turnover remained elevated in 2019 as well
toward an average monthly turnover of Rs3.6tn.
Figure 152: NSE’s total monthly turnover across segments

x 1,000 x 1,000
25 Cash turnover (Rsbn) 25
Equity derivatives turnover (Rsbn)
Currency derivatives turnover (Rsbn)
20 20
16,216
15 15
10 10
6,821
5 5
3,934
0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: NSE.
Note: Total turnover for derivatives includes gross traded value of futures and total premium turnover of options.
Economic slowdown on turnover growth (Domestic vs. global): Economic growth has been slowing down across all
major countries globally. According to the IMF estimates, the global growth has declined to 3% in 2019 from 3.6% in
2018. Similar trends can be seen in the US and China as well (Figure 153) particularly in the last two quarters partially
due to ongoing US-China trade war, increase in geopolitical risks globally and uncertainty in the European region related
to the Brexit. This may have negatively affected India’s financial market as well which has resulted a significant decline
in annual growth rate of NSE’s turnover since Nov’18 across all major segments including Cash market and Equity
derivatives.
In the Currency segment, NSE’s turnover growth was extraordinarily high till FY19, mainly due to significant relaxation
on the limits of FPI investment in currency derivatives. However, this effect gradually declined which has resulted an
overall decline in its turnover growth since May’19. Subsequently, growth rates turned negative across all segments
during several months since Dec’18 partly due to the base effect and limited headroom available in the market.
93
Market Pulse
Figure 153: Impact of global slowdown on overall turnover growth across segments
150 7
Monthly turnover - Cash market (%YOY)

Monthly turnover - Equity derivatives (%YOY) 6
Monthly turnover - Currency derivatives (%YOY)
GDP Growth - World (%YOY) (RHS)
GDP Growth - US (%YOY) (RHS)
GDP Growth: China (Mainland) (%YOY) (RHS)
100 5
50 3
13.7
0 1
-50 -1
Jun16 Dec16 Jun17 Dec17 Jun18 Dec18 Jun19 Dec19

Growth of NSE’s cash turnover coincides with economic slowdown in India as well, as illustrated in the following chart.
Since March’18, India’s GVA growth has been gradually slowing down, weighing on the NSE’s turnover growth,
particularly in Cash and Equity derivatives market. Turnover growths in these segments remain low during June-Nov’18
despite of short-term recoveries in the growth rate of industrial production. They even turned negative in several months
since Dec’18 whenever there was a sharp decline in IIP growth. In the Currency segment, the trend of turnover growth
coincided with the IIP growth trajectory. However, there is a recovery in turnover growth particularly in the Cash market
since Nov’19 along with a sudden increase in IIP growth in India.
94
Market Pulse
Figure 154: Growth rates of Cash turnover and economic slowdown in India (IIP and GVA growth)
150 10
Monthly turnover - Equity derivatives (%YOY)
IIP Growth (%YOY) (RHS)
GVA Growth (%YOY) (RHS) 8
100
6
50
13.7
0
0
-2
-50
-4
Jun17 Dec17 Jun18 Dec18 Jun19 Dec19

Figure 155: Growth rates of NSE’s turnover and inflation rates
150 8
Monthly turnover - Equity derivatives (%YOY) 7.4
CPI Inflation Rate - RHS
Repo Rate: India (%) (RHS)
WPI Inflation Rate(RHS) 6
100 5.2
50 2
0.6
0
13.7
0 2.3
-3.3
-2
-50 -4

95
Market Pulse
Impact of global market indicators on turnover growth varies vividly across segments: Global market indicators,
like crude oil price and exchange rate, have diverse impact on turnover growth across segments. In 2018, NSE’s
turnover in Currency derivatives increased exponentially along with a sharp increase in both crude oil price and the
exchange rate, perhaps due to rise in uncertainty in the global market. In contrast, growth of Cash turnover declined
during this period where the economic slowdown played dominant factor in this segment compared to others. Since
May’19, NSE’s turnover growth of currency derivatives turned negative even though global market indicator like
exchange rate remained quite volatile during this period, partly because of the base effect and limited headroom
available in the segment.
Figure 156: Growth of NSE’s turnover vs. crude oil price and exchange rate
150 100 74
Crude oil price ($/bbl)
Exchange rate (INR/$)
72
80
100
70
60
50
68
40
13.7
66
0 2.3
-3.3
20
64
-50 0
62
Net institutional flows have diverse impact on turnover growth across segments: Impact of institutional flows
(domestic and foreign) on NSE’s turnover is not quite clear, as seen in the following chart. DIIs net investment and FIIs
net flows varied vividly over the period which may have significant impact on market performance. They did not,
however, affect NSE’s turnover growth uniformly over the period. For instance, DIIs net investment declined sharply
during Jan-Mar’19 when cash turnover growth turned negative. Again, growth rate improved in Apr’19 with a sharp
increase in net investments by both DIIs and FIIs. In contrast, the turnover growth turned negative in Oct’19 when
decline in FIIs net investment was higher than the recovery in DIIs net investment. On the contrary, turnover growth
was significantly high in Nov’18 despite of a sharp fall in FIIs and DIIs net investment. Overall, turnover growth was
quite low in 2018 as compared to 2017 and it has deteriorated further in 2019 across all segments. In December, FIIs
net inflows increased substantially that has positive and direct impact on NSE’s turnover growth over the month.
96
Market Pulse
Figure 157: Growth of NSE’s turnover vs. Institutional flows
120 6000
Net DII investment (US$mn) (RHS)
Net FII inflows (US$mn) (RHS)
100
4000
80
2000
1,349.0
60
0
-104.0
40
-2000
20
13.7
0 -4000
-3.3
-20
-6000
97
Market Pulse
Client category-wise participation in total turnover

Distribution of total turnover across different client categories remains largely stable in the cash segment in the last six
financial years, as can be seen in the following chart. In FY20, proprietary traders contributed 23% in the cash market,
followed by FIIs, DIIs and corporates, whereas ‘Others’—including retail investors and HNIs—traded around 47%.
Similar trend can be seen during December as well, as proprietary traders contributed ~21.3% of total turnover in Cash
market followed by FIIs (14%), DIIs (9.1%) and corporates (5.2%). ‘Others’ contributed around 50.3% of total turnover
which is significantly higher over the previous month (47.9%). Share of corporates and FIIs declined by 10 bps and
260bs during the same period. However, market participation of proprietary traders increased by 20 over the month.
Figure 158: Share of client participation across market segments of NSE in the last five (fiscal) years (%)**
Cash Segment Index Futures
120 120
Corporates DII FII PRO Others Corporates DII FII Others PRO
100 100
33 31 29 30 26 27
80 40 37 41 80
45 46 47
60 60
21 21 17 40 41 41
18 36 39 41
40 22 23 40
21 23 21 16
15 15 15 16 17 18
20 20 14 14
9 9 10 10 0
10 10 1 1 1 2 2
9 10 12 11 6 15 14 14 14 13 13
0 5 0
FY15 FY16 FY17 FY18 FY19 FY20* FY15 FY16 FY17 FY18 FY19 FY20
Stock Futures Index Options
120 120
Corporates DII FII Others PRO Corporates DII FII Others PRO
100 100
30 26 25 25 24
80 34 80 39 33
46 45
58 55
60 33 32 60
34 37 38
35 38
40 40 38
35 37
18 24 27 24 25
17 21
20 16
3 4 20 13 20
1 3 5 6 10 10 12
16 0 0 10 0 0
14 13 15 13 11 0 0
0 9 10 7 7 11 9
0
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20
98
Market Pulse
Stock Options Currency Futures

