Market Pulse Feb 2021

February 2021
Volume 3, Issue 2
Market Pulse
A monthly review of Indian economy and markets
Market Pulse
February 2021 | Vol. 3, Issue 2
Indian
A Monthly Review
Economy and
Markets
Volume 3, Issue 2
This monthly publication is a review of
major developments in the economy and
financial markets during the month.
Online: www.nseindia.com
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Market Pulse
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Market Pulse
Table of Contents
Executive Summary ........................................................................................................................ 1
Stories of the month ....................................................................................................................... 3
Union Budget 2021-22: Growth uber alles ...................................................................................................... 3
COVID-19 Update: New cases continue to decline; vaccine roll-out progressing well ...............................23
Chart of the month........................................................................................................................ 42
Capital flows into Emerging Markets: Whither India? ...................................................................................42
New Product: Derivatives on Nifty Financial Services Index ............................................................ 48
Macro economy ............................................................................................................................ 49
Retail inflation falls to 15-month lows in December .....................................................................................49
Industry production contracts in November .................................................................................................55
Trade deficit widens further on strong import growth ..................................................................................60
Fiscal deficit to shoot up in Q4FY21 ..............................................................................................................65
RBI Monetary Policy: Status quo on rates; Inflation/growth forecasts revised upwards ............................71
Economic Survey 2020-21: V-shaped recovery with 11% GDP growth in FY22 .........................................77
IMF WEO and World Bank GEP: IMF paints a rosier picture than World Bank .............................................81
Insights ....................................................................................................................................... 86
Dialogue 4: Conflict of Interest ......................................................................................................................86
Dialogue 5: Strengthening Institutions for the Coming Decade ....................................................................91
Webinar by the NSE-ISB Trading Lab: Putting Academic Research to Practice ...........................................95
Procyclicality of CCP margin models: Is it possible to find an efficient, prudent, and safe margin model
with minimum procyclical behaviour? ...........................................................................................................98
Market Performance .................................................................................................................... 100
Market Round-up ......................................................................................................................................... 100
Market performance across asset classes.................................................................................................. 105
Institutional flows across market segments in India ................................................................................. 112
Fund mobilisation through NSE .................................................................................................... 114
Market Statistics: Primary market............................................................................................................... 114
New listings in the month ............................................................................................................................ 115
Trend of NSE’s turnover across different segments ........................................................................ 116
Impact of macro indicators on NSE’s turnover ........................................................................................... 116
Institutional investments through NSE platform........................................................................................ 120
Total turnover in CM and derivatives market .............................................................................................. 122
Market Pulse
Average daily turnover in CM and derivatives market ................................................................................ 123

Turnover of top traded symbols over the month ........................................................................................ 125
Client category-wise participation in total turnover ................................................................................... 127
Asset category-wise open interest (average daily volume) ....................................................................... 139
Internet-based trading ................................................................................................................................ 140
Record statistics .......................................................................................................................................... 141
Spatial distribution of trading activities ........................................................................................ 142
Region-wise distribution of new investors registered ................................................................................ 142
Region-wise distribution of individual investor turnover in the cash market ............................................ 144
Investment through mutual funds in India .................................................................................... 146
Policy developments.................................................................................................................... 148
Comparison of trading activities across major exchanges globally .................................................. 151
Economic calendar for major countries (February 2021) ................................................................. 155
Annual Macro Snapshot ............................................................................................................... 156
Market Pulse
Executive Summary
Economy and markets get a Budget boost
After a challenging 2020, the year 2021 started with a sense of relief, encompassing a slew of things to cheer about.
Widespread vaccine roll-outs, decline in global infections following a sharp surge in December, imminent Biden’s US
presidency, enhanced monetary and fiscal support and improvement in global growth outlook ensured equity markets
enter the new year on a strong footing. A visible flattening of the global COVID-19 curve, along with an encouraging
progress on the vaccination front, gave hopes of an end to this crisis sooner than later. India has fared much better on
the pandemic front, with a steady decline in daily cases since November, that has been consequently accompanied by
efforts to further open up the economy. Vaccination drive is underway in full swing, with India administering ~7.5mn
vaccine doses as of February 10th, making it the country with the fourth highest number of vaccine doses administered.
The positive momentum, however, was short-lived, with developed markets giving up all gains towards latter part of
January and ending the month down 1.1%. While US equity markets were hurt by coordinated short squeezes in some
heavily shorted stocks by several retail investors, thereby increasing market volatility and reducing risk appetite,
European equities suffered from a relatively slow roll-out of COVID-19 vaccines, political uncertainty in Italy and
lockdown restrictions. Emerging markets, however, significantly outperformed, ending January about 3% higher, as
portfolio flows remained buoyant amid supportive surplus global liquidity.
Indian equity markets faltered in the run up to the Union Budget and broke the three-month winning streak to end the
month in red, with the Nifty 50 and Nifty 500 Index falling by 2.5% and 1.9% respectively in January. Profit booking
ahead of the Union Budget, coupled with geo-political tensions, contributed to the sell-off in Indian equities in the latter
part of the month, notwithstanding strong foreign portfolio inflows. On the positive side, high-frequency indicators
continued to point towards a steady economic recovery, further aided by continued decline in daily COVID-19 cases
and casualties, resulting in upgrades in growth forecasts across the board. The Union Budget, with its targeted focus on
pump-priming the economy and bringing about transparency in Government’s finances, brought back the lost cheer,
leading to a huge 10%+ rally in headline indices in February thus far.
The FY22 Union Budget, with a much higher-than-expected fisc. of 6.8% of GDP, has focused on providing an
investment-led boost to growth via higher capex, along with a much-needed clean-up of the Government finances. In
addition, an effective stress resolution framework, a comprehensive asset monetisation and disinvestment strategy,
hike in FDI limit in insurance, improved transparency and credibility, a huge jump in the health and wellness outlay and
a relaxed medium-term fiscal consolidation roadmap were some of the positive announcements from the Budget.
While the Budget clearly provided a significant boost to equity market sentiments, a higher-than-expected fiscal deficit
for the current as well as next fiscal year further dampened already weak sentiments of fixed income investors.
Following a broad-based spike in yields in January, particularly more so at the short-end as markets were worried about
a gradual reversal in RBI’s liquidity stance, yields hardened further post the Budget announcement. The RBI’s
commitment on maintaining adequate liquidity in the system and doing whatever it takes to ensure smooth execution
of the Government’s borrowing programme comforted markets to some extent. While the 10-year G-sec yield has
inched up by 12bps in 2021 thus far (As on February 10th), the 1- and 5-year G-sec yields have risen by a much higher
26bps and 50bps respectively during this period. Commodities also rallied further, in-line with other risky asset classes,
attributed to a weak dollar and ramp-up of vaccination programmes, thereby boosting growth outlook.
Ultra-loose monetary policy and fiscal expansion across the World has resulted in record-breaking capital flows in 2020,
but distribution has been less than egalitarian. With US$34bn in portfolio (equity) and US$46bn in direct investments,
India stood as a recipient. We take a detailed look in our Chart of the Month section.
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Market Pulse
On the macro front, headline inflation finally moderated to 4.6% in December, marking the first sub-6% reading in nine
months, led by a sharp drop in vegetables and cereals inflation. This provided some comfort to the RBI’s MPC which
decided to keep the policy rates unchanged and continue with the accommodative stance as long as necessary.
Additionally, the RBI underscored the need to continue to support and revive growth on a durable basis particularly
amid expectations of a stable near-term inflation trajectory and reiterated its commitment towards seamlessly
managing the Government’s borrowing programme and consequently ensuring financial stability.
Industrial recovery faltered in November 2020, with the index declining by 1.9% YoY, albeit off a high base, while the
trade deficit widened to an 18-month high of US$15.4bn on strong import growth. In fact, non-oil, non-gold imports
recorded the first YoY expansion in 10 months and grew by 8% YoY—the steepest growth in 26 months, reflecting strong
consumption demand. A steady decline in daily COVID-19 cases and casualties, continued improvement in high-
frequency indicators, vaccination roll-out and a strengthened fiscal impulse led to upward revisions in growth forecasts
across the board. While the RBI expects FY22 GDP growth at 10.5%, the IMF’s estimates a tad higher 11.5% for the
next fiscal.
In the Insights section, we have summarised key takeaways from the first two dialogues in the second edition of the
Corporate Governance Webinar Series organised jointly with Excellence Enablers, a corporate governance advisory firm.
The first dialogue focused on how corporates should deal with situations of conflicting interests. The second dialogue
focused on the importance of robust institutions, the current state of institutions in our country, and what can be done
to make them better so that the citizens of our country can benefit from adequate institutional performance. The section
also features key takeaways from the webinar conducted by the NSE-ISB Trading Lab on December 23rd on “Putting
Academic Research to Practice”. The panellists discussed about anomalies that exist in the capital market and
characteristics of these anomalies in emerging markets like India.
In this section, we have also summarised a study by the World Federation of Exchanges on CCP (central counterparty)
margin models that argues that procyclicality of initial margin model is a systemic property and need systemic solutions.
Mere imposition of further calibration constraints into the initial margin models would not address the problems of
system fragilities that contribute to adverse feedback liquidity loops.
As we get into the second month of 2021, the macro recovery seems to remain on track, with support from a sustained
drop in COVID-19 cases, benign macro fundamentals with a fiscal impulse (that may not prove very expensive) and a
steady global environment. Rising commodities, esp. with limited head-room on domestic fuel prices, are something to
watch out for, in the near term, in addition to the stability of domestic markets with the overhang of the massive
borrowing program. On the pandemic, we have reached a stage where focus has shifted from active cases to the
vaccination program. In this context, initial results from countries like Israel have been promising, and could go a long
way towards mitigating the issue of vaccine resistance.
With hope that the current R0 of COVID-19 sustains for a few months, we bring you the second edition of the Market
Pulse in 2021. As usual, we are eager to hear your comments and suggestions.
Dr. Tirthankar Patnaik

Chief Economist
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Market Pulse
Stories of the month

Union Budget 2021-22: Growth uber alles
After an unforgettable year that saw an unprecedented economic contraction thanks to the COVID-19 pandemic,
supporting growth was the key priority. The Union Budget FY22 has exactly focused on that, and rightfully so, by
providing an investment-led boost to growth and significantly deviating from the erstwhile ambitious fiscal consolidation
roadmap (now targeting 4.5% by FY26). At 9.5% of GDP, the revised fiscal deficit for FY21 is much higher than market
expectations (~7-8% of GDP), primarily on the back of a sharp surge in Government expenditure (food subsidy and
capital expenditure) in the last quarter of the fiscal (implied growth in overall expenditure at 103% YoY in Q4FY21). A
part of this is also attributed to shift in some of the off-balance sheet items to on-balance sheet (e.g. FCI borrowing).
For FY22, the fiscal deficit target is pegged at 6.8% of GDP—higher than market expectations (~5.5% of GDP), reflecting
the Government’s focus on reviving growth achieved via higher capital expenditure, primarily towards physical/social
infrastructure (roads & highways, railways, urban infrastructure, healthcare) and manufacturing sector (PLI schemes).
The higher spending would primarily be funded through market borrowings, small savings funds and asset monetization,
without increasing tax burden as was widely expected (COVID cess). The Budget has, in fact, focused on further
simplifying tax administration and compliance. Overall, the fiscal math looks credible with a ~15% growth in net tax
revenues and a modest 1% growth in total expenditure.
Setting up of an Asset Reconstruction company (The so-called Bad Bank) to take over stressed assets of the banking
sector, a comprehensive asset monetisation and disinvestment strategy, hike in FDI limit in the insurance sector (from
49% to 74%) and a 137% jump in the health and wellness outlay as compared to FY21BE are some of the positive
announcements from the Budget. On the negative side, PSU bank recapitalisation plan of Rs200bn is on the lower side
and may fall short particularly amid expectations of a potential surge in NPAs. Further, the Government has also
curtailed spending in some of the social welfare schemes.
Besides being a growth-focused Budget, what stood out this time is the Government’s effort to bring about transparency
and credibility in the fiscal arithmetic. Reduction in reliance on off-balance sheet funding avenues, clearance of fertilizer
subsidy arrears and discontinuation of loans to Food Corporation of India (FCI) through NSSF (National Small Savings
Fund) and transferring it to budgetary resources were some of the steps taken towards that endeavour.
A pro-growth budget, improved transparency, privatization of CPSEs, higher capex spending, an effective stress
resolution framework and a revised fiscal consolidation roadmap have been taken well by equity markets. The Nifty 50
Index rose by 4.5% on the Budget day and by another 4% over the following four days of the week. The lack of any
announcements pertaining to hike in direct taxes (STT, LTCG, COVID cess) have further added to positive sentiments.
A higher-than-expected borrowing plan for the next fiscal year at Rs12.06trn—a tad lower than the current fiscal year’s
figure of Rs12.8trn (including an additional Rs800bn to be borrowed in the last two months)—does not bode well for
fixed income markets. This is reflected in the sell-off seen in bond markets post the budget, with the 10-year yield rising
by 18bps to 6.13% on February 2nd. The Central Bank’s intervention in the form of operation twists and/or outright OMO
purchases is crucial in keeping a check on rising yields.
Salient points:
• Assumptions: India’s economy has been hit hard by the COVID-19 pandemic like
many others, making growth as the key priority of policy makers, requiring
structural reforms. Fiscal impulse with higher Capex spending is anticipated to
outweigh negatives from sustained deviation from fiscal consolidation and higher
market borrowing. Key challenges include weak private investment weak,
worsening of bank asset quality before revival, and rise in commodity prices.
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Market Pulse
• Credible and transparent fiscal math: Nominal GDP growth has been reasonably
assumed at 14.4% for FY22 (Rs222trn) vs. CSO’s Advance Estimates of -4.3% for
FY21. Gross tax collections are expected to grow at a realistic 16.7% in FY22 on a
low base (-5.5% in FY21), with a strong focus on asset monetisation as an
alternative source of funding. Expenditure growth is pegged at a modest 1%, albeit
off a high base, as subsidy outgo is expected to fall meaningfully, partly offset by a
strong 26.2% growth in capital expenditure. Share of capital expenditure at 15.9%
of overall expenditure is the highest since FY08 and is meaningfully higher than
last year’s 12.7%. Overall, fiscal math looks reasonable, credible and achievable.
• Growth over fiscal consolidation: The Government has undertaken a clean

acknowledgement to post-COVID fiscal balances, with revival expected to take
years. There’s has been a clear focus on pump-priming the economy during these
challenging times by providing a big spending boost. Revised fiscal deficit for FY21
is estimated at a significantly higher-than-expected 9.5% of GDP (vs. ~7%
expected, and 3.5% budgeted), thanks to a sharp surge in overall expenditure in
the latter part of the fiscal (+103% YoY in Q4FY21) despite a contraction in revenue
receipts. Fiscal deficit for FY22 is also budgeted at a higher-than-anticipated 6.8%
of GDP (Consensus estimate: ~5.5%), growth in overall has been allowed to
overshoot in FY20 (3.8% RE vs 3.3% BE), reflecting the Government’s focus on
reviving growth.
• Focus areas: Investment-led growth revival has been the Government’s focus this
year, with spending targeted towards physical/social infrastructure (roads &
highways, railways, urban infrastructure, healthcare) and manufacturing (PLI
schemes). The higher spending would primarily be funded through market
borrowings, small savings funds and asset monetization, without increasing tax
burden as was widely expected (COVID cess). The Budget has, in fact, focused on
further simplifying tax administration and compliance. Setting up of an Asset
Reconstruction company (The so-called Bad Bank) to take over stressed assets of
the banking sector, a comprehensive asset monetization and disinvestment
strategy (FY22 disinvestment proceeds pegged at Rs1.75trn), privatisation of
PSBs, establishment of a Development Financial Institution (DFI) for infrastructure
financing, hike in FDI limit in the insurance sector (from 49% to 74%) and a 137%
jump in health and wellness spending are some of the positive announcements
from the Budget.
• Transparency of fiscal accounting: Besides being a growth-focused Budget, what

stood out this time is the Government’s effort to bring about transparency and
credibility in the fiscal arithmetic. Reduction in reliance on off-balance sheet
funding avenues, clearance of fertilizer subsidy arrears (FY21RE at Rs1.3trn vs.
FY21BE of Rs713bn) and discontinuation of loans to Food Corporation of India
(FCI) through NSSF (National Small Savings Fund) and transferring it to budgetary
resources (leading to food subsidy rising to a staggering Rs4.2trn in FY21) were
some of the steps taken towards bringing transparency in Government’s accounts.
• Fiscal strategy: A significant relaxation in medium-term fiscal consolidation