120 Corporates FII DII ex-banks
120
Corporates DII FII Others PRO PRO ex-banks Others Banks
100 100
13 16 14 17 12 11
80 39 39 37 36 40 42 80 15 15 15 16 20
15
60 60
37 38 37 37 35 53 49 49 47 44
40 38 40 52
20 0 0 0
16 15 17 17 15 20 0 0
1 4 16
11 0
3 15
0 0 0 0 0 0 19 19 18
8 9 9 10 10 9 12 10 10
0 0
Currency Options Interest rate futures

120 120
Corporates FII PRO ex-banks Others Banks Corporates FII DII ex-banks
PRO ex-banks Others Banks
100 2 2 2 2 2 2 100
16 12 13 14 16 18 19 20 20
20 20
27
80 80 8 4 3
6 9 5
60 60
51 40 51 48
72 78 75 74 64 53 51
40 60 40
3
2
2 3
2
20 20 1
0 3 5
1
0 1
2 2 27
0 1 2 3 19 23 20 24 18
9 7 8 7 12 9
0 0
Source: NSE
*Data up to November 2019. **DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, PRO: Proprietary Traders, Others: includes retail clients & HNIs.
In Equity derivatives, there is a significant change in composition of total turnover across client categories. The share of
proprietary trades has reduced gradually in Index futures from 33% of the total turnover in FY15 to 27% in the current
fiscal. The drop in the share of proprietary participation during last five financial years has been offset by an increase in
share of FIIs and ‘Others’. The share of corporates has also moderated over the years whereas share of DIIs remains
marginal during the time period. The low share of DII activity can be attributed to regulatory restrictions on derivative
activity.
In case of Stock futures, the share has declined for proprietary traders, corporates and others, which was mainly
compensated by FIIs. The share of total trade of Index options has been declining for proprietary traders which was
offset by both FIIs and others. The trend was quite different for stock options where FIIs lost their share over years but
others were been able to maintain their share in last six fiscal years.
DIIs—excluding banks does not have much presence in the currency segment due to regulatory obligations. Though the
share of proprietary traders—excluding banks in the segment has been declining over the period, they captures highest
share in both futures and options. Amongst others, others have been able to increase their share in these segments
during this period, whereas FIIs captures a significant share in Currency futures since FY19. The distributional pattern
is more or less similar for Interest rate futures where proprietary traders—excluding banks contributed 51% of total
turnover. Here, banks captures 20% of total turnover followed by corporates with 18% market share in FY20.
99
Market Pulse
Figure 159: Share of client participation in Cash market of NSE (%)**

Client category Dec-19 Nov-19 Change Current FY Previous FY YTD
Cash market
Corporates 5.2 5.3 (0.0) 5.2 6.4 5.3
DII 9.1 9.1 0.0 9.9 10.3 10.0
FII 14.0 16.6 (2.6) 15.2 15.4 15.3
PRO 21.3 21.1 0.3 22.8 21.5 22.5
Others 50.3 47.9 2.4 47.0 46.4 46.9
Source: NSE. **DII – Domestic Institutional Investors, FII – Foreign Institutional Investors, PRO – Proprietary Traders, Others – includes retail clients and HNIs
Figure 160: Share of client participation in Equity derivatives of NSE (%)**

Index Futures
Corporates 11.5 12.3 (0.8) 12.8 13.3 12.9
DII 2.4 1.9 0.4 2.0 2.2 2.0
FII 14.5 16.5 (2.0) 17.8 17.3 17.9
PRO 25.7 25.1 0.6 26.7 25.9 26.6
Others 46.0 44.2 1.8 40.8 41.3 40.5
Stock Futures
Corporates 8.8 10.3 (1.5) 11.0 12.6 11.2
DII 7.3 6.5 0.9 5.9 5.2 5.8
FII 27.9 27.3 0.6 27.4 24.3 27.2
PRO 21.1 22.0 (0.8) 23.6 24.8 23.9
Others 34.7 33.9 0.8 32.1 33.1 31.9
Index Options
Corporates 9.0 9.0 (0.0) 9.2 10.8 9.5
DII 0.0 0.0 (0.0) 0.0 0.0 0.0
FII 18.4 20.1 (1.7) 19.6 12.6 18.7
PRO 34.1 33.1 1.0 33.4 38.8 33.9
Others 38.4 37.7 0.7 37.8 37.7 37.8
Stock Options
Corporates 6.6 10.3 (3.7) 8.8 9.5 9.2
DII 0.0 0.0 0.0 0.0 0.0 0.0
FII 8.3 9.7 (1.4) 11.2 15.0 12.2
PRO 44.0 43.8 0.1 41.6 40.1 41.0
Others 41.1 36.1 5.0 38.4 35.3 37.6
Figure 161: Share of client participation in Currency derivatives of NSE (%)**

Currency Futures
Corporates 11.8 13.3 (1.5) 9.8 9.9 9.5
FII 12.1 14.1 (2.0) 15.5 14.5 16.0
Banks 10.2 10.3 (0.1) 10.9 12.5 10.9
DII ex-banks 0.1 0.2 (0.1) 0.2 0.2 0.2
PRO ex-banks 45.1 42.5 2.6 43.7 46.8 43.8
Others 20.7 19.6 1.0 19.9 16.1 19.6
Currency Options
Corporates 7.6 9.5 (1.9) 9.2 11.8 9.5
FII 2.7 2.1 0.6 2.1 2.5 2.1
Banks 1.7 2.1 (0.4) 2.0 1.7 1.8
PRO ex-banks 60.0 59.0 1.1 59.9 63.7 60.2
Others 28.0 27.4 0.6 26.8 20.3 26.3
100
Market Pulse
Figure 162: Share of client participation in Interest rate futures of NSE (%)**
Corporates 25.2 20.2 4.9 17.8 23.6 19.5

FII 1.0 1.1 (0.1) 1.3 2.0 1.4
Banks 21.0 20.8 0.1 19.9 19.5 19.3
DII ex-banks 5.4 4.3 1.1 4.8 3.1 5.0
PRO ex-banks 43.1 49.3 (6.3) 51.4 48.3 50.7
Others 4.4 4.2 0.2 4.8 3.5 4.2
101
Market Pulse
Region-wise distribution of new investors registered

The distributional pattern of registration across regions remains similar over time, as depicted in the following chart. Out
of 393 thousand investors registered in Dec’19, around 34% are from western region and 32% from northern region.
Among others, about 25% of total investors registered from south, followed by east India (9%). There is a continuous
increase in total registration over the last five months, with a monthly CAGR of 8%. Over the month of December,
registration increased largely in West region (26%) followed by North (20%), South (19%) and East (12%), which in turn
resulted an 21% increase in total registration over the month.
Data further shows, total registration is concentrated in few districts. In December, around 8.5% of all investors are from
Mumbai region, which is marginally higher than Delhi (including NCR) (~8.3%). Among others, Ahmedabad, Bangalore
and Pune have accounted for 3.4%, 3% and 2.9% of total registration respectively over the month.
Figure 163: Region-wise distribution of new investors registered

450
393
400
350
Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
300
250
250
'000
200
124 135
150
98
100 78 68 78
25 36
50
0
East India North India South India West India Total
Source: NSE.
Note: East India is Mizoram, Odisha, West Bengal, Assam, Manipur, Arunachal Pradesh, Tripura, Nagaland, Meghalaya, Sikkim, Chattisgarh; West India Is Maharashtra,
Gujarat, Madhya Pradesh, Daman & Diu, Goa, Dadra & Nagar Haveli; North India Is Bihar, Jharkhand, Uttar Pradesh, Uttarakhand, Haryana, Delhi, Punjab, Jammu & Kashmir,
Himachal Pradesh, Chandigarh And Rajasthan; South India Is Telangana, Kerala, Andhra Pradesh, Tamil Nadu, Karnataka, Pondicherry, Lakshadweep And Andaman &
Nicobar.
Figure 164: Number of new investors registered in top 10 districts

30 27.6 27.0
25 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
20
'000
15
10.9
9.6 9.5
10 8.4
5.8 5.5 5.2 5.2
5
Source: NSE
Note: Top 10 districts are chosen based on November’19 data.
102
Market Pulse
Region-wise distribution of individual investors turnover in the cash market

The following figures show that the share of total turnover of individual investors across regions remain same during the
last five months. Western region has contributed around 39% of total individual investors’ turnover in Dec’19, which is
significantly higher than other regions. North and South India accounted for 29% and 24%, whereas the Eastern region
has accounted for merely 8% of total individual investors’ turnover. Based on cash turnover of individual investors, top
10 cities contributed ~43% of total individual investors’ turnover over the month. Amongst them, Mumbai and Delhi
have contributed around 22% of total turnover and the share remains similar over the last five months as shown in Figure
167.
Figure 165: Region-wise distribution of individual Figure 166: Region-wise distribution of individual
investors’ turnover in cash market (%) investors’ traded volumes
100% 100%
37 38 39 38 39 90%
80% 80% 41 41 42 41 43
70%
60% 60%
25 24 24 24 24 50% 23 23 22 23 21
40% 40%
28 29 28 29 29 30%
20% 20% 27 27 27 27 27
10%
10 10 9 10 9
0% 9 9 9 9 8 0%
Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
East India North India South India West India East India North India South India West India
Source: NSE.
Figure 167: Top 10 districts based on Cash turnover of Figure 168: Top 10 districts based on individual
individual investors in December 2019 investors traded in December 2019
16% 14%
% of Cash turnover of individual investors
13%
% of traded volume of individual investors in
14% 13% Aug-19 Sep-19 Oct-19

Aug-19 Sep-19 Oct-19 12%
12% Nov-19 Dec-19
Nov-19 Dec-19 10%
10% 9% 8%
8%
cash market
8%
6%
6%
6%
4% 4% 4%
4% 3%
4% 3% 2%
2% 2% 2% 2% 2%
2% 2% 2% 2% 2%
2%
0% 0%
Source: NSE
Note: Individual investors include Individual / Proprietorship firms and HUF. Top ten districts are chosen based on December’19 data.
103
Market Pulse
Asset category wise open interest (average daily volume)

Figure 169a: Average daily volume of open interest in Equity derivatives (million contracts)
Category Dec-19 Nov-19 % Change Current FY Previous FY YTD
Equity Derivatives
FUTSTK 4,220 4,226 (0.1) 4,325 5,044 4,431
OPTSTK 1,567 1,707 (8.2) 1,448 1,518 1,464
Equity Derivatives - Index Futures
BANKNIFTY 1.5 1.8 (15.1) 1.8 2.2 1.8
NIFTY 14.8 16.4 (9.9) 18.7 25.2 20.1
NIFTYIT 0.0 0.0 (22.8) 0.0 0.0 0.0
Equity Derivatives - Index Options
BANKNIFTY 14.2 14.0 1.2 14.7 20.0 15.4
NIFTY 102.0 102.1 (0.1) 102.3 117.1 103.4
NIFTYIT 0.0 0.0 0.0 0.0 0.0 0.0
Source: NSE
Figure 169b: Average daily volume of open interest in Currency derivatives (no of contracts)
Futures
EURINR 67,370 67,566 (0.3) 66,925 106,749 69,431
EURUSD 3,906 32,216 (87.9) 44,112 28,985 41,243
GBPINR 110,913 96,887 14.5 69,886 59,593 65,720
GBPUSD 9,576 2,883 232.2 5,312 7,762 5,059
JPYINR 45,706 47,188 (3.1) 50,513 39,262 48,815
USDINR 3,029,128 2,799,719 8.2 2,798,847 3,010,919 2,690,547
USDJPY 161 277 (41.8) 313 1,164 359
Options
EURINR 525 356 47.4 503 4,834 547
EURUSD 0 0 0.0 0 20 0
GBPINR 972 339 186.7 720 3,450 862
GBPUSD 5 0 0.0 1 0 0
JPYINR 62 628 (90.2) 183 1,252 231
USDINR 3,082,223 2,842,696 8.4 2,784,997 2,649,910 2,739,098
Source: NSE
Figure 169c: Average daily volume of open interest in NSE bond futures II (no of contracts)
645GS2029 36,858 5,868 528.1 22,555 - 22,555
726GS2029 1,13,892 1,49,950 (24.0) 1,10,221 2,144 86,204
795GS2032 26,095 29,638 (12.0) 28,864 13,092 27,373
757GS2033 3,750 2,083 80.0 2,981 - 2,981
Source: NSE
104
Market Pulse
Internet-based trading
Average daily turnover of internet-based trading increased significantly in all segments, except Cash market, over the
month. Notably, average turnover of interest rate futures increased by 32.2% to reach Rs495mn daily in Dec’19,
whereas Equity derivatives turnover increased by merely 2.8%, followed by Currency derivatives by 1.5% over the
month. In contrast, average daily turnover of internet-based trading declined by 15% in Cash market over the month.
Figure 170: Average daily turnover of internet-based trading (Rsm)