targets indicates growth being the top-most priority of the Government. The
Government is targeting a gradual decline in fiscal deficit over the next five years
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Market Pulse
to reach 4.5% by FY26, thereby allowing for a significant fiscal impulse. The
Government aims to achieve this through better tax buoyancy and higher receipts
from asset monetisation. Against widely expected imposition of a COVID cess on
the wealthy, increase in taxes on capital gains and reintroduction of wealth tax, the
Government refrained from making any changes in personal and corporate taxes,
thereby supporting fledgling revival in consumption. Marginal change in indirect
taxes by levying of AIDC Cess (Agriculture Infrastructure and Development Cess)
on some items has been accompanied by a commensurate or higher drop in
excise/custom duties, thereby having limited impact on the consumer.
• Market implications: A pro-growth budget, improved transparency, privatization

of CPSEs, higher capex spending, an effective stress resolution framework and a
revised fiscal consolidation roadmap have been taken well by equity markets. The
Nifty 50 Index rose by 4.5% on the Budget day and by another 4% over the
following four days of the week. The lack of any announcements pertaining to hike
in direct taxes (STT, LTCG, COVID cess) have further added to positive sentiments.
A higher-than-expected borrowing plan for the next fiscal year at Rs12.06trn—a

tad lower than the current fiscal year’s figure of Rs12.8trn (including an additional
Rs800bn to be borrowed in the last two months)—does not bode well for fixed
income markets. This is reflected in the sell-off seen in bond markets during the
Budget week, with the 10-year yield rising by 18bps to 6.13% on February 2nd. The
Central Bank’s intervention in the form of operation twists and/or outright OMO
purchases is crucial in keeping a check on rising yields. On the positive side,
creation of a permanent institutional framework that would engage in the buying
of investment grade debt securities would help in deepening the corporate bond
market in India.
• Misses: Some of the key misses in the Budget include: a) a decline in outlay in some
of the social welfare schemes including MGNREGA and housing for poor (Pradhan
Mantri Awas Yojana). Overall budget allocation to centrally sponsored schemes
has dropped by 1.7% as compared to FY21RE. b) The PSB recapitalization plan of
Rs200bn is at the lower end of the expected range and may fall short particularly
in the wake of a potential increase in NPAs in the banking sector.
Figure 1: Fisc pegged at 9.5%/6.8% in FY21RE/22BE Figure 2: A quick glance at the Centre’s fiscal balances
Fiscal deficit trend (% of GDP) FY21RE %YoY FY22BE %YoY
10.0 9.5
9.0 Net tax revenues 13,445 -0.8 15,454 14.9
8.0 Non-tax revenues 2,107 -35.4 2,430 15.4
6.6 6.8
7.0 5.9 Non-debt cap receipts 465 -32.2 1,880 304.3
6.0 4.9
4.9 4.6
5.0 4.5 Total receipts 16,017 -8.5 19,764 23.4
4.1 3.9
4.0 3.5 3.5 3.4
Revenue Expenditure 30,111 28.2 29,290 -2.7
3.0
2.0 Capital Expenditure 4,392 30.4 5,542 26.2
1.0 Total expenditure 34,503 28.4 34,832 1.0
0.0
Fiscal deficit 18,487 97.6 15,068 -18.5
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY22BE
FY21RE
% GDP 9.5 6.8
Source: Budget Documents. BE: Budget Estimates; RE: Revised Estimates; A = Actual
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Market Pulse
Figure 3: A snapshot of Government finances in FY21-22

Items (Rs bn) FY20A FY21 FY22
% YoY
BE RE % chg. BE
Rs bn % of BE % YoY % YoY over
(Rs bn) (Rs bn) from BE (Rs bn)
FY20RE
Net tax revenues 13,569 3.8 16,359 20.6 13,445 -0.9 -17.8 15,454 14.9
Gross tax revenues 20,101 -2.9 24,230 20.5 19,003 -5.5 -21.6 22,171 16.7
Of which:
Direct Tax 10,495 -6.7 13,190 25.7 9,050 -13.8 -31.4 11,080 22.4
Corporation tax 5,569 -16.1 6,810 22.3 4,460 -19.9 -34.5 5,470 22.6
Income tax 4,927 6.8 6,380 29.5 4,590 -6.8 -28.1 5,610 22.2
Indirect Tax 9,605 1.6 11,040 14.9 9,953 3.6 -9.8 11,091 11.4
Goods and service tax 5,988 2.5 6,905 15.3 5,151 -14 -25.4 6,300 22.3
Custom Duties 1,093 -7.2 1,380 26.3 1,120 2.5 -18.8 1,360 21.4
Excise Duties 2,406 4.2 2,670 11 3,610 50 35.2 3,350 -7.2
States Share -6,507 -14.5 -7,842 20.5 -5,500 -15.5 -29.9 (6,656) 21.0
Transferred to NCCD -25 37.8 -29 18.1 -58 134.7 98.6 (61) 4.8
Non-Tax Revenue 3,272 38.8 3,850 17.7 2,107 -35.6 -45.3 2,430 15.4
Dividends and profits 1,861 64.1 1,554 -16.5 965 -48.1 -37.9 1,035 7.2
Central govt. revenue receipts 16,841 9.1 20,209 20 15,552 -7.7 -23.0 17,884 15.0
Non-Debt Capital Receipts 686 -39.2 2,250 227.8 465 -32.2 -79.3 1,880 304.3
Misc. Receipts (inc. divestment) 503 -46.9 2,100 317.5 320 -36.4 -84.8 1,750 446.9
Total Receipts 17,527 5.8 22,459 28.1 16,017 -8.6 -28.7 19,764 23.4
Revenue Expenditure 23,506 17.1 26,301 11.9 30,111 28.1 14.5 29,290 -2.7
Interest Payments 6,121 5 7,082 15.7 6,929 13.2 -2.2 8,097 16.9
Major subsidies 2,623 17.6 2,621 -0.1 6,487 147.3 147.5 3,699 -43.0
Capital Expenditure 3,357 9.1 4,121 22.7 4,392 30.8 6.6 5,542 26.2
Total Expenditure 26,863 16 30,422 13.2 34,503 28.4 13.4 34,832 1.0
Fiscal Deficit 9,336 41.6 7,963 -14.7 18,487 98 132.1 15,068 (18.5)
Fiscal Deficit/GDP 4.6 3.5 9.5 6.8
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Market Pulse
Figure 4: FY21-22 Fiscal math (% of GDP)

Items (% of GDP) FY19 FY20A FY21BE FY21RE FY22BE
Net tax revenues 6.9 6.7 7.3 6.9 6.9
Gross tax revenues 10.9 9.9 10.8 9.8 9.9
Of which:
Direct Tax 5.9 5.2 5.9 4.6 5.0
Corporation tax 3.5 2.7 3.0 2.3 2.5
Income tax 2.4 2.4 2.8 2.4 2.5
Indirect Tax 5.0 4.7 4.9 5.1 5.0
Goods and service tax 3.1 2.9 3.1 2.6 2.8
Custom Duties 0.6 0.5 0.6 0.6 0.6
Excise Duties 1.2 1.2 1.2 1.9 1.5
States Share (4.0) (3.2) (3.5) (2.8) (3.0)
Transferred to NCCD (0.0) (0.0) (0.0) (0.0) (0.0)
Non-Tax Revenue 1.2 1.6 1.7 1.1 1.1
Dividends and profits 0.6 0.9 0.7 0.5 0.5
Central govt. revenue receipts 8.1 8.3 9.0 8.0 8.0
Non-Debt Capital Receipts 0.6 0.3 1.0 0.2 0.8
Misc. Receipts (inc. divestment) 0.5 0.2 0.9 0.2 0.8
Total Receipts 8.7 8.6 10.0 8.2 8.9
Revenue Expenditure 10.6 11.6 11.7 15.5 13.1
Interest Payments 3.1 3.0 3.1 3.6 3.6
Major subsidies 1.2 1.3 1.2 3.3 1.7
Capital Expenditure 1.6 1.7 1.8 2.3 2.5
Total Expenditure 12.2 13.2 13.5 17.7 15.6
Fiscal Deficit 3.5 4.6 3.5 9.5 6.8
Revenue receipts:
• FY21 revised tax collections reflect current economic reality: The Centre’s
revised estimates for gross tax collections for FY21 points to a slippage of 21.6%
from the budget estimates—a consequence of an unprecedented economic
contraction caused by the COVID-19 pandemic and consequent decline in incomes
and consumption demand. This translates into a decline of 10.3% YoY in gross tax
collections in the last quarter of current fiscal year—steeper than 3.2% decline in
the first nine months—and seems quite conservative particularly in the light of an
underlying economic recovery.
Net tax collections, however, are expected to decline by a much lower 0.9% in
FY21RE, falling short of the budget estimates by 17.8%, thanks to lower devolution
to states (-15.5% in FY21). The share of tax transfers to states has declined from
32.4% in FY21BE to 28.9% in the revised estimates—the lowest in six years, and
much lower than the recommended share of 41% by the 15th Finance Commission.
Direct tax collections are expected to decline by 13.8% primarily on the back of a
sharp drop in corporate tax collections, implying a 18.7% contraction in the last
quarter. Indirect tax collections, however, are expected to grow at a modest 3.6%
in FY21RE, thanks to a strong growth in excise duty collections (+50% YoY)
emanating from hike in excise duties on petrol and diesel. This translates into a
required growth of 1.1% in the last quarter.
• Realistic tax collection targets set for FY22: The Government has budgeted a
reasonable 16.7% growth in gross tax collections in FY22 despite a low base, with
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Market Pulse
direct and indirect tax collections growth pegged at 22.4% and 11.4% respectively.
Within direct taxes, corporate tax collections are expected to grow by 22.6% and
income tax receipts a tad lower at 22.2%. Expansion in indirect tax collections is
primarily led by strong 22.3% and 21.4% growth in GST collections and custom
duties. While the former is expected to get a fillip from a low base and improvement
in domestic consumption demand, the latter would benefit from increase in import
duties on several products (textiles, consumer durables, electronics, renewable
power) and imposition of AIDC cess on specific imported goods. Excise duty
receipts, however, are expected to contract by 7.2% YoY on account of reduction
in excise duty rates (basic and special additional) on petrol and diesel following the
levy of AIDC this year to make it inflation-neutral for consumers.
Net tax collections are budgeted to grow at a tad lower 14.9%, thanks to higher
transfer of tax receipts to states (+21% YoY in FY22BE) as compared to FY21RE.
Notably, tax buoyancy 1 is expected at a reasonable 1.2% in FY22BE vs. 1.3% in
FY21RE, with direct and indirect tax buoyancy expected at 1.6 and 0.8
respectively. Overall, the fiscal arithmetic looks fairly reasonable and credible.
Figure 5: Trend of tax collections

Rs trn Net tax collections budgeted to grow at 14.9% in FY22
12 30%
Direct Tax Indirect Tax Net tax revenue growth (R)
10 25%
20%
8
15%
6
10%
4
5%
2 0%
0 -5%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE
Figure 6: Tax buoyancy vs. nominal GDP growth

x Tax buoyancy vs. nominal GDP growth trend %
Direct tax buoyancy Indirect tax buoyancy Gross tax buoyancy Nominal GDP growth (R)
3.5 21.0
3.0
16.0
2.5
2.0 1.6 1.5 11.0
1.4 1.3
1.5 1.2 1.2
1.0
0.8 0.8 0.8 0.8
1.0 6.0
0.5
1.0
0.0
-0.5
-4.0
-0.5
-1.0
-1.5 -9.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE
1
Calculated as ratio of growth in tax revenues to nominal GDP growth.
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Market Pulse
Figure 7: Tax revenues—FY22 budget estimates set realistically

FY20A FY21BE FY21RE % chg from FY22BE over
Rs bn FY20A FY21BE FY21RE FY22BE FY21RE (%YoY)
(%YoY) (%YoY) (%YoY) BE
Direct Tax 10,495 -7.5% 13,190 25.7% 9,050 -13.8% -31.4% 11,080 22.4%
Corporation tax 5,569 -16.1% 6,810 22.3% 4,460 -19.9% -34.5% 5,470 22.6%
Income tax 4,927 6.8% 6,380 29.5% 4,590 -6.8% -28.1% 5,610 22.2%
Indirect Tax 9,605 1.6% 11,040 14.9% 9,953 3.6% -9.8% 11,091 11.4%
GST 5,988 2.5% 6,905 15.3% 5,151 -14.0% -25.4% 6,300 22.3%
Customs 1,093 -7.2% 1,380 26.3% 1,120 2.5% -18.8% 1,360 21.4%
Union excise duty 2,406 4.2% 2,670 11.0% 3,610 50.0% 35.2% 3,350 -7.2%
Other taxes 20,101 -3.4% 24,230 20.5% 19,003 -5.5% -21.6% 22,171 16.7%
Gross tax collections 13,569 3.0% 16,359 20.6% 13,445 -0.9% -17.8% 15,454 14.9%
Net tax collections 10,495 -7.5% 13,190 25.7% 9,050 -13.8% -31.4% 11,080 22.4%
Figure 8: Direct tax measures

Measures Details Impact
Income tax return filing Senior citizens (75 years+) having only pension and interest Positive: Would ease compliance burden of senior
exemption for senior citizens income are exempted from filing income tax returns. citizens.
Reduction in time for income Time limit for reopening of assessment reduced from six to Positive: Would reduce litigation and uncertainty
tax proceedings three years. Tax evasions on income of Rs5mn and above for tax payers.
in a year may see reopening of assessment up to 10 years.
Setting up the Dispute Anyone with income up to Rs5mn and disputed income up Positive: Would further reduce litigation for small
Resolution Committee to Rs1mn shall be eligible to approach to the Committee taxpayers
National Faceless Income The would have all communication between the tribunal Positive: Would further enhance ease of
Tax Appellate Tribunal Centre and the appellant electronic in nature. compliance and reduce discretion.
Relaxation to NRI Removal of double taxation for NRIs. Positive: Would considerably ease tax burden on
NRIs returning to India
Exemption from audit Turnover threshold for audit requirement for individuals/ Positive: Would further incentivise digital
entities carrying out 95%+ of their transactions digitally transactions and reduce compliance burden.
enhanced from Rs50mn to Rs100mn.
Relief on taxes on dividend 1. Dividend payment to REIT/ InvIT exempted from TDS Positive: Would further ease tax burden on
payment to REIT / InvIT 2. Advance tax liability on dividend income to arise only dividend incomes.
after the declaration/payment of dividend.
3. Enabling deduction of tax on dividend income at lower
treaty rate for FPIs.
Ease in foreign investment 1. Relaxation in norms relating to prohibition on private Positive: Would lead to higher investments from
norms into infrastructure funding, restriction on commercial activities, and these funds in to India’s infrastructure sector.
sector direct investment in infrastructure for foreign
Sovereign Wealth Funds and Pension Funds.
Relief for affordable housing / 1. Tax holiday period for affordable housing projects Positive: Would help in keeping up the supply of
rental housing extended for another year—till March 31st, 2022. affordable housing/rental housing, thereby
2. Tax exemption for notified affordable rental housing helping the Govt. meet its ‘Housing for All’
projects mission.
Tax incentives for 1. Tax holiday for capital gains for aircraft leasing Positive: Would go a long way in making IFSC a
International Financial companies. global financial hub.
Services Centre (IFSC) 2. Tax exemption for aircraft lease rentals paid to foreign
lessors.
3. Tax incentive for relocating foreign funds in the IFSC.
4. Tax exemption to the investment division of foreign
banks located in IFSC.
Relief to small educational Annual receipt limit for tax exemption enhanced from Positive: Would further reduce compliance burden
and hospital trusts Rs100mn to Rs500mn on such entities
Incentives for start-ups Tax holiday window and capital gains exemption for start- Positive: Would further incentivise setting up of
ups extended by one more year—March 31st, 2022 start-ups in India.
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Market Pulse
Source: Budget Documents.
Figure 9: Revision in custom duties

Revision in Custom Duties for Domestic Producers Old New
Cotton 0% 5%
Raw Silk (not thrown) and silk yarn /yarn spun from silk waste 10% 15%
Carbon Black 5% 7.5%
Builder’s ware of plastic, not elsewhere specified or included 10% 15%
Wet blue chrome tanned leather, crust leather, finished leather of all kinds, including their splits and slides 0% 10%
Synthetic Cut and Polished Stones 7.5% 15%
Electric Vehicles: Completely Built Units of Bus and Trucks 25% 40%
Screws, Nuts, etc. 10% 15%

Inputs, parts or sub-parts for manufacture of specified parts of mobile phones, including: (1) Printed Circuit Board
0% 2.5%
Assembly (PCBA), (2) Camera module, and (3) Connectors
Compressor of Refrigerator/Air Conditioner 12.5% 15%
Solar Inverters 5% 20%
Nylon fibre and yarn 7.5% 5%
Components or parts, including engines, for manufacture of aircrafts by Public Sector Units of Ministry of Défense 2.5% 0%
Gold and silver (Also, to attract Agriculture Infrastructure and development Cess at the rate of 2.5%) 12.5% 7.5%
Primary/Semi-finished products of nonalloy steel 10% 7.5%
Flat products of non-alloy and alloy-steel 10%/12.5% 7.5%
Platinum, Pallidum, etc. 12.5% 10%