Segment Dec-19 Nov-19 % Change Current FY Previous FY YTD
Cash market 35,454 41,703 -15.0 47,487 50,360 48,258
Equity derivatives 1,501,283 1,461,034 2.8 1,817,410 1,419,219 1,745,554
Currency derivatives 33,536 33,043 1.5 41,690 30,766 41,571
Interest rate futures 495 374 32.2 826 208 653
Source: NSE
Record statistics
Cash market recorded its highest turnover of Rs828bn on November 26, 2019 mainly due to a significant rise in FPI
inflows in equity over the month. Index futures and Stock options recorded their highest turnover of Rs860bn and
Rs1,376bn respectively on September 20th, 2019 after the Finance Minister slashed the corporate tax rate from 30% to
22%. This coincided with a jump in the benchmark Nifty50 which continued September 23rd as well to reach above
11,600 after two months of slowdown. Later, Index options registered highest turnover of Rs31tn on September 26th,
2019—the day of monthly expiry in the derivatives segment. However, these segments did not have record turnover in
the month of December.
Figure 171: Segment-wise record turnover till December 31, 2019

Segment Turnover (Rsbn) Trading Date
Cash market 828 26-Nov-19
Index futures 860 20-Sep-19
Stock futures 1,954 25-Jan-18
Index options 30,788 26-Sep-19
Stock options 1,376 20-Sep-19
Source: NSE
105
Market Pulse
Investment through mutual funds in India

Total investment pattern through mutual funds in India is shown in the following table. Data shows, total investment has
concentrated marginally with fewer schemes between Apr-Oct’19, as number of schemes has declined from 1,967 in
Apr’19 to 1,904 in Oct’19 and the number of folios maintained a steady rise over the same period. Data also shows a
continuous decline in net inflows of mutual funds from April till June when mutual funds turned net sellers (-Rs1.5trn).
The trend reversed in the following month with net inflows of Rs871bn, and an 18% jump in August to Rs1,025bn.
However, mutual funds again turned net sellers with net outflows of Rs1,518bn in September, which has resulted a
significant decline in asset under management over the month, partly due to an increase in market risk. After a sharp
increase in October 2019, net investment of mutual funds declined sharply in November to reach Rs.544bn, partly due
to the current slowdown in the Indian economy. The negative trend continued in December as well and mutual funds
turned net sellers with Rs618bn net outflows in the market and asset under management declined to Rs26.5tn by end
of the month. In contrast, average asset under management (AAUM) increased to Rs27.3tn in December from Rs.26.9tn
in the previous month, mainly due to a significant rise in volatility in the market that has caused several ups and down
over the month in terms of trade volume and share prices.
Over the month 16 new schemes were launched and 157 funds got mobilised through these new schemes. This has
resulted an increase in total number of schemes to 1,911 to reach 87.1mn folios by the end of December. Though total
fund mobilised during the month increased to Rs11.5tn, however total redemption over the month was Rs12.1tn which
ended as net outflow of Rs618bn over the month.
Figure 172: Monthly trend of total investment through mutual funds

Month No. of No. of Fund Repurchase/ Net AUM * as on AAUM** for No. of Funds
Schemes Folios mobilized Redemption Inflows end of the the month new mobilized
(mn) during the during the (Rsbn) month (Rsbn) Schemes through new
month month (Rsbn) (Rsbn) schemes
(Rsbn) (Rsbn)
Apr-19 1,967 82.7 18,735 17,731 1,005 24,788 25,276 11 13

May-19 1,954 83.2 22,873 22,103 770 25,936 25,432 17 32
Jun-19 1,940 83.8 18,675 20,273 (1,598) 24,250 25,814 12 21
Jul-19 1,929 84.8 23,087 22,216 871 24,536 25,810 23 158
Aug-19 1,918 85.3 19,206 18,181 1,025 25,476 25,639 9 14
Sep-19 1,903 85.6 16,838 18,356 (1,518) 24,508 25,604 8 7
Oct-19 1,904 86.3 14,932 13,597 1,335 26,328 26,137 14 25
Nov-19 1,901 86.5 8,822 8,278 544 27,047 26,944 5 6
Dec-19 1,911 87.1 11,506 12,124 (618) 26,541 27,259 16 157
Source: AMFI. * AUM- Asset under Management. **AAUM-Average Asset under Management.
106
Market Pulse
Policy developments
India
SEBI allowed AMCs to provide management and advisory services to FPIs (SEBI, December 16, 2019) 8
SEBI recently permitted AMCs to provide management and advisory services to FPIs falling under the following
categories of FPIs as specified in FPI regulations;
i) Government and Government related investors such as central banks, sovereign wealth funds,
international or multilateral organizations or agencies including entities controlled or at least 75% directly
or indirectly owned by such Government and Government related investor(s);
ii) Appropriately regulated entities such as pension funds, insurance or reinsurance entities, Banks and
mutual funds;
iii) Appropriately regulated FPIs where above categories hold more than 50% of shares/units.
SEBI issued guidelines for filing of placement memorandum for Infrastructure Investment Trusts (InvITs) to get
listed (SEBI, December 24, 2019) 9
SEBI issued guidelines for InvITs which are issuing units on private placement basis that are proposed to be listed.
InvITs has to file a draft placement memorandum with the Board and stock exchange(s) through merchant banker
registered with the Board at least 30 days prior to the issue. They have to disclose all required information as mentioned
in Schedule III of InvIT Regulations and the merchant banker should submit a due diligence certificate with the draft
placement memorandum. The Board should review the draft along with other informations, which must be incorporated
by the merchant banker before making the issuance.
SEBI issued a format on Statement of Deviation or Variation for proceeds of different kind of issuances (SEBI,
December 24, 2019) 10
According to the SEBI LODR Regulations, all listed entities are required to stock exchange a statement of deviation or
variation for any public issue, rights issue, preferential issue, Qualified Institutions Placement (QIP), etc. on a quarterly
basis. They should also disclose the category wise variation between projected utilisation of funds and the actual
utilisation of funds. Such statement of deviation or variation needs to be submitted till the issue proceeds have been
fully utilised or the purpose for which these proceeds were raised has been achieved.
Realising the fact that, the statement that each issuer submits does not follow any uniformity, which makes it difficult
for the stock exchanges to monitor and evaluate them for the purpose of compliance. Hence, SEBI has come up with a
format of statement of deviation and variation for proceeds of different kind of issuances. The salient features of the
format are:
i) Applicability: The format should be applicable for funds raised by listed entities through public issue, rights
issue, preferential issue, QIPs etc.
ii) Frequency of Disclosure: The disclosure to the Stock Exchange(s) should be made by listed entities on
quarterly basis along with the declaration of financial results (within 45 days of end of each quarter / 60
days from the end of the last quarter of the financial year) until such funds are fully utilised or the purpose
for which these proceeds were raised has been achieved.
iii) Role of the Audit Committee: The statement of deviation report should be placed before audit committee of
the listed entity for review on quarterly basis and after such review, the comments of audit committee along
8
https://www.sebi.gov.in/legal/circulars/dec-2019/management-and-advisory-services-by-amcs-to-foreign-portfolio-investors_45333.html
9
https://www.sebi.gov.in/legal/circulars/dec-2019/guidelines-for-filing-of-placement-memorandum-invits-proposed-to-be-listed_45446.html
10
https://www.sebi.gov.in/legal/circulars/dec-2019/format-on-statement-of-deviation-or-variation-for-proceeds-of-public-issue-rights-issue-
preferential-issue-qualified-institutions-placement-qip-etc-_45447.html
107
Market Pulse
with the report should be disclosed/submitted to the stock exchange. In cases where the listed entity is not
required to have an audit committee under the provisions of SEBI LODR Regulations or Companies Act,
2013, the word ‘Audit Committee’ should be replaced with ‘Board of Directors’.
SEBI issued a framework for listing of Commercial Paper-Amendments (SEBI, December 24, 2019) 11
SEBI circulated a framework for listing commercial papers on October 22, 2019 which is recently amended based on
the recommendations from the market participants. According to the circular, listed issuers (who have already listed
securities and/or ‘Non-convertible Debt Securities’ and/or ‘Non-Convertible Redeemable Preference Shares’) and
issuers (who have outstanding listed commercial papers) can submit unaudited financials with limited review for the
stub period in the current financial year, subject to making necessary disclosures in this regard including risk factors.
While an issuer is required to prepare financial results for the purpose of consolidated financial results of its parent
company, the issuer needs to submit financial results on quarterly basis.
Stewardship Code for all Mutual Funds and all categories of AIFs, in relation to their investment in listed equities
(SEBI, December 24, 2019) 12
Institutional investors are expected to take additional responsibilities towards their clients and beneficiaries by
enhancing monitoring and engagement with their investee companies, which is known as stewardship responsibilities.
This can also be seen as a step forward towards better corporate governance towards better protection of the interest
of investors in such companies.
In this regards, SEBI has also implemented several policy initiatives such as mandatory requirements for mutual funds
in India to disclose voting policies and actual voting by mutual funds on different resolutions. Besides, SEBI, in this
circular, decides that all mutual funds should necessarily follow the stewardship code elaborated here since April 1,
2020. According to the Circular,
• Institutional Investors are mandatorily required to formulate a comprehensive policy on the discharge
of their stewardship responsibilities, publicly disclose it, review and update it periodically.
• They should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship
responsibilities and publicly disclose it.
• They need to monitor their investee companies on regular basis.
• They should also have a clear policy on intervention in their investee companies. The policy should
mention how they are going to collaborate with other institutional investors with an objective to
preserve the interests of the ultimate investors. The institutional investor are required to disclose their
policy in detail.
• They should have clear policy on voting and disclosure of voting activity.
• They should also report their stewardship activities periodically in an easy to understand format.
SEBI has taken several measures to strengthen the conduct of Investment Advisers (IA) (SEBI, December 27,
2019) 13
SEBI issued additional measures related to code of conduct for Investment Advisors (IAs), to further strengthen the
conduct of IAs, while providing investment advice and to protect the interest of investors seeking their advice.
• Restriction on free trial: IAs are restricted to provide free trial for any products / services to prospective clients
without considering risk profile of the client. IAs should not accept part payment for any products or services.
11
https://www.sebi.gov.in/legal/circulars/dec-2019/framework-for-listing-of-commercial-paper-amendments_45448.html
12
https://www.sebi.gov.in/legal/circulars/dec-2019/stewardship-code-for-all-mutual-funds-and-all-categories-of-aifs-in-relation-to-their-
investment-in-listed-equities_45451.html
13
https://www.sebi.gov.in/legal/circulars/dec-2019/measures-to-strengthen-the-conduct-of-investment-advisers-ia-_45490.html
108
Market Pulse
• Proper risk profiling and consent of client on risk profiling: IAs are directed to give advice on suitable investment
after doing proper risk profiling of their clients and getting consent from their client on completer risk profile
from their clients.
• Receiving fees though banking channel only: IAs should accept fees strictly by account payee crossed
cheques/demand draft or by way of direct credit into their bank account through NEFT/RTGS/IMPS/UPI.
• Display of complaints status on website: IAs should display status of all complaints on their website.
RBI released a draft circular on limits on Exposure to Single and Group Borrowers/Parties and Large Exposures
and Revision in Priority Sector Lending Targets for UCBs (RBI, December 30, 2019) 14
RBI released a draft circular on limit on exposure to single and group borrowers/parties, large exposures and revision in
priority sector lending targets for primary (urban) co-operative banks (UCBs) to get feedback and suggestions.
According to the previous circular dated April 15, 2005, primary (urban) co-operative banks (UCBs) were permitted to
have exposures up to 15% and 40% of their capital funds to a single borrower and a group of borrowers, respectively.
Large exposure to a single and a group of borrowers may lead to concentration risk. Further, large ticket loans in the
bank’s portfolio reduces diversification of credit risk and also reduces the scope for greater financial inclusion which is
one of the main roles of UCBs. Enhancement of priority sector lending targets is also considered necessary for the
purpose of meeting the larger objectives of UCBs.
Keeping in mind the above limitations, RBI has decided to revise the exposure limit to 10% and 25% for single and group
borrowers respectively. UCBs are directed to bring down existing exposure limit to the new threshold by March 31, 2023.
Besides, UCBs should have at least 50 per cent of their loan portfolio comprising loans of not more than ₹25 lakh per
borrower/party.
UCBs are also required to increase overall priority sector lending (PSL) target from the present level of 40 per cent of
adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE), whichever is
higher, to 75 per cent of ANBC or CEOBSE, whichever is higher.
14
https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48993
109
Market Pulse
Global
IOSCO proposed several measures to reduce conflict of interests in debt capital raising (IOSCO, December 16,
2019) 15
IOSCO requested for feedback on proposed measures to reduce conflict of interests and associated conduct risks arising
from the role of market intermediaries in debt capital raising. Conflicts of interests can weaken investors’ confidence
and undermine debt capital markets as an effective vehicle for issuers to raise funding. In this regard, IOSCO published
a consultation paper “Conflicts of interest and associated conduct risks during the debt capital raising process” to help
regulators to identify and address the underlying risks. The proposal comprised of eight measure to address three key
aspects of debt raising process, (i) pricing of debt securities and risk management transactions, (ii) quality of available
information to investors, and (iii) allocations of debt securities.
European Union (EU) agreed on a unified EU classification system to encourage sustainable finance (European
Council, December 18, 2019) 16
The EU agreed to have a unified classification system to encourage private investment on sustainable finance. The EU-
wide classification system, or "taxonomy", which will help to provide businesses and investors a common language to
identify what economic activities can be considered environmentally sustainable. It will be used as an instrument to
make EU a climate neutral state by 2050 and achieve the Paris agreement's 2030 targets. These include a 40% cut in
greenhouse gas emissions for which the Commission estimates that the EU has to fill an investment gap of about 180
billion EUR per year.
The US Commodity Futures Trading Commission approved one final rule and two proposed rules (CFTC, December
18, 2019) 17
Unanimously, the Commission approved a final rule to amend certain regulations applicable to registered derivatives
clearing organizations (DCOs). This will help to address certain risk management and reporting obligations, clarify the
meaning of certain provisions, simplify processes for registration and reporting, and codify existing staff relief and
guidance, among other things. In addition, the Commission adopted technical amendments to certain provisions,
including certain delegation provisions, in other parts of its regulations.
The Commission approved, on a 3-2vote, a proposal that addresses the cross-border application of the registration
thresholds and certain requirements applicable to swap dealers and major swap participants, and establishes a formal
process for requesting comparability determinations for such requirements.
The Commission also approved unanimously a proposal to amend its regulations to prohibit “post-trade name give-up”
practices for swaps that are anonymously executed on a Swap Execution Facility (SEF) and are intended to be cleared.
The proposed rule would also require SEFs to establish and enforce rules that prohibit any person from effectuating such
a disclosure.
SEC adopts several techniques to mitigate risk related to Uncleared Security-Based Swaps (SEC, December 18,
2019) 18
The US SEC unanimously adopts several rules to mitigate risk to portfolios of uncleared security-based swaps. According
to the new rules, they can periodically reconcile outstanding security-based swaps with counterparties, engage in
certain forms of portfolio compression exercises, as appropriate, and execute written trading relationship
15
https://www.iosco.org/news/pdf/IOSCONEWS553.pdf
16
https://www.consilium.europa.eu/en/press/press-releases/2019/12/18/sustainable-finance-eu-reaches-political-agreement-on-a-unified-eu-
classification-system/
17
https://www.cftc.gov/PressRoom/PressReleases/8097-19
18
https://www.sec.gov/news/press-release/2019-262
110
Market Pulse
documentation with each of their counterparties prior to, or contemporaneously with, executing a security-based swap
transaction.
The Commission also approved amendments to its existing cross-border rule to provide a means to request substituted
compliance with respect to the portfolio reconciliation, compression, and trading relationship documentation
requirements. Finally, it has amended its recently-adopted recordkeeping, reporting, and notification rules to
incorporate records relating to the new risk mitigation requirements.
The European Council approves an approach to address systemic risks due to certain financial market
infrastructure (EC, December 4, 2019) 19
The EU approved a proposed approach for clearing houses and their authorities to address systemic risks of certain
financial market infrastructure. The approach comprises three steps;
Prevention and preparation: Clearing counterparties and resolution authorities are required to prepare recovery
and resolution plans on how they will handle any sort of financial distress which would exceed a CCP’s existing
resources.
Intervene at an early stage: Supervisory authorities should intervene at an early stage before the problem
become critical and the financial situation deteriorates irreparably.
Resolution tools: In case of a CCP failure, the national authority can take resolution tools which include the use
of write-down of instruments of ownership, a cash-call to clearing members, the sale of the CCP or parts of its
business or the creation of a bridge CCP.
19
https://www.consilium.europa.eu/en/press/press-releases/2019/12/04/clearing-houses-council-adopts-position-on-recovery-and-resolution/
111
Market Pulse
Comparison of trading activities across major exchanges globally