Figure 10: Imposition of Agriculture Infrastructure and Development Cess (AIDC)

Items Proposed cess
A. On custom side
Gold, Silver and dore bars 2.5%
Alcoholic beverages (falling under chapter 22) 100%
Crude palm oil 17.5%
Crude soybean and sunflower oil 20%
Apples 35%
Coal, lignite and peat 1.5%
Specified fertilizers (Urea etc) 5%

Peas 40%
Kabuli Chana 30%
Bengal Gram/Chick peas 50%
Lentil (Masur) 20%
Cotton 5%
B. On excise side
Petrol Rs. 2.5/Litre

Diesel Rs. 4/Litre
Note: Consequent to the imposition of AIDC on petrol and diesel the Basic excise duty (BED) and Special Additional Excise Duty (SAED) rates have been reduced on them
so that overall consumer does not bear any additional burden.
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Market Pulse
• Non-tax revenue collections shored by higher telecom receipts: Non-tax

revenues in FY21 were impacted more from the massive economic slowdown,
declining by a huge 35.6% in the revised estimates for FY21. While telecom
receipts were lower partly owing to the Supreme Court’s order allowing telecom
companies to pay the statutory dues in 10 years and cancellation of 5G auctions,
lower corporate profits impacted dividend receipts.
For FY22, non-tax revenues are budgeted to grow at 15.4%, largely coming from
higher telecom receipts as compared to FY21RE—budgeted at Rs 540bn, +60%.
This probably factors in part of the proceeds from upcoming 4G spectrum sale
scheduled for March 2021.
Figure 11: Trend of non-tax collections

Rs trn Non tax collections budgeted to grow at 15.4% in FY22
3.5 Non-tax revenue % growth (R) 50%
40%
3.0
30%
2.5 20%
10%
2.0
0%
1.5
-10%
1.0 -20%
-30%
0.5
-40%
0.0 -50%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE
Figure 12: Non-tax revenues—Higher telecom receipts providing a fillip to non-tax revenue assumptions for FY22
FY22BE over
FY20A FY21BE FY21RE % chg.
Rs bn FY20A FY21BE FY21RE FY22BE FY21RE
(% YoY) (% YoY) (% YoY) From BE
(% YoY)
Non-tax revenue 3,272 38.8% 3,850 17.7% 2,107 -35.6% -45.3% 2,430 15.4%
Interest receipt 123 1.7% 110 -10.6% 140 13.4% 26.8% 115 -17.6%
Dividends and profits 1,861 64.1% 1,554 -16.5% 965 -48.1% -37.9% 1,035 7.2%
Union Territories 18 -6.8% 23 30.7% 21 18.1% -9.6% 25 21.6%
Other non-tax revenue 1,269 17.2% 2,163 70.4% 980 -22.8% -54.7% 1,254 27.9%
Fiscal services 10 40.0% 8 -27.9% 6 -43.4% -21.5% 7 19.0%
General services 203 3.9% 216 6.5% 163 -19.9% -24.8% 207 27.4%
Social & community svs. 34 13.5% 43 25.4% 31 -7.6% -26.3% 29 -8.4%
Economic services 1,018 21.3% 1,882 84.9% 766 -24.7% -59.3% 1,004 31.0%
Communication 698 71.1% 1,330 90.5% 337 -51.7% -74.6% 540 60.0%
• Strong focus on asset monetization as an alternate financing avenue: Despite a

huge rally in equity markets this year, disinvestment proceeds fell short of the
budget estimates by a huge margin, with the revised estimate for FY21 pegged at
Rs320bn (Rs189bn collected until December 2020). The Government, however,
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Market Pulse
has given strong emphasis on monetization of non-core assets and privatization of

CPSEs for the next fiscal year. The Government plans to complete all divestments
announced thus far in FY22 including two PSU banks, one general insurance
company, LIC IPO, CONCOR, BPCL, Pawan Hans and Air India.
The much-awaited National Monetisation Pipeline of public infrastructure assets is

a step in the right direction. These would include NHAI operational toll roads,
dedicated freight corridor assets, airports, transmission assets, gas pipelines,
warehousing assets and sport stadiums.
The disinvestment target for FY22 is budgeted at Rs 1.75trn—lower than Rs2.1trn

budgeted for FY21. Successful execution of the asset monetization plan would be
crucial in meeting expenditure targets.
Figure 13: Divestment target pegged at Rs 1.75trn in FY22

Rs bn
Disinvestment trend
2,500 BE Actual
2,100
2,000
1,750
1,500
1,000
500 320
Note: FY21 actual number is the revised estimate.
Figure 14: Divestments in FY21 thus far

Govt. stake sold Govt. stake post
Name of CPSEs Method Receipts (Rs bn)
(%) disinvestment (%)
Hindustan Aeronautics Ltd. 14.8 Offer for Sale 49.2 75.2

Bharat Dynamics Ltd. 12.8 Offer for Sale 7.7 74.9
Mazagon Dock Shipbuilders Ltd. 0.0 Initial Public Offering 4.4 0.0
RITES Ltd. 0.0 Book Building 1.7 72.2
Others 0.0 NA 18.4 0.0
Indian Railway Catering and Tourism Corp. Ltd. 20.0 Offer for Sale 44.7 67.4
KIOCL Ltd. 0.0 Book Building 1.6 99.0
NTPC Ltd. 0.0 Book Building 10.7 51.1
NMDC Ltd. 0.0 Book Building 13.8 68.3
Steel Autority of India Ltd. 10.0 Offer for Sale 27.4 65.0
Indian Railway Finance Corporation Ltd. 4.6 Initial Public Offering 15.4 86.4
Total 195.0
Source: Department of Investment and Public Asset Management.
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Market Pulse
Expenditure:
• Capital expenditure ramped up sharply but at the expense of lower spending
through IEBR: Despite a huge shortfall in tax collections in the wake of an
unprecedented COVID-19-induced economic contraction, the Government did not
resort to expenditure cuts. In fact, overall expenditure for FY21 in the revised
estimates is ~13% higher than budget estimates, translating into a growth of
28.4%. While a part of this is attributed to fiscal stimulus provided during the year
in the form of higher capex and revenue spending towards food distribution, health
& family welfare, change in treatment of FCI loans also contributed to the increase.
In FY21RE, revenue and capital expenditure grew by a strong 28.1% and 30.8% as
compared to the budgeted growth of 11.9% and 22.7% respectively. Subsidy
spending shot up by 1.5x to record-high of Rs6.5trn, taking its share in the overall
expenditure to 18.8% following a sub-10% share over the previous two fiscal
years. This is primarily on the back of clearance of some of the arrears on fertilizer
subsidies as well as transfer of FCI loans to budgetary resources, leading to food
subsidy bill nearly tripling in FY21RE as compared to FY20.
In FY22, the Government has budgeted for a modest 1% growth in overall

expenditure but has provided adequately for capital expenditure to revive the
economy, targeting a growth of 26.2% on top of a 30.8% growth in FY21. The share
of capex at 15.9% of the overall expenditure in FY22 is the highest since FY08 and
is meaningfully higher than 12.7% in FY21, primarily focused on roads, highways
and housing & urban affairs. However, after including the internal and extra
budgetary resources—down 9.7% in FY22, capital expenditure is expected to grow
by a modest 4.8% YoY. While on one hand this indicates an improvement in
accounting of Government finances with shift in treatment of some of the off-
balance sheet spending to on-balance sheet, it provides a clearer picture of overall
outlay for capital expenditure for the next fiscal year on the other.
Revenue expenditure, however, is budgeted to decline by 2.7% in FY22 but off a

high base as a surge in food subsidy owing to change in treatment to FCI loans led
to a sharp 28.1% growth in revenue expenditure in FY21. The Government has also
curtailed its spending on some of the social and welfare schemes including rural
employment (MGNREGA) and housing for poor (Pradhan Mantri Awas Yojana).
Overall budget allocation to centrally sponsored schemes has dropped by 1.7% as
compared to FY21RE
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Market Pulse
Figure 15: Revenue expenditure trend Figure 16: Capital expenditure trend
Rs trn Revenue expenditure trend Rs trn Capital expenditure trend
35 Revenue Expenditure % YoY (R) 30% 6.0 Capital Expenditure % YoY (R) 50%
30 25% 5.0 40%

25 20%
4.0 30%
20 15%
3.0 20%
15 10%
2.0 10%
10 5%
5 0% 1.0 0%
0 -5% 0.0 -10%
Figure 17: Total expenditure trend Figure 18: Expenditure mix

Rs trn Trend in expenditure % Expenditure mix
40 Total Expenditure % YoY (R) 30% Revenue Capital
100
35 11.0 13.1 12.2 11.8 12.0 11.8 14.1 14.4 12.3 13.3 12.5 12.7 15.9
25%
30 80
20%
25
60
20 15%
89.0 86.9 87.8 88.2 88.0 88.2 85.9 85.6 87.7 86.7 87.5 87.3 84.1
15 40
10%
10
5% 20
5
0 0% 0
Figure 19: Ministry-wise total expenditure including IEBR (Rs bn)

FY20 FY21RE FY22BE
Total
Ministries Revenue Capital IEBR Revenue Capital IEBR Revenue Capital IEBR % YoY
outlay
Food and Public Distribution 1,139 12 1,778 4,375 12 1,518 2,512 27 1,027 3,567 -39.6%
Road Transport & Highways 99 684 750 98 921 650 99 1,082 650 1,831 9.8%
Railways 21 678 802 28 1,084 1,324 30 1,071 1,078 2,178 -10.6%
Defense 3,370 1,160 6 3,446 1,401 128 3,380 1,402 56 4,838 -2.8%
Rural Development 1,221 0 108 1,974 0 200 1,315 0 179 1,494 -31.3%
Telecommunications 235 49 77 367 44 168 328 259 146 734 26.7%
Power 137 16 626 105 4 502 138 16 600 753 23.3%
New and Renewable Energy 32 1 125 34 2 101 57 0 118 175 28.1%
Housing & Urban Affairs 227 193 385 365 103 296 288 258 246 792 3.6%
Labour and Employment 101 0 0 137 0 0 133 0 0 133 -3.0%
Health and Family Welfare 607 17 0 746 42 1 688 25 1 714 -9.6%
MSMEs 67 0 2 55 2 2 153 4 3 159 172.4%
Drinking Water & Sanitation 183 0 0 170 0 0 600 0 0 600 252.6%
Others 16,067 546 1,758 18,212 777 1,564 19,569 1,398 1,725 22,692 10.4%
Total 23,506 3,357 6,416 30,111 4,392 6,455 29,290 5,542 5,828 40,661 -0.7%
Source: Budget Documents. IEBR = Internal and Extra Budgetary Resources. BE: Budget Estimates; RE: Revised Estimates; A = Actual
14/160
Market Pulse
Figure 20: Subsidy expenses to shoot up by 148% in FY21; budgeted to decline by 43% in FY22BE
FY21BE FY22BE
FY21BE
FY20A over FY21RE % chg. over
Rs bn FY20A FY21BE over FY20A FY21RE FY22BE
(% YoY) FY20RE (% YoY) From BE FY21RE
(% YoY)
(% YoY) (% YoY)
Subsidies 2,623 17.6% 2,621 -0.5% -0.1% 6,487 147.3% 147.5% 3,699 -43.0%
Food 1,087 7.3% 1,156 6.3% 6.3% 4,226 288.8% 265.7% 2,428 -42.5%
Fertilisers 811 14.9% 713 -10.9% -12.1% 1,339 65.1% 87.8% 795 -40.6%
Oil 385 55.1% 409 6.1% 6.2% 388 0.7% -5.2% 141 -63.7%
Others 340 29.7% 343 -5.5% 1.0% 534 57.2% 55.6% 335 -37.3%
Figure 21: Subsidy share in the budget shot up sharply Figure 22: Food is expected to account for 44% of the
in FY21 overall subsidy bill in FY21
Rs bn Subsidy trend Rs bn
FY23 subsidy bill
7,000 Food Fertilisers 20.0
4,500 4,226
6,000 Oil Others
18.0 4,000 FY20 FY21RE FY22BE
5,000 3,500
16.0
4,000 3,000
14.0 2,428
3,000 2,500
12.0 2,000
2,000
1,339
10.0 1,500 1,087
1,000
1,000 811 795
534
0 8.0
500 385 388 340 335
141
0
Food Fertilisers Oil Others
Figure 23: Spending on MGNREGA (rural employment) Figure 24: Spending on PMAY (Housing for All)
Rs bn Rural employment (Mahatma Gandhi National Rural Rs bn Housing for All (Pradhan Mantri Awas
Employment Guarantee Scheme) Yojna*)
450 405
1200 1115
400
1000 350 312
800 717 730 300 275
254 250
618
552 250 210
600 482
391 358 373 200
400 310 303 330 325
150 111 116
200 100
0 50
0
FY15 FY16 FY17 FY18 FY19 FY20 FY21REFY22BE
Source: Budget Documents. BE: Budget Estimates; RE: Revised Estimates
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Market Pulse
Figure 25: Spending on PMGSY (rural infrastructure) Figure 26: Spending on National Education Mission
Rural infrastructure (Pradhan Mantri Gram Sadak Rs bn National Education Mission
Rs bn
Yojna)
420
200 183 179 337 343
169 360
154 308
150 295 282
160 140 300 271 276
137
120 240
180
80
120
40 60
0 0
FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE
Figure 27: Spending on Swachh Bharat Mission Figure 28: Spending on PMKSY (irrigation)
Irrigation (Pradhan Mantri Krishi Sinchai Yojna)
Rs bn Swachh Bharat Mission Rs bn
250 150
194 116
200 120
154
150 90 78 81 82 79.53
126 123
66
95
100 60 51
75 70
50 30
- -
FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE
• Huge jump in healthcare expenditure: The Government has focused on a lot on

ramping up healthcare spending, budgeting a 130% jump in health and well-being
expenditure in FY22. This includes Rs350bn allocated for the COVID-19
vaccination drive. In addition to the National health Mission, the Government also
launched PM Atmanirbhar Swasth Bharat Mission with outlay of Rs642bn to be
spent over the next six years. The focus is to create and strengthen new healthcare
institutions.
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Market Pulse
Figure 29: State-wise vaccination figures Figure 30: Spending on National Health Mission
COVID-19 Vaccinations till Jan 27th, 2021 Rs bn National Health Mission
Rest of India
420
Telangana 366
347 341
Andhra Pradesh 360 320 315
Odisha
300
West Bengal 229
Gujarat 240 202
Maharashtra 180
Madhya Pradesh
120
Karnataka
Rajasthan 60
Uttar Pradesh -
FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE
- 300,000 600,000 900,000 1,200,000
Source: Ministry of Health and Family Welfare, Budget Documents. BE: Budget Estimates; RE: Revised Estimates
Fiscal management and strategy:

• FY22 fiscal deficit budgeted at 6.8% of GDP: At 9.5% of GDP, the revised fiscal
deficit for FY21 is much higher than market expectations (~7-8% of GDP), primarily
on the back of a sharp surge in Government expenditure (food subsidy and capital
expenditure) in the last quarter of the fiscal (implied growth in overall expenditure
at 103% YoY in Q4FY21). A part of this is also attributed to shift in some of the off-
balance sheet items to on-balance sheet (e.g. FCI borrowing). For FY22, the fiscal
deficit target is pegged at 6.8% of GDP—higher than market expectations (~5.5%
of GDP), reflecting the Government’s focus on reviving growth achieved via higher
capital expenditure, primarily towards physical/social infrastructure (roads &
highways, railways, urban infrastructure, healthcare) and manufacturing sector
(PLI schemes).
• Fiscal strategy: A significant relaxation in medium-term fiscal consolidation

targets indicates growth being the top-most priority of the Government. The
Government is targeting a gradual decline in fiscal deficit over the next five years
to reach 4.5% by FY26, thereby allowing for a significant fiscal impulse. The
Government aims to achieve this through better tax buoyancy and higher receipts
from asset monetisation. Against widely expected imposition of a COVID cess on
the wealthy, increase in taxes on capital gains and reintroduction of wealth tax, the
Government refrained from making any changes in personal and corporate taxes,
thereby supporting fledgling revival in consumption. Marginal change in indirect
taxes by levying of AIDC Cess (Agriculture Infrastructure and Development Cess)
on some items has been accompanied by a commensurate or higher drop in
excise/custom duties, thereby having limited impact on the consumer
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Market Pulse
Budget financing:
• Market loans and small savings to fund 87% of the fisc: Gross market borrowings
in the revised estimates increased by an additional Rs800bn to Rs 12.8trn in FY21,
thanks to a much higher-than-expected fiscal deficit of 9.5%. Gross market
borrowings in FY22 are also expected to remain elevated at Rs12.1trn. This doesn’t
bode well for bond markets. Net market borrowings are budgeted to fall by 12% to
Rs 9.2trn in FY22 after incorporating buyback of government securities.
In addition to market borrowings, the Government also utilized small savings to

fund its fiscal deficit. Net funds garnered from small savings stood at Rs 4.8trn in
FY21 as compared to Rs 2.4trn budgeted and is expected to remain at elevated
level of Rs3.9trn in FY22, funding 22% of the budgeted deficit.
Figure 31: Sources of funding the deficit