In this section of the Market Pulse, we have shown the distributional pattern of global trade in securities markets across
exchanges. The analysis uses data from World Federation of Exchanges (WFE) over the period November 2017-
November 2019. A total of 92 exchanges are covered in the analysis; 51 from the EMEA region, 23 from Asia-Pacific and
the rest from the Americas region. 20 Starting from an exchange-wise analysis of domestic market capitalisation, we have
done a comprehensive analysis of trading activity in the cash/spot markets and different derivatives markets—Equity,
Interest rate, Currency and Commodity segments. Data reveals that:
• NSE retained its top position in equity index options with ~67% of trade share in Nov’19: NSE’s share in the
equity index options market has risen significantly over the last two years in terms of total number of contracts
traded in the segment. However, it has declined significantly since Aug’19. Korea Stock Exchange holds second
position with merely 11% of market share, followed by Deutsche Boerse AG with 7% market share.
• NSE’s share remains low in the Equity index futures segment: B3 - Brasil Bolsa Balcão topped in the Equity
index futures market since June 2018 in terms of number of contracts traded. Out of total trade volume in Nov’19,
about 46% are traded in B3 - Brasil Bolsa Balcão (increased marginally from 44% in the previous month) followed
by 14% in CME group, 9% in Deutsche Boerse and 7% in Japan stock exchange. NSE’s rank deterioted further
from sixth in September to eighth in October to ninth in November with a market share of ~2% over the month.
• NSE ranked third globally in terms of number of trades in Cash market: NSE has been able to maintain its rank
amongst the top four in the Cash market over the last two years. As of Oct’19, it remained third globally with
222mn trades over the month, after Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE). Data
also reveals the volatility of total trades has increased significantly in SSE and SZSE over last six months, whereas
it remained relatively stable for NSE. Notably, NSE’s total trades in the cash market is marginally lower than SSE
for last four months.
• NSE’s ranked tenth globally based on domestic market capitalisation (DMC) in Nov'19: NSE’s market size
increased by 5% MoM to reach at US$2.1tn in Nov’19 from US$2.0tn in the previous month. Among other Indian
stock exchanges, BSE held ninth position with ~US$2.2tn with a 5% rise over the month. Worldwide, Hong Kong
Stock Exchange slipped from fourth to fifth position over the month even though its market capitalisation
increased by 16% over the month.
• Distibution of total trade volume is quite diverse across exchnages for Stock options vs. Stock futures: NSE’s
ranking slipped to third position globally in Stock futures, whereas its ranking improved to fifth in Stock options in
terms of number of contracts traded in Nov’19.
• In contrast, NSE holds top position in both Currency futures and options market: NSE topped in the Currency
segment with 52% trade share in Options and 26% in Futures. Among other exchanges in India, BSE contributed
significant share in the global market. It retained second position in Currency options and fourth position in
Currency futures with 42% and 16% market share respectively.
20
The World Federation of Exchanges, Monthly statistics, https://statistics.world-exchanges.org/ReportGenerator/Generator.
112
Market Pulse
Figure 173: Market Cap and number of trades in different products of top ranked exchanges (Nov’17-Nov’19)*
a. Domestic market capitalization (US$bn)* b. Number of trades - Cash market (mn)
SZSE NSE
Nasdaq - US KRX Cboe Global Markets
600
Nasdaq - US SSE
JPX
SSE 500
Euronext
400
HKEX
LSE 300
Nov'19
SZSE Nov'18 200
TMX Group Nov'17
BSE 100
NSE
0
0 3,000 6,000 9,000 12,000 15,000 Nov-17 May-18 Nov-18 May-19 Nov-19
c. Number of contracts traded - Stock futures (mn) d. Number of contracts traded - Stock options (mn)
KRX BIST B3 - Brasil Bolsa Balcão Nasdaq - US
NSE MOEX Cboe Global Markets MIAX Exchange Group
80 Deutsche Boerse AG 120 NSE Deutsche Boerse AG
60 90
40 60
20 30
0 0
Nov-17 May-18 Nov-18 May-19 Nov-19 Nov-17 May-18 Nov-18 May-19 Nov-19
e. Number of contracts traded - Stock index futures f. Number of contracts traded - Stock index options
(mn) (mn)
NSE KRX
210 B3 - Brasil Bolsa Balcão Deutsche Boerse AG Cboe Global Markets
CME Group 450
TAIFEX
180 Deutsche Boerse AG
JPX 375
150 SGX
HKEX 300
120 MOEX
225
90
150
60
30 75
0 0
113
Market Pulse
g. Number of contracts traded - Currency futures (mn) h. Number of contracts traded - Currency options (mn)
NSE B3 - Brasil Bolsa Balcão NSE BSE

80 MOEX BSE 100
JSE MOEX
CME Group KRX TASE B3 - Brasil Bolsa Balcão
80
60
60
40
40
20
20
0 0
Note: *ASX - Australian Securities Exchange, BIST - Borsa Istanbul, BME - Spanish Exchanges, BSE - BSE India Limited, HKEX - Hong Kong Exchanges and Clearing, ISE -
International Securities Exchange, JPX - Japan Exchange Group Inc., JSE - Johannesburg Stock Exchange, KRX - Korea Exchange, LSE – London Stock Exchange, MOEX -
Moscow Exchange, NSE - National Stock Exchange of India Ltd., NYSE – New York Stock Exchange, SGX - Singapore Exchange, SSE - Shanghai Stock Exchange, SZSE -
Shenzhen Stock Exchange, TMX – TMX Group, TSE - Tehran Stock Exchange, TFE - Taiwan Futures Exchange.
Only WFE member exchanges are included in the analysis.
** Data not available for Nasdaq-US in Jul-19 and B3 - Brasil Bolsa Balcão in Apr-18.
*** Data not available for B3 - Brasil Bolsa Balcão in Jul-19.
114
Market Pulse
Economic calendar for the month for major countries

Date Country Indicator Name Period Reuters Poll Prior Period
2 Jan 2020 India IHS Markit Mfg PMI Dec 51.0 51.2
2 Jan 2020 Euro Zone Markit Mfg Final PMI Dec 45.9 45.9
3 Jan 2020 United States ISM Manufacturing PMI Dec 49.0 48.1
6 Jan 2020 India IHS Markit Svcs PMI Dec 51.4 52.7
9 Jan 2020 China (Mainland) CPI YY Dec 4.7% 4.5%
9 Jan 2020 Euro Zone Unemployment Rate Nov 7.5% 7.5%
10 Jan 2020 India Industrial Output YY Nov -0.6% -4.0%
10 Jan 2020 India Manufacturing Output Nov -2.1%
10 Jan 2020 Russia CPI YY Dec 3.1% 3.5%
10 Jan 2020 United States Non-Farm Payrolls Dec 164k 266k
10 Jan 2020 United States Unemployment Rate Dec 3.5% 3.5%
13 Jan 2020 United Kingdom GDP Estimate YY Nov 0.6% 0.7%
13 Jan 2020 United Kingdom Industrial Output YY Nov -1.4% -1.3%
13 Jan 2020 India CPI Inflation YY Dec 6.20% 5.54%
13 Jan 2020 United States Employment Trends Dec 110.2
14 Jan 2020 India WPI Inflation YY Dec 2.15% 0.58%
14 Jan 2020 United States CPI Index, NSA Dec 257.165 257.208
14 Jan 2020 United States CPI MM, SA Dec 0.3% 0.3%
10 Jan 2020 India Trade Deficit Govt -USD Dec 11.80B 12.12B
10 Jan 2020 India Imports - USD Dec 38.11B
10 Jan 2020 India Exports - USD Dec 25.98B
14 Jan 2020 China (Mainland) Exports YY Dec 3.2% -1.3%
14 Jan 2020 China (Mainland) Imports YY Dec 9.6% 0.5%
14 Jan 2020 China (Mainland) Trade Balance USD Dec 48.00B 37.93B
15 Jan 2020 United Kingdom CPI YY Dec 1.5% 1.5%
16 Jan 2020 China (Mainland) Outstanding Loan Growth Dec 12.4% 12.4%
17 Jan 2020 China (Mainland) Industrial Output YY Dec 5.9% 6.2%
17 Jan 2020 China (Mainland) GDP YY Q4 6.0% 6.0%
17 Jan 2020 United States Industrial Production MM Dec -0.2% 1.1%
21 Jan 2020 Japan JP BOJ Rate Decision 21 Jan -0.10%
22 Jan 2020 South Africa CPI YY Dec 3.6%
28 Jan 2020 United States Consumer Confidence Jan 126.5
30 Jan 2020 United States Fed Funds Target Rate 29 Jan
30 Jan 2020 Euro Zone Unemployment Rate Dec 7.5%
30 Jan 2020 United Kingdom BOE Bank Rate Jan 0.75%
115
Market Pulse
Annual Macro Snapshot