FY20 FY21 FY22
% of % of % chg % of
Rs bn Actual BE RE % YoY BE % YoY
total total over BE total
Gross market borrowings 7,100 7,800 12,800 80% 64% 12,055 -6%
Net market borrowings 4,740 51% 5,109 10,488 57% 121% 105% 9,177 61% -12%
Short-term borrowings 1,501 16% 250 2,250 12% 50% 800% 500 3% -78%
External assistance (net) 87 1% 46 545 3% 528% 1080% 15 0% -97%
Small savings (net) 2,400 26% 2,400 4,806 26% 100% 100% 3,919 26% -18%
State provident funds (net) 116 1% 180 180 1% 55% 0% 200 1% 11%
Draw down of cash balance 50 1% -530 -174 -1% -449% -67% 714 5% -511%
Other capital receipts 469 5% 508 391 2% -17% -23% 543 4% 39%
Total 9,363 100% 7,963 18,487 100% 97% 132% 15,068 100% -18%
Source: Budget Documents. BE: Budget Estimates; RE: Revised Estimates.
Figure 32: Centre’s gross market borrowing trend

Rs trn
Budgeted Actual
14.0
12.8
12.1
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Source: Budget Documents. BE: Budget Estimates. * FY21 actual figure is the revised estimate
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Market Pulse
Figure 33: Crowding out of the private sector on rising government borrowings
Rs trn
Total borrowings (centre + states) Bank credit growth (R) Bank deposit growth (R)
25.0 40%
21.5
35%
20.0
30%
15.0 25%
13.4
10.5 20%
10.0 15%
10%
5.0
5%
0.0 0%
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Budget Documents, CMIE Economic Outlook. * FY21 actual figure is the revised estimate. Note: *State borrowings for FY21 is a sum of actual borrowings over Apr-
Dec’20 and borrowing calendar for Q4FY21.
Figure 34: Nearly 63% of the government debt is maturing over the next 10 years
Rs trn
Central govt. debt maturity profile
25.0
22
20.0 19
14
15.0
12
10.0
5.0 2.7
0.0
<1yr 1-5 yrs 5-10 yrs 10-20 yrs 20+ yrs
Source: RBI.
• Market implications: A pro-growth budget, improved transparency, privatization

of CPSEs, higher capex spending, an effective stress resolution framework and a
revised fiscal consolidation roadmap have been taken well by equity markets. The
Nifty 50 Index rose by 4.5% on the Budget day and by another 4% over the
following four days of the week. The lack of any announcements pertaining to hike
in direct taxes (STT, LTCG, COVID cess) have further added to positive sentiments.
A higher-than-expected borrowing plan for the next fiscal year at Rs12.06trn may
lead to supply-demand mismatch, which in turn does not bode well for fixed
income markets. The fixed income market expectedly saw a sell off post the
Budget announcement, with the 10-year yield rising by a total of 18bps on the 1st
and 2nd of February to near six-month high of 6.13%. The Central Bank came to the
rescue by reiterating its commitment to maintaining adequate liquidity in the
system in the recent policy review and later announcing OMOs. Continued RBI’s
intervention in the form of operation twists and/or outright OMO purchases is
crucial in keeping a check on rising yields. On the positive side, creation of a
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permanent institutional framework that would engage in the buying of investment

grade debt securities would help in deepening the corporate bond market in India.
• Misses: Some of the key misses in the Budget include: a) a decline in outlay in some
of the social welfare schemes including MGNREGA and housing for poor (Pradhan
Mantri Awas Yojana). Overall budget allocation to centrally sponsored schemes has
dropped by 1.7% as compared to FY21RE. b) The PSB recapitalization plan of
Rs200bn is at the lower end of the expected range and may fall short particularly
in the wake of a potential increase in NPAs in the banking sector.
Figure 35: Key announcements and implications for capital markets

Announcement Implications
Equity markets
Disinvestment target pegged to Rs1.75trn. Expected to be partly met by Positive: Will enable better public ownership and governance standards,
LIC IPO announced in the previous budget, disinvestment of two public and help government meet its revenues targets for FY22.
sector banks other than IDBI Bank and one general insurance firms. An Negative: May crowd out total investment in the primary market
incentive package of Central funds will be provided to State governments
to encourage disinvestment of their public sector companies.
Consolidation of provisions of SEBI Act, 199, Depositories Act, 1996, Positive: Continued simplification of the regulatory framework for financial
Securities Contracts (Regulation) Act, 1956 and Government Securities markets
Act, 2007 in a single Securities Markets Code.
Tax holiday for IFSC for capital gains Positive: Will help promote development of IFSC and reduce tax burden
for some companies in IFSC
The dividend paid to REIT/InvIT shall be exempt from TDS. Advance tax Positive: Will provide relief to tax payers
liability on dividend income to taxpayers shall arise only after the
declaration/payment of dividend
Debt markets
Debt financing of InvITs and REITs by FPIs will be enabled Positive: Will ease access of funds for InvITs and REITs.
Creation of permanent institutional framework to purchase investment Positive: To deepen corporate bond market
grade debt securities both in stressed and normal times
Zero-coupon bonds to be issued by infrastructure debt funds Positive: Will ease access of funds for infrastructure projects
Commodities
SEBI to act as the regulator for Gold Exchange along with strengthening Positive: Will deepen the formal gold market.
the gold ecosystem
Foreign Portfolio Investors (FPIs)

Foreign Portfolio Investors eligible for treaty benefit for determining TDS Positive: May increase foreign inflows in the country.
liability on dividend.
Financial infrastructure
Government will introduce a Bill to set up a Development Financial Positive: This would provide for the much-needed funding to
Institution (DFI). A sum of Rs200bn will be provided to capitalise this infrastructure sector.
institution. The objective is to have a lending portfolio of at least Rs5trn
for this DFI in three years.
Debt Financing of InVITs and REITs by Foreign Portfolio Investors will be Positive: This will further ease access of finance to InVITS and REITs thus
enabled by making suitable amendments in the relevant legislations. augmenting funds for infrastructure and real estate sectos.
Operational
To have ease of doing business for those who carry out contracts with Positive: Would improve ease of doing business and instil confidence in
Govt./ CPSEs, the FM has proposed to set up a Conciliation Mechanism, private investors and contractors.
mandating its use for quick resolution of contractual disputes.
Introduction of investment charter across all financial products for Will improve understanding of financial products for retail investors.
investor protection.
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Figure 36: Key sector-wise announcements and implications

Sector Budget outlook Implications
Improve capacities of primary, secondary, and tertiary care

PM AtmaNirbhar Swasth Bharat Yojana will be launched with Health Systems, strengthen existing national institutions, and
an outlay of about Rs 641.8bn create new institutions for detection and cure of new and
emerging diseases.
Under the National Health Mission:

1. Support for 17,788 rural and 11,024 urban Health and
Wellness Centers;
2. Set up integrated public health labs in all districts and
3382 block public health units in 11 states;
3. Establish critical care hospital blocks in 602 districts
Health
and 12 central institutions;
4. Strengthen the National Centre for Disease Control
(NCDC), its 5 regional branches and 20 metropolitan
health surveillance units;
5. Expand the Integrated Health Information Portal to all
States/UTs to connect all public health labs.
Government will form a National Commission for Allied

Healthcare Professionals Bill in Parliament, with a view to
ensure transparent and efficient regulation of the 56 allied
healthcare professions.
It aims at universal water supply in all 4,378 Urban Local

The Jal Jeevan Mission (Urban) will be launched. It will be
Bodies with 28.6mn household tap connections, as well as
implemented over five years, with an outlay of Rs2.9trn.
liquid waste management in 500 AMRUT cities.
Water and sanitation
The Urban Swachh Bharat Mission 2.0 will be implemented
with a total financial allocation of Rs1.4trn over a period of five It may facilitate to achieve universal sanitation in the country.
years from 2021-2026.
A scheme of Mega Investment Textiles Parks (MITRA) will be This may improve existing infrastructure with plug and play
Textiles launched in addition to the PLI scheme. Seven Textile Parks facilities to create globally competitive companies to enhance
will be established over the next three years. exports.
A revamped reforms-based result-linked power distribution The scheme will provide assistance to DISCOMS for
sector scheme will be launched with an outlay of Rs3.05trn Infrastructure creation including pre-paid smart metering,
Power and Energy over the next five years. feeder separation, upgradation of systems.
Government will launch a Hydrogen Energy Mission in 2021-

22 for generating hydrogen from green power sources.
This would attract foreign participation in the insurance

Insurance Increase in the permissible FDI limit from 49% to 74%
sector.
The Government proposed to incentivize the incorporation of

One Person Companies (OPCs) by allowing OPCs to grow
without any restrictions on paid up capital and turnover,
Start-ups allowing their conversion into any other type of company at It may further improve ease of doing business.
any time, reducing the residency limit for an Indian citizen to
set up an OPC from 182 days to 120 days and also allow Non-
Resident Indians (NRIs) to incorporate OPCs in India.
Recapitalization of PSBs, while appears insufficient, would

To further consolidate the financial capacity of PSBs, further
improve their capital adequacy and would increase their
recapitalization of Rs200bn is proposed in 2021-22.
lending ability.
Banks and NBFCs
For NBFCs with minimum asset size of Rs1bn, the minimum
To improve credit discipline while continuing to protect the
loan size eligible for debt recovery under the Securitisation
interest of small borrowers.
and Reconstruction of Financial Assets and Enforcement of
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Security Interest (SARFAESI) Act, 2002 is proposed to be

reduced from the existing level of Rs5mn to Rs2mn.
Creation of Bad Bank (Asset Reconstruction Company) for Might prove to be a big support towards cleaning up stressed
resolution of stressed assets. assets in the Indian banking space.
The Companies Act, 2013 will be revised for Small Companies

by increasing their thresholds for Paid up capital from “not This may benefit more than two lakh companies by easing
MSMEs
exceeding Rs5mn” to “not exceeding Rs20mn” and turnover their compliance requirements.
from “not exceeding Rs20mn” to “not exceeding Rs200mn”.
Under the Production Linked Incentive scheme (PLI), the PLI schemes will help to improve manufacturing growth for 13
Automobile Government has announced to spend nearly Rs1.97 trn over sectors. This initiative will also help to bring scale and size in
five years starting FY 2021-22. key sectors.
A voluntary vehicle scrapping policy will be launched to phase
out old and unfit vehicles. Vehicles would undergo fitness This may help in encouraging fuel efficient, environment
tests in automated fitness centres after 20 years in case of friendly vehicles, thereby reducing vehicular pollution and oil
personal vehicles, and after 15 years in case of commercial import bill.
vehicles.
More than 15,000 schools will be qualitatively strengthened

Education
to include all components of the National Education Policy.
Source: Budget documents
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COVID-19 Update: New cases continue to decline; vaccine roll-out progressing well 2
COVID-19 fears are finally abating as India survived the festive/holiday season relatively unscathed, with daily
infections continuing the downward trajectory. From an average of ~27k cases on a daily basis in the month of
December, new cases fell below the 15k mark in January, and are now further down to near-10k mark in February thus
far. As of February 7th, India had ~10.8mn confirmed cases, with ~155k deaths and ~146k active patients, with recovery
rate rising to 97%. Importantly, daily casualties are now down to ~100, with mortality rate falling further to 1.43%.
Except for Kerala where daily infections have continued to rise since the last few months, now accounting for ~50% of
the daily cases in India, there’s been a visible drop in infections across states. In fact, Kerala overtook Karnataka earlier
this month to become the second worst hit state in India, even as Maharashtra continues to lead with a wide margin.
This has led to several states imposing travel restrictions for from Kerala. The Kerala Government attributes the increase
in case load to reopening of schools, offices, theatres and other public places. Notwithstanding continued rise in daily
infections, Kerala’s mortality rate is one of the lowest at mere 0.4%. Punjab continues to record an unusually high
mortality rate of 3.2%, followed by Maharashtra at 2.5%. Delhi, notably, has been quite successful in controlling the
spread, after a sharp surge in November and early-December, with a recent serological survey conducted by the Indian
Council of Medical Research (ICMR) showing development of herd immunity in more than half of the city’s population.
Daily cases globally also have come off sharply across countries after a sudden surge in December due to emergence
of a new virus strain in the UK, falling from a peak of ~0.85mn in early January to ~0.45mn currently. This has led to a
visible flattening of the global COVID curve, giving hopes of an end to this crisis sooner than later, further supported by
effective vaccination drives. India’s share of the global COVID cases stands at 10%, after September’s peak of 18.7%
and our mortality rates stand at 1.4% as compared to the global mortality rate of 2.2%.
The vaccine roll-out in India has been progressing well making India the fastest country to reach achieve 4mn
vaccinations, ahead of the United States, Israel and United Kingdom. As of February 7th, 2021, India administered 5.81
mn vaccinations. Google mobility trends signal that India is inching back to normalcy in most categories—grocery and
pharmacy activity remains slightly above pre-March levels but workplaces, transit stations and parks seem to be
normalizing at a fast space. Active cases continue to fall despite increasing mobility levels and this, along with the swift
vaccine roll-out, indicate that India is nearing the end of the crisis.
Figure 37: COVID-19 status—Worldwide
mn mn COVID-19 cases and casualties - World mn %

120 10 10
35 Total cases (108m)
Total deaths (2m)
9
30 100 Active cases (35m)
Death rate (2.0%) 8
8
25
80
6 7
20
60 6
15 4 5
40
10
4
2
20
5 3
0 0 0 2
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: Refinitiv Datastream
Source: Refinitiv Datastream,
2
The minor variations in data across tables and charts are due to different data sources.
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Figure 38: COVID-19 active cases across countries (As on February 11th)
Coronavirus active cases ('000)
US (14,275) Brazil (828) India (143)

UK (3,883) France (3,087) Germany (295)
Italy (405) Russia (411) Iran (159)
Spain (2,827)
x 1,000
2,500
2,000
1,500
1,000
500
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Figure 39: Daily Coronavirus cases across countries (As on February 11th)
Daily cases (7D-MA)
x 1,000 x 1,000
250 US (1,02,488) 70 UK (14,418)
Brazil (49,000) Spain (25,606)
India (11,468) Italy (12,176)
60 Germany (8,043)
Russia (15,431)
200 France (18,355)
50
150
40
30
100
20
50
10
0 0
Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb
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Figure 40: COVID-19 cases in India (as of February 7th, 2021)
Source: covid19india.org.
Figure 41: COVID-19 daily cases in India (as of February 7th, 2021)
Source: covid19india.org
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Figure 42: COVID-19 active cases in India (as of February 7th, 2021)
Active cases have been on a steady dip since mid-September, thanks to falling new infections and strong recoveries.
Source: covid19india.org.
Figure 43: Month-wise COVID-19 progression

Month Daily confirmed (average) Daily recovered (average) Daily deceased (average) Cumulative confirmed (eop)
January 0 0 0 1
February 0 0 0 3
March 53 5 2 1635
April 1100 297 37 34866
May 5000 2671 137 190649
June 13000 8533 400 585795
July 36000 24119 618 1697068
August 64000 56188 932 3687953
September 87000 81087 1089 6310276
October 60000 71595 756 8183317
November 43000 46633 517 9463178
December 27000 32037 366 10286234
January 14313 16736 164 10,758,551
Daily cases in India have declining steadily since end-November, with the country
emerging relatively unscatched from the festive season. From an average of ~27k cases
on a daily basis in the month of December, new cases fell below the 15k mark in January,
and are now further down to near-10k mark in February thus far.
The country’s total and daily share, as of September 30, 2020, was 18.7% and 26.8%
respectively which fell to 8.3% and 2% respectively on February 7th, 2020. India’s
mortality rates are down from a peak of 3.4% (in June) to 1.4% as opposed to the global
mortality rate of 2.2%. Our daily share of global deaths is 0.5% and recovery rates are
steadily increasing, at 97.2% as of February 7th, 2021. All Indian states tested aggresively
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through the crisis which was key in containing the spread. Testing numbers have fallen
only in the past month.
Figure 44: India’s share of the global cases and deaths
Source: worldometers.info, covid19india.org.
Figure 45: India’s share of the global coronavirus cases (daily and total)
Date World Daily India Daily India Total World Total India Daily Share India Total Share
05-Jan 725671 18088 10374932 85575366 2.5% 12.1%
29-Feb 1,446 0 3 6,612 0.0% 0.0%
31-Mar 75,337 146 1,397 7,79,093 0.2% 0.2%
30-Apr 81,818 1,801 34,863 31,30,737 2.2% 1.1%
31-May 1,05,773 8,782 1,90,609 59,98,835 8.3% 3.2%
30-Jun 1,73,337 18,641 5,85,481 1,02,39,259 10.8% 5.7%
31-Jul 2,89,732 61,242 16,95,988 1,73,56,471 21.1% 9.8%
31-Aug 2,61,172 69,921 36,91,166 2,52,33,053 26.8% 14.6%
30-Sep 3,24,096 86,821 63,12,584 3,36,85,132 26.8% 18.7%
31-Oct 4,73,618 46,963 81,84,082 4,57,11,629 9.9% 17.9%
30-Nov 4,96,892 31,118 94,62,809 6,27,78,734 6.3% 15.1%
30-Dec 7,47,664 21,822 1,02,66,674 8,19,26,995 2.9% 12.5%
30-Jan 5,13,060 13,044 1,07,47,091 10,31,30,698 3.0% 10.0%
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Figure 46: India’s share of the global coronavirus deaths (daily and total)
Date World Daily India Daily India Total World Total India Daily Share India Total Share
05-Jan 15269 264 150114 1846098 1.7% 8.1%
29-Feb 22 0 0 105 0.0% 0.0%
31-Mar 4,722 3 35 40,947 0.1% 0.1%
30-Apr 5,830 75 1,154 2,28,555 1.3% 0.5%
31-May 2,768 223 5,408 3,62,422 8.1% 1.5%
30-Jun 4,907 507 17,400 4,94,899 10.3% 3.5%
31-Jul 6,194 793 36,511 6,61,570 12.8% 5.5%
31-Aug 4,198 819 65,288 8,36,248 19.5% 7.8%
30-Sep 6,399 1,181 98,678 9,99,643 18.5% 9.9%
31-Oct 6,526 470 1,22,111 11,79,890 7.2% 10.3%
30-Nov 8,564 482 1,37,621 14,50,169 5.6% 9.5%
30-Dec 14,976 299 1,48,738 17,83,126 2.0% 8.3%
30-Jan 14,092 127 1,54,312 22,30,317 1.0% 7.0%
Total confirmed cases in a state can be misleading since area, population and population
density need to be taken into account as well. States that saw the virus spreading early
on include Maharashtra, Kerala and Delhi but were able to bring their case load under
control. These states also saw surges after festivals in August and November but have
been on a steady downward trajectory since December. However, Kerala is still struggling
with a higher caseload.
Mortality levels pan-India are now at 1.43%, and recovery rates hover at ~97%, a
significant improvement from the 60-70% levels see in the Jul-Aug period. Consequently,
active cases have fallen sharply. Across States, thanks to the difference in testing
intensity and demographics, ranking of states differs meaningfully across confirmed and
active cases.
As of February 7th, 2021, Kerala contributed 46.3% to the total active cases in the
country. Reopening of offices, schools, theatres and other facilities has made it difficult
to bring the case load down. The state government of Kerala has decided to increase
testing in the state but they have a significant amount of work to do. In fact, Kerala
overtook Karnataka earlier this month to become the second worst hit state in India, even
as Maharashtra continues to lead with a wide margin. This has led to several states
imposing travel restrictions for from Kerala.
Maharashtra and Delhi were amongst the states that saw a surge in cases post Diwali but
avoided a spike post Christmas and New Year’s celebrations. Their case load has been
steadily declining and both governments are gradually allowing public places to function
as in pre-COVID times. Delhi, notably, has been quite successful in controlling the spread,
, with a recent serological survey conducted by the Indian Council of Medical Research
(ICMR) showing development of herd immunity in more than half of the city’s population.
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Figure 47: COVID-19 Cases Panel in India across States as of February 7th, 2021
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Figure 48: COVID-19 Confirmed cases across major states, as of February 7th, 2021
Figure 49: COVID-19 Active cases across major states, as of February 7th, 2021
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Figure 50: COVID-19 Recovered cases across major states, as of February 7th, 2021
Figure 51: COVID-19 recovery rate across major states, as of February 7th, 2021
Even as the overall mortality in India remains meaningfully below global levels there are
sharp divergences across states, not easily explained. The mortality rate in Punjab
remains the highest in the country at 3.5%—much higher than the global average, and
nearly double of the nation’s average the and has stayed the same since early January.
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Maharashtra comes second with a Case Fatality Rate of 2.52%. Despite Kerala’s high
number of active cases, their mortality rate is the lowest in the country.
Figure 52: COVID-19 Deceased cases across major states, as of February 7th, 2021
Figure 53: COVID-19 Case Fatality Rate (CFR) across major states, as of February 7th, 2021
It is becoming increasingly clear that the differentiating factor in containing the spread of
the virus across countries is the extent of testing. While the testing intensity has fallen at
pan-India level, it varies widely across states. Amongst badly affected states, Delhi by far
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leads in terms of testing intensity, having covered nearly 57% of the population (As on
February 7th)—a reason behind the spike in daily confirmed cases in the state in
November. Southern states are also much ahead compared to others, having tested 25%
of the population as compared the country’s average of 14.8%.
Amongst large states, Madhya Pradesh fares the worst, having tested a mere 6.5%,
followed by Rajasthan (7.6%) and West Bengal (8.3%).
Figure 54: Daily COVID-19 tests in India (the trend line denotes 7DMA)
Figure 55: Testing intensity across states as of January 31st, 2021

%
Testing intensity across states
35
30
25
20
15
10
0
Arunachal Pradesh
Goa
Gujarat
Himachal Pradesh
Puducherry
Bihar
India
A&N
Tamil Nadu
Manipur
Odisha
Rajasthan
Kerala
Karnataka
Telangana
Mizoram
Haryana
Chhattisgarh
Uttar Pradesh
Madhya Pradesh
J&K
Andhra Pradesh
Assam
Uttarakhand
Nagaland
Tripura
Sikkim
Chandigarh
Meghalaya
Delhi
Jharkhand
Punjab
Maharashtra
West Bengal
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Figure 56: COVID-19 Test Positivity Rate (TPR) across major states, as of February 7th, 2021
Infection spread across states
We have highlighted the divergence in the rate of infection across states over the past
three months. In order to understand the growth trends, we consider growth in terms of
the number of days it would take to double the cases. The so-called doubling-rate (2x)
rate is a widely used metric for measuring rapid growth.
All states have in general shown a gradual increase in the number of days to double their
current confirmed cases. India’s 2x rate is 729.1, as of February 7th, 2021, with Kerala
being the only exception with a doubling rate of 128.8 days. We see a similar trend in the
number of fatalities as well with a national 2x rate of 1260 days while Kerala has a
doubling rate of 173, a small improvement since last months figures.
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Figure 57: COVID-19 Doubling Rate: Confirmed cases across major states, as of February 7th, 2021
Figure 58: COVID-19 Doubling Rate: Deceased cases across major states, as of February 7th, 2021
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District-level trends
Active cases continue to drop across the country, not just in overall figures, but also in
terms of spread. The number of districts with 1000+ cases is 25 now and only one district
has more than 10,000 cases. Mumbai has the highest number of deceased cases, closely
followed by Delhi.
Cases have steadily declined in most urban areas across the country. As life transitions
back to normal, India seems to be an exception to the strong correlation between mobility
levels and total number of active cases. Along with the progress of vaccine
administration, this makes for extremely encouraging news and a signal that we are at
the end of this crisis
Figure 59: COVID-19 confirmed cases across districts, Figure 60: COVID-19 active cases across districts,
ranked by confirmed cases as of February 7th, 2021 ranked by confirmed Cases as of February 7th, 2021
Source: covid19india.org Source: covid19india.org
Figure 61: Dispersion of COVID-19 active cases and deaths across districts
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Figure 62: COVID-19 cases across districts, ranked by Active Cases as of February 7th, 2021
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Figure 63: COVID-19 Case Fatality Rate (CFR) across districts, ranked by Active Cases as of February 7th, 2021
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Figure 64: COVID-19 Active cases trend across districts ranked by Active Cases as of February 7th, 2021
Figure 65: COVID-19 Doubling rate across districts ranked by Active Cases as of February 7th, 2021
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COVID-19 vaccine roll-out
On January 16th, 2021, India began the world’s most ambitious COVID-19 vaccination
program. With a population of 1.3 billion, India plans to vaccinate 300mn by July which
includes all frontline workers, people over 50 and those under 50 with comorbid
conditions. Government officials have estimated a requirement of 660mn vaccine doses
for this phase. As of February 7th, 2021, India has vaccinated a total of 5.81mn people
making it the country with the fourth highest doses of vaccines administered after US,
China and UK. Despite world class vaccine technology and impressive government
planning, the country is falling behind its own vaccination targets due to a significant
number of people being reluctant to take the vaccine.
India is also the fastest country to reach 4mn vaccinations, followed by the United States,
Israel and United Kingdom. Uttar Pradesh leads with the highest number of vaccines
administered, followed by Maharashtra and Rajasthan.
Figure 66: Global Comparison: India’s the fastest to reach 4 million vaccinations
Days taken to reach 4mn vaccinations
UK 39
Israel 39
USA 20
India 18
0 10 20 30 40 50
Source: Ministry of Health and Family Welfare
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Figure 67: COVID-19 vaccine doses administered, as of February 7th, 2021
Total vaccines administered (in mn.)

United States 41.21
China 31.2
United Kingdom 12.53
India 5.81
Israel 5.56
United Arab Emirates 4.31
Brazil 3.55
Germany 3.27
Turkey 2.61
Italy 2.56
France 2.11
Spain 1.…
Poland 1.66
Canada 1.04
Russia 1
Indonesia 0.92
Romania 0.86
Mexico 0.71
Serbia 0.54
Argentina 0.5
0 10 20 30 40 50
Source: Our World in Data
Figure 68: State-wise COVID-19 vaccinations administered till February 8th, 2021
COVID-19 Vaccinations till February 8th, 2021
Rest of India
Kerala
Andhra Pradesh
Madhya Pradesh
West Bengal
Bihar
Karnataka
Gujarat
Rajasthan
Maharashtra
Uttar Pradesh
- 200,000 400,000 600,000 800,000
Source: Ministry of Health and Family Welfare
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Chart of the month

Capital flows into Emerging Markets: Whither India?
Massive liquidity injection by global central banks including the US Fed in the aftermath of the COVID-19 outbreak
resulted in huge inflows of foreign capital into emerging markets (EMs), partly reversing the outflows seen in the first
quarter of 2020. India also benefitted, having received ~US$34bn worth of foreign portfolio inflows (FPI) into equities
since April 2020. Among 16 EMs where FPI data is available on Bloomberg, India was the second highest recipient of
FPI into equities after China. The debt market, however, had a different story to tell, with India being the worst performer
among large EMs with net outflows of US$14bn in 2020. India, however, stood out in terms of foreign direct investments
(FDI). Net FDI inflows in 2020 (data available until November 2020) at US$46.1bn were the highest ever recorded in a
year. According to the recent UNCTAD (United Nations Conference on Trade and Investment) Investment Trends
Monitor, India was among the very few countries to record a strong 13% growth in FDI inflows in 2020—second only to
Philippines.
An ultra-loose global monetary policy has avoided debt sustainability problem for now despite continued build-up, but
a premature reversal of this stance may lead to reversal of portfolio flows, thereby posing threat to financial stability.
Additionally, the UNCTAD expects the lingering uncertainty around the COVID-19 pandemic to delay the investment
recovery, particularly in new greenfield projects.
• Surge in portfolio flows into EMs…: Among the most notable financial
consequences of COVID-19 pandemic has been the sudden reversal in portfolio
flows from EMs in March 2020, highlighting the challenges of managing volatile
portfolio flows and consequent risks to financial stability. Implementation of ultra-
loose monetary policies and aggressive bond purchases by global central banks,
particularly the US Federal Reserve and ECB, came to the markets’ rescue, leading
to a massive turnaround in capital flows to EMs beginning April 2020. According to
the Capital Flows Tracker by the Institute of International Finance (IIF) that tracks
portfolio flows into 25 emerging markets, total portfolio flows into these countries
stood at US$267bn during April 2020-January 2021. Nearly 65% of these flows
came into debt markets. Portfolio flows strengthened towards the end of 2020
thanks to abatement of US election uncertainty, increase in vaccine optimism and
positive cues on the development of COVID-19 vaccine, with flows of US$140bn in
Q4 2020 being the highest since the first quarter of 2013.
• …Leading to debt sustainability issues and stretched valuations: Ample global
liquidity apart, a significant drop in global bond yields and negative interest rates
in many developed economies caused investors to chase for higher yields
prevalent in several emerging markets. While on one hand it has significantly eased
financial conditions, on the other hand it has led to further build-up of debt across
economies, raising questions on debt sustainability and serviceability.
Additionally, a huge 80%+ return in MSCI EM Index since late March 2020 to
record-high levels, partly attributed to strong foreign portfolio inflows, has resulted
in stretched valuations in EM equities, thereby adding to financial vulnerability.
• Where does India stand?: According to Bloomberg, India has seen a total of
~US$34bn in net foreign portfolio inflows into equity markets since April 2020
(until February 8th, 2021) and US$23bn in 2020. This is one of the highest among
16 EMs and second only to China. In fact, except for China and India—accounting
for the bulk of portfolio flows into EMs, inflows into other economies in the latter
part of the year have not been able to make up for the huge outflows during Feb-
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March 2020. However, India has not fared well as far as foreign portfolio inflows
into debt markets are concerned. Among the 12 EMs for which flows data for debt
is available on Bloomberg, India has performed the worst, with net outflows of
~US$14bn in 2020, primarily attributed to ballooning growth and fiscal concerns.
• Record-high FDI inflows in 2020 in India: India, however, has stood out in terms
of foreign direct investments (FDI). Net FDI inflows in 2020 (data available until
November 2020) at US$46.1bn were the highest ever recorded in a year. According
to the recent UNCTAD Investment Trends Monitor report that analyses and
estimates FDI inflows in 153 economies, global FDI has fallen by 42% to an
estimated US$859bn, largely led by lower FDI inflows into developed economies
(-69%) even as the decline in FDI inflows to developing economies was relatively
muted (-12%). Notably, the share of developing economies in global FDI rose to a
record-high of 72%. While China topped in terms of absolute FDI inflows among
developing economies, India was amongst the top in terms of growth in FDI flows
in 2020. FDI inflows into India rose by 13% to US$57bn, boosted by investments
in the digital sector, particularly through acquisitions (acquisition of 10% of Jio
Platforms) and infrastructure/energy deals in the M&A space.
• Sustenance of an easy global policy stance crucial: Huge foreign portfolio inflows
into EMs since the beginning of last year have been entirely led by a massive
liquidity injection by the US Federal Reserve and other central banks during this
period, further supported by opening of swap lines from the Fed to several large
EMs. This has avoided debt sustainability problem for now, but a premature
reversal of an easy global policy stance may pose threat to financial stability.
Despite a slow and gradual global economic recovery projected in 2021, assuming
continued policy support and effective vaccination drives, uncertainty around
increase in COVID-19 infections is likely to result in a delayed recovery in
investment activity particularly in terms of investment in new greenfield projects.
Figure 69: Monthly trend of portfolio flows into emerging markets
US$bn
Portfolio flows into emerging markets
100
Equity Debt Total
76.5
80
53.5
60 45.9
32.9
40 28.9
17.1 15.1 17.9
20 3.5 4.1 2.1 2.1
-20
-40
-60
-80
-83.4
-100
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
Source: Institute of International Finance.
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Market Pulse
Figure 70: Net foreign portfolio investment into equities across EMs in 2020
US$bn Net foreign investment into equity across EMs in 2020
120,000 104,005
100,000
80,000
60,000
40,000 23,373
20,000
211 180
0
-20,000 -279 -876 -1,106 -2,513 -3,220 -5,782
-7,409 -8,118 -8,287
-15,997 -20,082
-40,000
-60,000
-80,000 -65,727
Source: Bloomberg.
Figure 71: Monthly trend of net foreign portfolio investment into equities across EMs
US$mn Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
India 1,373 414 -8,390 -31 1,719 2,473 1,153 6,096 -767 2,506 9,559 7,267 1,978
China 5,132 -5,390 -30,727 31,979 6,465 39,590 55,469 18,050 -16,562
Indonesia 1 -340 -375 -560 552 -318 -264 -581 -1,049 -252 245 -279 775
Malaysia -33 -469 -1,288 -612 -690 -698 -601 -356 -476 -161 -251 -147 -208
Philippines -164 -179 -303 -325 -166 -190 -124 -261 -306 -156 -169 -171 -273
S. Korea -165 -3,000 -10,544 -3,964 -3,302 -705 725 -2,295 -990 -434 5,205 -614 -5,254
Sri Lanka -16 -6 -6 -6 -37 -46 -18 -41 -42 -29 -15 -17 -44
Taiwan -1,143 -4,659 -12,077 818 -5,051 3,269 269 -2,183 -1,425 -609 4,507 2,285 -3,389
Thailand -562 -627 -2,450 -1,439 -984 -737 -323 -887 -738 -701 1,081 82 -365
Vietnam 76 -121 -331 -258 -79 610 -34 -145 55 -312 -160 -179 -149
Brazil -4,592 -4,798 -5,039 -900 -1,286 86 -1,596 -58 -459 517 6,162 3,845 4,405
Dubai 151 -56 -208 -49 56 57 -22 64 63 -107 145 86 108
Qatar 170 32 -129 20 -112 18 32 -37 -58 45 169 62 278
S. Africa -520 -504 -1,016 -300 -652 -551 -607 -1,302 -898 -1,048 -1,049 1,039 197
Turkey -351 -687 -1,037 -630 -1,255 1 -499 -1,031 -220 -116 1,214 243 -202
Ukraine 9 9 14 6 6 6 66 17 40 40 30 8 8
Source: Bloomberg.
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Market Pulse
Figure 72: Net foreign portfolio investment into debt across EMs in 2020
US$bn
Net foreign investment into debt across EMs in 2020
140,000
119,346
120,000
100,000
80,000
62,287
60,000
40,000
20,000 4,636 127
0
-1,005 -1,117 -2,024 -2,323 -4,684 -5,041
-20,000 -10,027 -13,853
-40,000
China* South Malaysia Brazil Thailand Ukraine Philippines South Indonesia Turkey Mexico India
Korea Africa
Source: Bloomberg.
Figure 73: Monthly trend of net foreign portfolio investment into debt across EMs
US$mn Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
India -1,569 2 -8,192 -1,584 -2,712 -227 -246 -562 410 450 -389 766 -498
China 4,377 7,288 -4,021 5,115 14,442 13,205 27,945 23,421 27,573
Indonesia 999 -2,071 -7,538 270 612 329 598 -144 -591 1,480 1,106 267 773
Malaysia 820 820 -2,900 -102 -102 1,826 1,800 768 343 343 437 582 582
Philippines -733 -733 -1,008 -190 -190 2,462 -272 -368 -368 -368 -128 -128 -128
S. Korea 5,316 2,937 6,064 7,626 5,143 8,367 5,280 3,216 7,076 3,551 2,378 5,333 3,446
Thailand 370 -672 -2,867 -552 -284 1,014 605 67 772 -61 1,155 -551 5
Brazil 4,899 4,899 -14,778 -5,595 -5,595 5,052 -1,293 1,814 1,760 1,760 1,537 5,667 5,667
Mexico 1,720 249 -7,458 -4,974 -1,467 -1,659 -1,176 600 -187 -2,583 6,923 -14 -701
S. Africa 499 -115 -3,396 -601 -227 451 55 -112 -163 -811 771 1,327 551
Turkey -528 -1,802 -2,028 -1,061 -1,028 -561 -256 -458 20 89 613 1,959 960
Ukraine 297 146 -272 -302 -234 -206 -274 -190 -122 -168 -140 347 349
Source: Bloomberg.
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Market Pulse
Figure 74: Cumulative net FII inflows into India