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
National income
GDP (Current) Growth (%) 15.5 19.9 14.4 13.8 13.0 11.0 10.5 11.6 11.3 11.2
GDP (Current) (Rs trn) 63.7 76.3 87.4 99.4 112.3 124.7 137.7 153.6 171.0 190.1
GVA (Constant) Growth (%) 6.9 8.0 5.2 5.4 6.1 7.2 8.0 7.9 6.9 6.6
Agriculture growth (%) -0.9 8.8 6.4 1.5 5.6 -0.2 0.7 6.3 5.0 2.9
Industry growth (%) 8.8 7.9 3.6 3.3 3.8 7.0 9.6 7.7 6.0 6.9
Services growth (%) 8.7 7.8 5.9 8.3 7.7 9.8 9.4 8.4 8.1 7.5
Per Capita GDP (Curr) (Rs) 54,414 64,372 71,609 80,518 89,796 98,405 1,07,341 1,18,263 1,29,901 1,42,719
Prices
CPI Inflation (%) 10.1 9.4 5.8 4.9 4.5 3.6 3.4
CPI – Rural (%) 10.6 9.6 6.2 5.6 5.0 3.6 3.0
CPI – Urban (%) 9.4 9.1 5.5 4.1 4.0 3.6 3.9
WPI Inflation (%) 3.8 9.6 9.0 6.9 5.2 1.3 -3.7 1.7 2.9 4.3
Primary articles (%) 12.6 17.8 9.8 11.4 9.9 2.2 -0.4 3.4 1.4 2.7
Fuel & power (%) -2.3 12.3 13.9 7.1 7.1 -6.1 -19.7 -0.3 8.2 11.5
Manuf. prods (%) 2.2 5.7 7.3 5.3 3.1 2.6 -1.8 1.4 2.8 3.7
Money, banking & interest rates
Money supply (M3) growth (%) 16.9 16.1 13.5 13.6 13.4 10.9 10.1 10.1 9.2 10.5
Aggregate deposit growth (%) 17.2 15.9 13.5 14.2 14.2 10.7 9.3 15.3 6.2 10.0
Bank credit growth (%) 16.9 21.5 17.0 14.1 14.0 9.1 10.9 8.2 10.0 13.3
Non-food credit growth (%) 17.1 21.3 16.8 14.0 14.2 9.3 10.9 9.0 10.2 13.4
Public Finance
GOI rev. receipts growth (%) 6.0 37.7 -4.7 17.0 15.4 8.6 8.5 15.0 4.4 20.5
Tax receipts growth (%) 3.2 27.0 12.1 16.5 9.9 9.3 16.9 17.9 11.8 17.2
GOI Expenditure growth (%) 15.9 16.9 8.9 8.1 10.6 6.7 7.6 10.3 8.4 14.7
Subsidies growth (%) 9.0 22.7 25.7 18.0 -1.0 1.4 2.3 -11.1 -4.4 33.3
Interest expense growth (%) 10.9 9.8 16.7 14.7 19.5 7.5 9.7 8.8 10.0 11.1
External transactions
Exports growth (%) -2.6 40.7 21.9 -1.8 4.9 -1.5 -15.5 5.1 10.1 8.6
POL exports growth (%) 4.3 47.8 34.9 8.7 4.3 -10.7 -46.1 3.4 18.8 23.9
Non-POL exports (%) -3.8 39.3 19.3 -4.2 5.1 0.8 -8.6 5.4 9.0 6.4
Imports growth (%) -3.9 28.5 32.4 0.2 -8.4 -0.3 -15.0 1.0 21.2 10.2
POL exports growth (%) -5.1 21.9 46.4 5.7 0.7 -16.4 -40.1 5.3 25.0 29.8
Non-POL exports growth (%) -3.4 31.3 26.8 -2.3 -13.0 9.1 -3.8 -0.2 20.1 4.3
Net FDI (US$bn) 18.0 11.3 21.9 19.8 21.6 31.3 36.0 35.6 30.3 30.7
Net FII (US$bn) 32.4 30.3 17.2 26.9 4.8 42.2 -4.1 7.6 22.1 -0.6
Trade Balance (US$bn) -118.4 -127.2 -189.7 -195.7 -147.6 -144.9 -130.1 -112.4 -160.0 -180.3
Current Acc. Balance (US$bn) -38.4 -47.9 -78.2 -87.8 -32.4 -26.7 -22.1 -15.2 -48.7 -57.2
Forex Reserves (US$bn) 279.1 304.8 294.4 292.6 303.7 341.4 355.6 370.0 424.4 411.9
Exchange rate (USDINR) 47.42 45.57 47.95 54.45 60.5 61.15 65.46 67.09 64.45 69.89
116
Market Pulse
Economic Policy & Research
Tirthankar Patnaik, PhD tpatnaik@nse.co.in +91-22-26598149
Prerna Singhvi, CFA psinghvi@nse.co.in +91-22-26598316
Runu Bhakta, PhD rbhakta@nse.co.in +91-22-26598163
Ashiana Salian asalian@nse.co.in +91-22-26598163
We acknowledge the valuable contribution of Aanchal Dusija, Arushi Chadha, Sheel Kanodia and Aarushi Lunia to this
report.
Marketing
Rajesh Jaiswal rjaiswal@nse.co.in +91-22-26598380
Disclaimer
This report is intended solely for information purposes. This report is under no circumstances intended to be used or
considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy
any securities or other form of financial asset. The Report has been prepared on best effort basis, relying upon information
obtained from various sources, but we do not guarantee the completeness, accuracy, timeliness or projections of future
conditions provided herein from the use of the said information. In no event, NSE, or any of its officers, directors,
employees, affiliates or other agents are responsible for any loss or damage arising out of this report. All investments are
subject to risk, which should be considered prior to making any investment decisions. Consult your personal investment
advisers before making an investment decision.
117

NSE Market Pulse PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

NSE Market Pulse PDF

Uploaded by

Copyright:

Available Formats

January 2020

Trend of NSE’s turnover in different segments .................................................................................................. 93

Dr. Tirthankar Patnaik

Story of the month

Figure 1: Nifty 50 performance in 2019

NIFTY performance in 2019 vs. 100 day moving average

June 6: RBI changes stance

Dec 10: Boris Johnson won

Oct 11: US & China agree

Source: Refinitiv Datastream, NSE.

10 GDP growth NIFTY (R) 14000

Figure 3: Macro indicators in a snapshot

Source: Refinitiv Datastream, NSE.

Figure 4: Corporate performance in a snapshot

Figure 5: Nifty 50 Earnings Revision Indicator

Source: Refinitiv Datatream, NSE

Figure 6: Yearly trend of NIFTY 50 Consensus EPS estimates

Weighted mean Nifty EPS estimates for calendar years

2008 2010 2012 2014 2016 2018

Source: Refinitiv Datatream, NSE

Figure 7: Equity market performance across geographies

Source: Bloomberg, NSE.

Figure 9: Performance of Nifty Indices in 2019

Source: Bloomberg, NSE.

Figure 12: Sector-wise returns within Nifty 50 Index in 2019

Source: Bloomberg, NSE.

Figure 13: Sector-wise contribution to Nifty 50 return in 2019

Source: Bloomberg, NSE.

Source: Refinitiv Datastream, NSE.

Source: CMIE Economic Outlook, NSE. Source: AMFI, NSE.

Figure 19: Nifty 50 12-month forward P/E chart

Last 10 years mean:14.4

12 -1 Std Dev: 11.7 12

Source: Refinitiv Datastream, NSE.

Figure 20: Nifty 50 P/E bands

Source: Refinitiv Datastream, NSE.

+1 Std Dev: 1.5

Last 10 years mean:1.4 1.45

Source: Refinitiv Datastream, NSE.

Figure 22: Nifty Consumer Discretionary 12-month forward P/E chart

+1 Std Dev: 18.3

12 -1 Std Dev: 11.7 12

Source: Refinitiv Datastream, NSE.

Figure 23: Nifty Consumer Staples 12-month forward P/E chart

+1 Std Dev: 36.6

Last 10 years mean:31.3

-1 Std Dev: 26.0

Source: Refinitiv Datastream, NSE.

Figure 24: Nifty Energy 12-month forward P/E chart

Last 10 years mean:11.4

-1 Std Dev: 10.2

Source: Refinitiv Datastream, NSE.

Figure 25: Nifty Financials 12-month forward P/E chart

Last 10 years mean:16.2

14 -1 Std Dev: 13.7 14

Source: Refinitiv Datastream, NSE.

Figure 26: Nifty Healthcare 12-month forward P/E chart

24 +1 Std Dev: 23.4 24

Source: Refinitiv Datastream, NSE.

Figure 27: Nifty Industrials 12-month forward P/E chart

25 +1 Std Dev: 24.1 25

20 Last 10 years mean:19.2 20

15 -1 Std Dev: 14.2 15