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

40 25
FY16
FY17
FY18 20
30 FY19
FY20 FY16
FY21TD 15 FY17
FY18
20 FY19
10 FY20
FY21TD
10 5
0
0
-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
Source: Refinitiv Datastream.
Figure 75: FDI inflows by region, 2019 and 2020

US$bn % YoY
FDI inflows by region, 2019 and 2020*
2019 2020* Growth (% YoY, RHS)
1600 1489 0
1400 -10
1200 -20
1000 859 -30
800 730 702 -40
616
600 495476 -50
344 309
400 -60
229
166 160
200 101 58 13 -70
46 38
0 -80
-4
-200 -90
World Developed Europe North Developing Africa Latin America Developing Transition
Economies America Economies & the Asia Economies
Caribbean
Source: Investment Trend Monitor—UNCTAD.
* Preliminary estimates
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Market Pulse
Figure 76: FDI inflows into EMs in 2020

US$bn % YoY
FDI inflows into EMs in 2020*
180 FDI Inflows Growth (% YoY) 40
160 20
140 0
120
-20
100
-40
80
-60
60
40 -80
20 -100
0 -120
Source: Investment Trend Monitor—UNCTAD.

* Preliminary estimates
Figure 77: Net FDI inflows into India

US$bn
Net FDI inflows into India
50
46.1
45
39.4
40 36.5 37.5
35
30.7
28.9
30 26.4
25 22.9
20
15.7
15
10
0
2012 2013 2014 2015 2016 2017 2018 2019 2020*
Source: CMIE Economic Outlook, RBI. * Data for 2020 is until November 2020.
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Market Pulse
New Product: Derivatives on Nifty Financial Services Index

The National Stock Exchange of India (NSE), the world’s no. 1 derivatives exchange in the year 2020 based on contracts
traded, launched derivatives trading on the Nifty Financial Services Index in the Futures and Options Segment of the
Exchange on January 11th, 2021. This is the third index derivatives product being offered by the Exchange, the first two
being on the Nifty 50 Index and the Nifty Bank Index. The Nifty Financial Services Index—comprising of 20 companies
including banks, NBFCs, insurance companies and other financial institutions—has generated a 17%+ annualized return
over the last five years (As of January 31st, 2021). Refer to the last edition of Market Pulse to read about the Nifty
Financial Services Index in detail.
The futures and options contracts with symbol “FINNIFTY” are available in 7 serial
weekly excluding the monthly expiry and 3 serial monthly contracts. This is the first time
Exchange has made available weekly futures for the stock index derivatives. The
derivatives are cash settled with expiry day being the last Thursday of the expiry month
for the monthly contracts and Thursday of the expiring week for weekly expiry contracts.
The option contracts are European styled Call Option (CE) and Put Option (PE) with strike
scheme of 30-1-30 and strike interval of 100.
In the month of January 2021, the index futures witnessed average daily trading of 4,733
contract translating to average daily turnover of Rs 292 crores and with a peak open
interest of 2,705 contracts. During the same month, the index options witnessed average
daily trading of 1.64 lakh contracts with average daily premium turnover of Rs 34 crores
and with a peak open interest of 31,946 contracts. On an average, 250 members are
observed to be transacting in the index futures and options.
The Nifty Financial Services index has a 93% correlation with the Nifty 50 Index and 98%
with Nifty Bank index in last 1 year. The correlation has declined in the short term for the
month of January 2021 to 83% with Nifty 50 Index and 91% with the Nifty Bank Index.
During the first week of trade (January 11 to 14, 2021), the near month expiration futures
contracts closing prices was at a premium of 23 basis points to the near weekly expiration
futures contract. In the second week of trade, the near week (January 15th to 21st, 2021),
the near month expiration futures contracts closing prices was at a premium of 16bps to
the near weekly expiration futures contract.
Participation in the Nifty financial services index derivatives is expected to increase with
successful completion of the first monthly expiry on January 28th, 2021
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Market Pulse
Macro economy
Retail inflation falls to 15-month lows in December
Headline CPI inflation fell to a 15-month low of 4.6% in December 2020 from 6.9% in the previous month, positively
surprising market expectations (Consensus: 5.3%; Source: Refinitiv Datastream) and marking the first sub-6% reading
in last nine months. This higher-than-expected drop was primarily led by a sharp fall in food inflation to 16-month low
of 3.9%, albeit off a high base, primarily led by vegetables (-10.4%) and cereals (1%), with the former benefiting from
higher arrivals in the market. Core inflation (headline inflation excluding food and fuel) also moderated to 5.3% in
December from a two-year high of 5.6% in the previous month, predominantly led by lower transportation and
communication inflation (9.3%) despite a surge in crude oil prices, partly attributed to a favourable base.
We expect the headline inflation trajectory to remain well contained within the RBI’s target band in the near future,
supported by lower food inflation and high base effect, partly offset by elevated core inflation emanating from an
improvement in domestic demand and higher commodity prices. That said, this is unlikely to change the RBI’s stance
on rates particularly in the wake of gradually shrinking negative output gap. As such, we expect the RBI to maintain a
status quo on rates in the foreseeable future while gradually bringing down excess liquidity as deemed appropriate
contingent on growth revival.
• Retail inflation fell to a 15-month low of 4.6% in December…: After remaining

Retail inflation declined for
uncomfortably high and above the RBI’s target range of 4% +/-2% almost all the second month in a row
through 2020, headline consumer inflation fell to a 15-month low of 4.6% in to a 15-month low of 4.6%
December 2020—marking the first sub-6% print in last nine months. Favourable in December 2020.
base effect apart, improvement in supply chains and arrival of winter crops in the
market played a major role in bringing down inflation last month. Headline inflation
has averaged 6.6% in FY21 thus far (Apr-Dec’20) as compared to 4.1% over the
same period in FY20. That said, a favourable base should support the inflation
trajectory in 2021.
• …led by a significant decline in food inflation…: The steep decline in inflation
print in December was primarily led by a huge drop in food inflation, albeit off a Continued improvement in
supply chains and higher
high base, attributed to easing supply-side bottlenecks and higher arrivals in the
arrivals in the market led to
market. While vegetable prices declined on a YoY basis (-10.4%) following a
a sharp drop in food
double-digit price rise over the previous five months, cereals, inflation in cereals
inflation in December.
also came off sharply to a 23-month low of 1%. This was partly offset by a
continued build-up in inflation in oils & fats for the sixth month in a row to series- Core inflation also
high of 20.0% and higher price increase in fruits (+2.7% YoY), non-alcoholic moderated by 30bps MoM
beverages (+11.9%) and prepared meals & snacks (+4.8%). Excluding vegetables to 5.3% in December.
and cereals (15.7% of the CPI basket), headline inflation remained broadly steady
at 6.6%. Despite a sequential moderation, inflation in meat & fish, eggs, milk
products, pulses and spices remained in double digits.
• …And a modest drop in core inflation: Core inflation moderated by 30bps MoM
from a two-year high of 5.6% in November to 5.3% in December. A large part of
this was led by a decline in transportation & communication inflation to a six-month
low of 9.3% despite rising fuel prices, partly attributed to a high base. Education
and personal care & effects also saw a modest drop, while inflation in recreation &
amusement and education inched up marginally thanks to gradual normalisation
of business activity in these sectors. Overall, core inflation has averaged at 5.2% in
this fiscal thus far as compared to 4% in the same period last year. Continued
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Market Pulse
normalisation of economic activity, higher commodity prices and push from the
demand side may keep core inflation elevated in the near-term.
• Rate cuts off the table for now; liquidity normalisation in the anvil: Headline
The RBI is expected to
inflation is expected to remain well contained within the RBI’s target band in the
maintain status quo on
near future, supported by lower food inflation as supplies improve and high base
rates in the foreseeable
effect. On the negative side, core inflation is expected to remain elevated
future while gradually
emanating from an improvement in domestic demand and higher commodity bringing down excess
prices. That said, this is unlikely to change the RBI’s stance on policy rates liquidity in the system.
particularly in the wake of gradually shrinking negative output gap, even as a
credible recovery remains contingent on sustenance of current demand conditions
and effective vaccination programme. As such, we expect the RBI to maintain a
status quo on rates in the foreseeable future while gradually bringing down excess
liquidity as deemed appropriate.
Figure 78: Consumer price inflation in December 2020 (%YoY)
Weight (%) Dec-20 Nov-20 Dec-19 FY21TD FY20TD
CPI 4.6 6.9 7.4 6.6 4.1
Food & Beverages 45.9 3.9 8.9 12.2 8.4 4.8
Pan, Tobacco & Intoxicants2 2.4 10.7 10.4 3.4 9.7 4.1
Clothing & Footwear2 6.5 3.5 3.4 1.5 3.1 1.5
Housing 10.1 3.2 3.2 4.3 3.3 4.7
Fuel & Light 6.8 3.0 1.6 0.7 2.3 (0.0)
Miscellaneous2 28.3 6.6 7.0 4.2 6.5 4.4
Core CPI inflation 1, 2
44.9 5.3 5.6 3.8 5.2 4.0
Source: CSO, NSE. NA = Not Available.
Note: 1 Headline inflation excluding food & beverages, pan, tobacco & intoxicants and fuel & light.
2
Inflation data for these components for April and May 2020 are based on the imputed index calculated by MOSPI.
Figure 79: Headline CPI inflation trend

%
Headline inflation declined sharply in December
13 CPI Food & Beverages Fuel & Light Core inflation
11
(1)
(3)
Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20
Source: CMIE Economic Outlook, NSE
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Market Pulse
Figure 80: Real interest rates have remained negative for quite some time now
% Repo rate (4% in Dec 20) CPI inflation (4.6% in Dec 20)
14 4% (RBI's current long-term target, +/-2%)
12
Demonetisation COVID-19
RBI adopts flexible
10 outbreak
inflation targeting (FIT)
6
RBI's target band for
4
headline CPI inflation
0
2013 2014 2015 2016 2017 2018 2019 2020
Figure 81: Sharp drop in headline inflation in December largely led by perishables
%
CPI inflation ex-vegetables Headline CPI inflation
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
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Market Pulse
Figure 82: Category-wise contribution to India consumer price inflation (CPI)

India Consumer Inflation and Components (Dec 20)
8 CPI Inflation Food & Bev. 8
Tobacco Fuel & Light
Clothing & Footwear Housing
Miscellaneous
6 6
4.6
4 4
2 2
0 0
2017 2018 2019 2020

Source: Refinitiv Datastream, NSE.
Figure 83: 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 Spices
Pulses and Products Sugar and Confectionary
Non-alcoholic Beverages
10 10
5 5
0 0
-5 -5
2018 2019 2020
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Market Pulse
• Wholesale inflation moderated in line with retail inflation: Wholesale price

inflation (WPI) fell by nearly 40bps MoM to 1.2% in December 2020 from a nine-
month high of 1.6% in the previous month. This was primarily led by a sharp drop
in food as well as non-food primary inflation and sustained deflation in crude,
petroleum & natural gas, minerals oils and electricity. In fact, electricity inflation at
-10.7% YoY fell to the lowest level since the beginning of the series. On the
negative side, manufactured products inflation inched up to a 26-month high of
4.2% in December, primarily led by non-food manufactured products even as
infaltion in food products remained broadly steady. This is largely attributed to
continued normalisation of economic and trade activities as well as higher
commodity prices. Unlike retail inflation, headline wholesale price inflation has
averaged at -0.1% in FY21 thus far (Apr-Dec’20) as compared to 1.5% over the
same period in FY20.
• Gap between CPI and WPI inflation declines sharply in December: The gap
between retail and wholesale price inflation fell for the second month in a row by a
huge 200bps MoM to a 16-month low of 3.4pp in December 2020 and is now lower
than the series average of 4.3pp. This sharp drop last month was primarily on
account of a) a much higher weight of food in the retail basket (45.9%) as
compared to the wholesale basket (15.3%), where prices have significantly
moderated last month owing to higher arrivals in the market, and b) a higher
weightage of manufactured goods in the wholesale basket (64.2%) as compared
to the retail basket, where inflation has inched up on the back of improving demand
and normalizing business environment.
Figure 84: Wholesale price inflation for December 2020 (%YoY)

Weight (%) Dec-20 Nov-20 Dec-19 FY21TD FY20TD
WPI 1.2 1.6 2.8 (0.1) 1.5
Primary articles 22.6 (1.6) 2.7 11.5 1.1 6.9
Food articles 15.3 (1.1) 3.9 13.3 3.9 8.6
Non-food articles 4.1 3.1 8.4 7.7 (0.5) 4.4
Minerals 0.8 3.9 2.0 6.0 1.3 13.6
Crude petroleum & natural gas 2.4 (23.5) (25.6) 5.9 (26.5) (6.6)
Fuel & power 13.2 (8.7) (9.9) 0.4 (12.2) (2.9)
Coal 2.1 0.4 - 2.5 1.3 1.4
Mineral oils 8.0 (11.2) (16.0) (3.1) (20.5) (5.8)
Electricity 3.1 (10.7) (4.3) 6.5 (4.8) 0.4
Manufactured products 64.2 4.2 3.0 (0.3) 1.5 0.2
Food group 24.4 0.9 4.3 11.2 4.2 6.7
Source: CSO, CMIE Economic Outlook.
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Market Pulse
Figure 85: WPI inflation trend Figure 86: Gap between wholesale and retail inflation
% WPI inflation moderates percentage points Gap between CPI and WPI inflation
9 12.0
10.0
6
8.0
3
6.0
0 4.0
2.0
(3)
0.0
(6) -2.0
(9) -4.0
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Source: CMIE Economic Outlook.
Figure 87: India wholesale price inflation (WPI)
Primary articles (%YoY) Manufactured products (%YoY)

15 6
4 4.2
10
2
5
0
0
-1.6 -2
-5 -4
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
30 Fuel & Power (%YoY) 12 Food products (%YoY)
10
20
8
10
6
0 4
-8.7 2
-10 0.9
0
-20
-2
-30 -4
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
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Market Pulse
Industry production contracts in November

Industrial recovery faltered in November 2020, with industrial production declining by 1.9% YoY after recording an
expansion in the previous two months. While this was off a high base, with fewer working days in November 2020 as
compared to the same period in the previous year adding to the drop, it came in lower than market expectations
(Consensus: -0.4%, Source: Refinitiv Datastream). Barring Electricity which grew at a decent 3.5% YoY, the other two
sectors reported a YoY contraction in November. While Mining sector dropped by a huge 7.3% YoY, largely attributed
to an unfavourable base even as there was a significant improvement on a sequential basis, Manufacturing production
declined by 1.7% YoY. On a FYTD basis (Apr-Nov’20), contraction in industrial production stands at 15.5% YoY.
The contraction in industrial production in November appears more a result of an unfavourable base and higher number
of holidays during the month. This is particularly in the wake of strong improvement seen in other high frequency
indicators over the last couple of months. It is therefore premature to ascertain the recent industrial recovery as
transient in nature. That said, a credible recovery remains contingent on sustenance of a strong demand environment
and successful execution of vaccination drive.
• Industrial production declines in November…: After recording an expansion in
Industrial production fell
the previous two months, industrial production dropped by 1.9% YoY in November
by 1.9% YoY in November
2020, partly attributed to a high base (+2.1% in November 2019) and fewer after expanding in the
working days in November 2020 due to Diwali holidays as compared to the same previous two months.
period in the previous year (Diwali fell in October in the previous year). This is in
contrast to a strong improvement seen in other high frequency indicators over the
last couple of months. On a FYTD basis (Apr-Nov’20), industrial production
declined by 15.5% YoY as opposed to 0.4% growth in the same period last year.
• …led by a contraction in Manufacturing and Mining sectors: Barring Electricity

which grew at a decent 3.5% YoY, the other two sectors reported a YoY contraction Favourable base aside,
in November. While Mining sector dropped by a huge 7.3% YoY, largely attributed normalising business
activity and higher demand
to an unfavourable base (+1.9% in November 2019) even as there was a significant
ahead of the festive season
improvement on a sequential basis (+6.4% MoM), Manufacturing production
supported industrial
declined by 1.7% YoY. Within the manufacturing space, 13 out of 23 sub-sectors production growth in
recorded a contraction in November 2020 vs. nine in the previous month, led by November.
paper & paper products (-22.7%), printing & reproduction of recorded media (-
19.8%), wearing apparel (-18.8%), beverages (-16.1%), computer, electronic &
optical products (-15.4%) and tobacco products (-13.8%). On the positive side,
Electricity production grew at a decent pace of 3.5% YoY, as normalisation of
business activities led to an improvement in demand.
• Consumer goods production drops after rising sharply in October: Following a

strong growth in October thanks to higher production to fill up inventories ahead of Festive demand supported
the festive season, consumer goods production declined by 0.7% YoY in consumer durables
November, but off a high base (+0.1% YoY in November 2019), with both consumer production, while recovery
durables and non-durables declining by a similar rate. Capital goods production in investment activity was
relatively benign.
also fell by a huge 7.1% YoY in November 2020 after recording an expansion in the
previous month for the first time in 21 months, reflecting a delayed investment
cycle recovery. Primary Goods also fell by 2.6% YoY in November, partly owing to
weak mining activity. While intermediate goods production fell by 3.0% YoY but off
a very high base (+17.2% YoY in November 2019), infrastructure/construction
goods recorded an expansion for the third month in a row.
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Market Pulse
• A credible industrial recovery contingent on demand sustenance: The

contraction in industrial production in November appears more a result of an
unfavourable base and higher number of holidays during the month. This is
particularly in the wake of strong improvement seen in other high frequency
indicators over the last couple of months. It is therefore premature to ascertain the
recent industrial recovery as transient in nature. That said, a credible recovery
remains contingent on sustenance of a strong demand environment and successful
execution of vaccination drive, the absence of which may weigh on industrial
production. Additionally, rising COVID infections in the US and Europe and
consequent re-imposition of stringent lockdown restrictions is also likely to
negatively impact the domestic manufacturing sector. We maintain our estimate of
GDP contraction of 8% in FY21, with a favourable base leading to growth bouncing
to 9.5% in FY22.
Figure 88: India industrial production for November 2020 (%YoY)
Weight (%) Nov-20 Oct-20 Nov-19 FY21TD FY20TD
IIP (1.9) 4.2 2.1 (15.5) 0.4
Sector- Mining 14.4 (7.3) (1.3) 1.9 (12.4) (0.1)

based Manufacturing 77.6 (1.7) 4.1 3.0 (17.3) 0.4
indices Electricity 8.0 3.5 11.2 (5.0) (4.6) 0.8
Primary Goods 34.0 (2.6) (3.2) (0.2) (11.4) 0.1
Capital Goods 8.2 (7.1) 3.5 (8.9) (31.1) (11.7)
Intermediate Goods 17.2 (3.0) 2.1 17.2 (17.2) 10.4
Use-based
Infra/Construction Goods 12.3 0.7 9.9 (0.7) (17.7) (2.4)
Goods
Consumer Goods 28.2 (0.7) 11.6 0.1 (14.9) (1.0)
Consumer Durables 12.8 (0.7) 18.0 (1.4) (28.1) (6.6)
Consumer Non-durables 15.3 (0.7) 7.1 1.1 (5.4) 3.5
Source: CSO, NSE
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Market Pulse
Figure 89: India industrial production (3MMA)
20 Industrial production (3MMA, %YoY) 20 Mining (3MMA, %YoY)

10
3.6 10
0
-10 0 -1.5
-20
-30 -10
-40
-20
-50
-60 -30
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
20 Manufacturing (3MMA, %YoY) 20 Electricity (3MMA, %YoY)
3.5 11.2
0 10
-20 0
-40 -10
-60 -20
-80 -30
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Source: Refinitiv Datastream, NSE
Figure 90: Long-term industrial production trend (12MMA)
Industrial Production trend

20 20
IIP %YoY 12mma
Eight core growth 12mma
IIP Manufacturing 12mma
15 15
10 10
5 5
0 0
-5 -5
-10 -10
-15 -15
2008 2010 2012 2014 2016 2018 2020
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Market Pulse
Figure 91: India industrial production use-based goods (3MMA)
Capital goods (3MMA, %YoY)

20 Primary goods (3MMA, %YoY) 20 20
15 15
10 10 0 -3.3
5 5
-20
0 0
-1.5
-5 -5
-40
-10 -10
-15 -15 -60
-20 -20
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
20 Intermediate goods (3MMA, %YoY) 20 Infrastructure/Construction goods (3MMA, %YoY)

10 10
0 0.7
0 -1.4
-10
-10
-20
-20
-30
-30
-40
-40 -50
-50 -60
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
20 Consumer durable (3MMA, %YoY) 20 Consumer non-durable (3MMA, %YoY)
2.8 10
0
4.1
0
-20
-10
-40
-20
-60
-30
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
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Market Pulse
Figure 92: India eight-core sector growth (3MMA)
Eight-core sectors Coal

10 20
0 10
-8.5 3.6
-10 0
-20 -10
-30 -20
-40 -30
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Steel Cement
50 50
0 -6.3 0
-14.6
-50 -50
-100 -100
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Fertilizer Petroleum Refinery products & Crude oil
20 20
10 10
7.3
0
0
-10
-10 -20 -17.7
-20 -30
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Natural Gas Electricity
20 20
10 10
0 -2.7
0
-10
-10 -9.5
-20
-20 -30
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Figure 93: Manufacturing PMI remained steady in December while Services PMI declined marginally
Manufacturing and Services PMI
70.0 Manufacturing PMI Services PMI
60.0
50.0
40.0
30.0
20.0
10.0
-
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Source: CMIE Economic Outlook, NSE.
59/160
Market Pulse
Trade deficit widens further on strong import growth

India’s merchandise trade deficit widened to an 18-month high of US$15.4bn in December 2020 from US$9.9bn in the
previous month—in line with market expectations (Consensus est.: US$15.7bn; source: Refinitiv Datastream). This was
led by a strong 7.6% YoY growth (+27.5% MoM) in imports—the first YoY expansion in 10 months and the steepest in
last 26 months—aided by recovery across the board. While a sequential surge in oil imports was partly led by higher
crude oil prices, non-oil, non-gold imports grew at a 26-month high of 8% YoY, reflecting strong consumption demand.
Exports also recovered on a sequential basis, albeit at a slower pace, up 15.4% MoM, supported by higher exports of
petroleum products and engineering goods. On a YoY basis, however, exports grew by a modest 0.1% YoY. A surge in
COVID-19 infections globally and re-imposition of lockdowns and restrictions have weighed on India’s export activity
over the last couple of months.
Continued normalization of business activity and strong festive-led consumption demand, coupled with higher crude oil
prices, have led to a robust pick-up in imports over the last few months. Recovery henceforth, however, remains
contingent on sustenance of current demand environment. Renewed global lockdowns are likely to encumber any
meaningful revival in exports, thereby keeping trade deficit at elevated levels over the next few months. An effective
implementation of COVID-19 vaccination drives is crucial for a credible recovery in global trade. Nevertheless, a 52%
contraction in trade deficit in the first nine months of this fiscal is likely to translate into a current account surplus of
1.1% of GDP in FY21, further supported by steady services exports. In FY22, we expect current account to slip into
deficit again, with our estimate pegged at 0.7% of GDP.
Strong foreign inflows, along with the comfort on current account, bodes well for the INR (+5% against the USD from
the April peak level), even as an aggressive RBI intervention has restricted the gains on the INR as compared to other
emerging market currencies. Accretion to foreign exchange reserves in this fiscal thus far (+US$115bn) has already
reached the levels seen during the Global Financial Crisis (2007-08), taking India’s overall FX reserves to fresh record-
highs of US$590bn (as on January 29th).
• Exports recovered on a sequential basis: Export grew by a modest 0.1% YoY in
December 2020 to US$27.2bn, an improvement over an 8.7% YoY contraction in Exports grew by a modest
the previous month. On a sequential basis, however, exports registered a strong 0.1% YoY in December but
15.4% growth. That said, export activity lagged imports, largely attributed to fresh recorded a decent
improvement on a
restrictions imposed by several countries due to a surge in COVID-19 cases,
sequential basis (+15%
particularly in Europe and the US. While a jump in crude oil prices somewhat
MoM).
reduced the pace of contraction in exports of petroleum products on a YoY basis (-
35.3% vs. 59.7% in the previous month), exports of gems & jewellery and
electronic goods grew at a 23-month and 10-month high of 6.7% and 16.5%
respectively, even as the latter two remained stable on sequential basis.
Engineering goods recorded a strong 28% growth on a MoM basis in December
even as it remained broadly steady as compared to the same period last year, while
readymade textiles fell by a 15% YoY, but off a high base. Excluding petroleum
products, engineering goods and readymade textiles—accounting for 39% of
India’s export bill—exports actually grew by 10.1% YoY. On a cumulative basis,
exports are down 15.5% YoY in the first nine month of this fiscal.
• Import growth at a 26-month high in December: Imports grew by a 26-month

Imports grew by a 26-
high of 7.6% YoY to US$42.6bn in December, marking the first YoY expansion in
month high of 7.6% YoY in
last 10 months, led by broad-based recovery. Contraction in oil imports came off December, marking the
meaningfully to 10.6% YoY in December, partly attributed to the recent surge in first YoY expansion in last
crude oil prices. Excluding oil, imports grew by a much higher 14.3% YoY, led by a 10 months.
strong 81.8% YoY increase in gold imports. Non-oil, non-gold imports also
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Market Pulse
registered a decent 8.0% YoY expansion—the steepest YoY growth in last 26

months—reflecting a strong festive and pent-up demand and continued
normalisation of business activities to pre-COVID levels. On a cumulative basis
(Apr-Dec’20), imports are down 28.2% as compared to the same period in the
previous year.
• Trade deficit widened to 18-month highs: Trade deficit widened to an 18-month

Trade deficit widened to an
high of US$15.4bn in December, up 23.4% YoY/56.4% MoM, thanks to recovery in
18-month high of
imports significantly outpacing exports. While a strong domestic demand and
US$15.4bn in December.
higher crude oil prices have led to a decent revival in imports over the last few
months, Indian exports are making a slow recovery due to fresh lockdowns and
other restrictions imposed in countries that are important trading partners, like the
US and UK. On a cumulative basis, trade deficit is down 52.2% YoY during Apr-
December 2020.
• External environment to remain supportive: Recovery in imports henceforth

We estimate a current
remains contingent on sustenance of current demand environment. Renewed
account surplus of 1.1% of
global lockdowns are likely to encumber any meaningful revival in exports, thereby GDP in FY21 but expect a
keeping trade deficit at elevated levels over the next few months. An effective deficit of 0.7% of GDP in
implementation of COVID-19 vaccination drives is crucial for a credible recovery in FY22.
global trade. Nevertheless, a 52% contraction in trade deficit in the first nine
Sustenance of foreign
months of this fiscal is likely to translate into a current account surplus of 1.1% of
capital inflows should keep
GDP in FY21, further supported by steady services exports. This, coupled with
the BoP in a comfortably
strong foreign capital inflows, should result in a record-high BoP (Balance of surplus position.
Payments) surplus in FY21. In FY22, we expect current account to slip into deficit
again, with our estimate pegged at 0.7% of GDP, even as expectations of
sustenance of foreign investments is likely to keep the BoP in a comfortably surplus
position.
Strong foreign inflows, along with the comfort on current account, bodes well for
the INR (+5% against the USD from the April peak level), even as an aggressive RBI
intervention has restricted the gains on the INR as compared to other emerging
market currencies. Accretion to foreign exchange reserves in this fiscal thus far
(+US$115bn) has already reached the levels seen during the Global Financial Crisis
(2007-08), taking India’s overall FX reserves to fresh record-highs of US$590bn
(as on January 29th).
Figure 94: India monthly trade balance for December 2020

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)
Dec-20 27.1 0.1 42.6 7.6 9.6 -10.6 33.0 14.3 4.5 81.8 -15.4
Nov-20 23.5 -8.7 33.4 -13.3 6.3 -43.4 27.1 -1.2 3.0 2.6 -9.9
Dec-19 27.1 -2.7 39.6 -6.5 10.7 -0.6 28.9 -8.5 2.5 -3.9 -12.5
FY21TD 201.3 -15.5 261.5 -28.2 53.9 -44.3 207.6 -22.4 16.8 -27.2 -60.2
Source: Ministry of Commerce, CMIE Economic Outlook.
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Market Pulse
Figure 95: India monthly trade balance trend
40 Exports (%YoY, 3MMA) Imports (%YoY, 3MMA) Trade balance (US$bn, RHS)
0
20
-5
0
-4.8
-4.9
-10
-20
-40 -15
-15.4
-60 -20
2018 2019 2020
78 Trade balance (US$bn, RHS) USDINR 5

76
0
74
73.1
72 -5
70
68 -10
66
-15
-15.4
64
62 -20
2018 2019 2020
Figure 96: Non-oil, non-gold imports trend Figure 97: Oil imports trend
US$bn Non-oil non-gold imports continue to strengthen % US$bn Oil imports trend %
35 60 Oil Imports % YoY (R)
Non-oil non-gold imports % YoY (R) 18 110
30 40 15
25 60
20 12
20
0 9 10
15
(20) 6
10
(40)
5 (40) 3
0 (60) 0 (90)
Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Source: Ministry of Commerce, CMIE Economic Outlook.
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Market Pulse
Figure 98: Oil imports vs. Brent crude oil prices trend
Oil imports vs. prices (US$)
16
120 WTI
Brent 14
India oil imports US$bn (RHS)
100
12
80 10
60 8
6
40
4
20
2
0 0
2013 2014 2015 2016 2017 2018 2019 2020
Figure 99: Current account surplus pegged at 1.1% of GDP in FY21; expect deficit of 0.7% of GDP in FY22
A significant contraction in trade deficit in FY21 is expected to translate into a current account surplus of 1.1% of GDP
in FY21—the first surplus in 17 years, vs. a deficit of 0.9% of GDP in FY20. In FY22, we expect current account to slip
into deficit again, with our estimate pegged at 0.7% of GDP, even as expectations of sustenance of foreign investments
is likely to keep BoP in a comfortable surplus position for the third year in a row.
India CAD as % of GDP
40 2%
1.1
20 1%
0 0%
-20 -1%
-40 -2%
-60 -3%
CAD (US$bn)
-80 CAD (%GDP, RHS) -4%
-100 -5%
2010 2012 2014 2016 2018 2020
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Market Pulse
Figure 100: Forex reserves are all all-time high levels, leading to a sharp rise in import cover
A significant accretion to forex reserves over the years, and particularly this fiscal year (+US$ 115bn in FY21 till date),
has resulted in a significant improvement in import cover.
US$ bn Forex reserves and import cover (months) # of months
600 20
FX reserves (US$bn) Import cover ratio (months, RHS)
550 18
500
16
450
14
400
12
350
10
300
250 8
200 6
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Source: CMIE Economic Outlook, NSE.
Figure 101: Aggressive RBI intervention has weighed on the INR in 2020 (as on January 12th, 2021)
Aggressive dollar purchases by the RBI—reflected in record-high FX reserves—have constrained gains on the INR. The
INR is the worst performing currency among major Asian currencies in 2020.
INR & key Asian currencies vs. the USD (1M, 3M and 12M)
-4% -2% 0% 2% 4% 6% 8% 10%
0.6%
aiwanese Dollar 2.7%
6.9%
1.1%
Chinese Yuan 1M 3.9%
6.4%
3M
12M -0.1%
Japanese Yen 1.4%
5.9%
0.0%
Philippine Peso 1.2%
5.5%
-0.6%
South Korean Won 4.0%
5.2%
0.4%
alaysian Ringgit 2.9%
1.0%
0.0%
Thailand Baht 3.9%
0.7%
0.3%
Vietnamese Dong 0.5%
0.5%
0.0%
HK Dollar 0.0%
0.2%
0.7%
ndonesian Rupiah 4.8%
-2.5%
0.8%
Indian Rupee 0.4%
-3.1%
-4% -2% 0% 2% 4% 6% 8% 10%
64/160
Market Pulse
Fiscal deficit to shoot up in Q4FY21

The Centre’s gross fiscal deficit in the first nine months of this fiscal reached Rs11.6trn or 145% of the budget estimate.
However, it is just 62.7% of the revised estimate for FY21, indicating a sharp jump in fiscal deficit in the fourth quarter.
The Centre’s tax collections have improved over the last few months, and so has the spending. Gross tax revenues in
the first nine months are now down just 3.2% YoY vs. -12.6% during Apr-Nov’20, led by a meaningful improvement in
direct as well as indirect tax collections. GST collections have risen sharply in-line with normalisation of economic
activities, higher consumption demand and better compliance, with collections in December at Rs1.2trn being the
highest since the implementation of GST regime in July 2017. The Centre’s overall expenditure has grown by 8.1% YoY
led by a strong 20.9% growth in capital expenditure.
While gross tax collections are surprisingly expected to decline by 10.3% YoY in Q4FY21 despite the ongoing economic
recovery, and therefore may surprise on the upside, overall expenditure is pegged to grow at 103%, partly attributed to
shift in some of the off-balance sheet items to on-balance sheet (e.g. FCI borrowing). A higher-than-expected fiscal
deficit of Rs18.5trn or 9.5% of GDP in FY21 has been funded by market borrowings (expanded by an additional
Rs800bn) and small savings. This may lead to the combined fiscal deficit exceeding 14% of GDP in FY21.
The budget estimates for FY22 (6.5% of GDP) assumes a 15% growth in net tax revenues despite a low base and a
modest 1% growth in total expenditure which seems fairly reasonable and achievable unlike the trend seen in the past.
The Government has also relaxed its medium-term fiscal consolidation roadmap, targeting 4.5% fiscal deficit by FY26.
• Centre’s cumulative fiscal deficit rises to 145.5% of the budgeted target: The
Centre’s fiscal deficit reached 145.5% of the budgeted target in the first nine of the Gross fiscal deficit has
reached 145.5% of the
fiscal but is a mere 62.7% of the revised estimates. This implies a sharp jump in
Government’s budgeted
fiscal deficit in Q4FY21, thanks to a huge jump in expenditure and contraction in
target in Apr-Dec’20 but is
revenue receipts. Both tax collections and spending have improved over the last
just 62.7% of the revised
couple of months. Revenue deficit, however, is a tad lower at 60.6% in 9MFY21. estimate.
• Revenue receipts improving: Gross tax revenues during April-December 2020
declined by 3.2% YoY to Rs10.3trn—a meaningful improvement from a 12.6% YoY Tax collections are
contraction in the first eight months of the fiscal, thanks to normalisation of gradually improving in-line
economic activity, higher consumption demand and better compliance. Indirect with normalisation of
tax collections (+4.6% YoY vs. -2% YoY in 8MFY21) are swiftly reviving, thanks to economic activity, further
aided by higher festive
a meaningful recovery in GST collections and strong growth in excise revenues
demand.
(supported by excise duty hikes on petrol/diesel). Direct tax collections have also
improved sharply, contracting by 11.2% YoY in the first nine months vs. a 24.4%
YoY drop in Apr-Nov’20, with corporate and income tax receipts declining by
15.4% and 6.2% YoY during this period respectively. Gross tax collections are
surprisingly expected to decline by 10.3% YoY in Q4FY21 despite the ongoing
economic recovery, and therefore may surprise on the upside.
Net tax collections, however, rose by 6.3% YoY (vs. -8.3% YoY in Apr-Nov’20) as
transfer of tax collections to states has come off meaningfully. Non-tax revenues
during Apr-December 2020, however, remain lacklustre and are down 48% YoY,
primarily owing to a huge drop in dividends from PSUs as well as RBI. Revenue
generation through the disinvestment route at Rs189bn has also been miniscule in
this fiscal thus far, with revised estimates assuming generation of an additional
Rs131bn in the last quarter.
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Market Pulse
• GST collections reaches the highest level since its existence: GST collections in
GST collections improved
January (for the month of December) rose further and grew by 8.1% YoY/4.1% meaningfully further, rising
MoM to Rs1.2trn—the highest level since the implementation of the GST regime in to Rs1.2trn in January—the
July 2017. This is due to continued normalisation of economic activity, higher highest monthly figure
consumption demand and improved compliance. Cumulative GST collections since GST implementation.
during the ten months of this fiscal year are now down by 11.7% YoY, with average
monthly run-rate touching Rs900bn in FY21 thus far.
• Government spending rises: Despite strained fiscal balances, the Centre’s
expenditure at an aggregate level for the second consecutive month. This was
primarily led by a modest 6.3% growth in revenue expenditure—attributed to rural
development, agriculture & farmer welfare, health & family welfare, rural
development, communications and interest payments. Capital expenditure also
improved sharply and is now up 20.9% YoY on a cumulative basis during Apr-
Dec’20, led by robust spending on food & public distribution and road transport &
highways as well as higher transfer to state and union territories. The
Government’s revised estimates for FY21 point to a strong 103% YoY growth in
overall expenditure, partly attributed to shift in some of the off-balance sheet items
to on-balance sheet (e.g. FCI borrowing).
• Combined fiscal deficit to cross 14% of GDP in FY21; FY22 fisc budgeted at
Combined fiscal deficit for
6.5%: A higher-than-expected fiscal deficit of Rs18.5trn or 9.5% of GDP in FY21 FY21 is expected to cross
has been funded by market borrowings (expanded by an additional Rs800bn) and 14% of GDP.
small savings. This may lead to the combined fiscal deficit (Centre + states)
exceeding 14% of GDP in FY21. The budget estimates for FY22 (6.5% of GDP) FY22 fiscal deficit target
assumes a 15% growth in net tax revenues despite a low base and a modest 1% pegged at 6.5% of GDP.
growth in total expenditure which seems fairly reasonable and achievable unlike
the trend seen in the past. The Government has also relaxed its medium-term fiscal
consolidation roadmap, targeting 4.5% fiscal deficit by FY26
Figure 102: Yearly trend of India’s fiscal balances
x 1,000 x 1,000
India fiscal balances (Rs bn)
-20 -20
FY21RE = Rs18487
FY16
FY17
-15 FY18 -15
FY19
FY20
FY21TD
-10 -10
FY21BE = Rs7963bn
-5 -5
0 0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
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Market Pulse
Figure 103: Gross fiscal deficit as % of budget targets during April-December over the last 20 years
% Gross fiscal deficit as a % of budget target during Apr-Dec
180.0 163.8
160.0 145.5
140.0 132.4
121.5
120.0 113.6 112.4
92.3 93.9
100.0 87.9
76.5 77.3 78.8
80.0 71.7
63.7 60.2 65.7 63.8 62.7
58.1
60.0 51.4
44.9
40.0
20.0
0.0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY16 FY17 FY18 FY19 FY20 FY20 FY21 FY21
(BE) (RE) (BE) (RE)
Source: CMIE Economic Outlook, CGA, NSE.
Figure 104: Centre’s gross fiscal trend Figure 105: A quick glance at FY21 fiscal balances
Fiscal deficit trend (% of GDP) Apr-Nov
9.5 Rs bn FY20A* FY21BE %YoY** % YoY
10.0 2020
Net tax revenues 13,569 13,445 -0.9 9,624 6.3
8.0 6.8
6.6 Non-tax revenues 3,272 2,107 -35.6 1,262 -47.8
5.9
6.0 4.9 4.9 Non-debt cap rec. 686 465 -32.2 331 6.7
4.5 4.6
4.1 3.9
3.5 3.5 3.5 3.4 3.5 Total receipts 17,527 16,017 -8.6 11,217 -4.8
4.0
Revenue Exp 23,506 30,111 28.1 19,712 6.3
2.0
Capital Exp 3,357 4,392 30.8 3,090 20.9
- Total expenditure 26,863 34,503 28.4 22,801 8.1

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY19
FY20
FY21BE
FY22BE
FY21RE
Fiscal deficit 9,336 18,487 98.0 11,585 24.3

% of GDP# 4.6 9.5 5.9
Source: CMIE Economic Outlook, CGA, NSE. BE = Budget Estimates, RE = Revised Estimates, A = Actual. * FY20 actual figures are provisional number released by CGA.
** Growth in FY21 BE figures are based on the revised estimates for FY20. #FY21 figures are based on the GDP figure in budget estimates.
Figure 106: Direct tax collections trend during Apr-Dec Figure 107: Indirect tax receipts trend during Apr-Dec
Rsbn Direct tax collections trend % Rsbn Indirect tax collections trend %
Direct tax collections % YoY (R) Indirect tax collections % YoY (R)
8.0 20 8.0 200
7.0 15 7.0
150
6.0 6.0
10
100
5.0 5.0
5
4.0 4.0 50
0
3.0 3.0
0
-5
2.0 2.0
-10 -50
1.0 1.0
0.0 -15 0.0 -100

FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21 FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21
Source: CMIE Economic Outlook, CGA, NSE.
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Market Pulse
Figure 108: Gross tax collections trend during Apr-Dec Figure 109: GST collections trend
Rsbn Gross tax collections trend % Rs bn Monthly trend of GST collections
Gross tax collections % YoY (R) 1,400 Monthly GST collections Monthly average
16.0 30
1,200
14.0 25
1,000
12.0
20 800
10.0
15 600
8.0 400
10
6.0 200
5
4.0 0
Aug-17
Dec-17
Apr-18
Aug-18
Dec-18
Apr-19
Aug-19
Dec-19
Apr-20
Aug-20
Dec-20
2.0 0
0.0 -5
FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21
Source: CMIE Economic Outlook, CGA, PIB, NSE.
Figure 110: Revenue and capital exp during Apr-Dec Figure 111: Expenditure mix during Apr-Dec
Rs trn Expenditure break-up % % Share of revenue and capital expenditure in total
expenditure trend
Capital exp Revenue expenditure Capital expenditure
Rev exp 100
25 50 11.0 12.5 12.4 13.7 11.4 14.3 12.3 13.9 11.6 12.1 13.6
% YoY growth in rev exp
% YoY growth in capital exp 3.1 80
20 2.6
2.1 25
2.4 60
15
1.8
1.4 1.9 89.0 87.5 87.6 86.3 88.6 85.7 87.7 86.1 88.4 87.9 86.4
1.6 19.7 40
10
1.2 18.5
1.1 16.2 0
0.9 14.6
12.9
5 11.0 11.3 20
8.7 10.1
7.0 7.8
0 -25 0
FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: CMIE Economic Outlook, CGA, PIB, NSE.
68/160
Market Pulse
Figure 112: A snapshot of government finances for April-Dec 2020

Items (Rs bn) FY20A FY21RE Apr-Dec’20 Implied Q4FY21
Rs bn % YoY Rs bn % YoY Rs bn % YoY Rs bn % YoY
Net tax revenues 13,559 2.9 13,445 (0.9) 9,624 6.3 3,821 (15.5)
Gross tax revenues 20,099 (3.4) 19,003 (5.5) 13,381 (3.2) 5,622 (10.3)
Of which:
Direct Tax 10,372 (7.8) 9,050 (13.8) 6,103 (11.2) 2,947 (18.7)
Corporation tax 5,569 (16.1) 4,460 (19.9) 3,125 (15.4) 1,335 (28.8)
Income tax 4,803 4.0 4,590 (6.8) 2,978 (6.2) 1,612 (7.9)
Indirect Tax 9,727 1.8 9,953 3.6 7,278 4.6 2,675 1.1
Goods and service tax 6,014 2.9 5,151 (14.0) 3,968 (10.9) 1,183 (22.9)
Custom Duties 1,092 (7.3) 1,120 2.5 796 (6.5) 324 34.3
Excise Duties 2,396 3.7 3,610 50.0 2,360 54.0 1,250 43.0
States Share (6,507) (15) (5,500) (15.5) (3,716) (21.9) (1,783) 2.2
Transferred to NCCD (33) 84.4 (58) 134.7 (41) 106.6 (17) 245.2
Non-Tax Revenue 3,262 38.3 2,107 (35.6) 1,262 (47.8) 845 (0.9)
Dividends and profits 1,861 64.1 965 (48.1) 708 (56.3) 257 6.4
Other non-tax revenues 1,401 14.5 1,141 (19.1) 553 (30.8) 588 (3.7)
Central govt. revenue receipts 16,821 8.3 15,552 (7.7) 10,886 (5.1) 4,666 (13.1)
Non-Debt Capital Receipts 686 (39.1) 465 (32.2) 331 6.7 134 (64.4)
Recovery of Loans 183 2.0 145 (20.9) 142 9.9 3 (94.5)
Misc. Receipts (inc. divestment) 503 (46.9) 320 (36.4) 188.96 4.4 131.04 (59.3)
Total Receipts 17,507 5.1 16,017 -8.6 11,217 (4.8) 4,800 (16.5)
Revenue Expenditure 23,496 17.0 30,111 28.1 19,712 6.3 10,400 109.5
Interest Payments 6,110 4.9 6,929 13.2 4,722 11.3 2,207 17.6
Major subsidies 2,232 13.3 5,954 100.7 2,274 (9.8) 3,680 724.3
Food 1,087 6.7 4,226 129.4 1,253 (12.1) 2,973 614.8
Fertilizer 811 14.9 1,339 78.6 735 (4.7) 604 NA
Petroleum 334 36.0 388 3.5 285 (11.5) 103 96.2
Other revenue expenditure 15,154 23.4 16,695 15.8 12,716 8.0 3,979 50.7
Capital Expenditure 3,367 9.7 4,392 30.8 3,090 20.9 1,302 62.3
Total Expenditure 26,864 16.0 34,503 28.4 22,801 8.1 11,702 102.9
Fiscal Deficit 9,356 44.1 18,487 98.0 11,585 24.3 6,902 35,769.8
Fiscal Deficit/GDP* 4.6 9.5 5.9
Source: CMIE Economic Outlook, CGA, Budget Documents, NSE. *Based on nominal GDP growth estimate in FY21 Budget estimates.
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Figure 113: Fiscal math: FY22 fiscal deficit budgeted at 6.8% of GDP
Items (Rs bn) FY20A FY21 FY22
% YoY
BE RE % chg. BE
Rs bn % of BE % YoY % YoY over
(Rs bn) (Rs bn) from BE (Rs bn)
FY20RE
Net tax revenues 13,569 3.8 16,359 20.6 13,445 -0.9 -17.8 15,454 14.9
Gross tax revenues 20,101 -2.9 24,230 20.5 19,003 -5.5 -21.6 22,171 16.7
Of which:
Direct Tax 10,495 -6.7 13,190 25.7 9,050 -13.8 -31.4 11,080 22.4
Corporation tax 5,569 -16.1 6,810 22.3 4,460 -19.9 -34.5 5,470 22.6
Income tax 4,927 6.8 6,380 29.5 4,590 -6.8 -28.1 5,610 22.2
Indirect Tax 9,605 1.6 11,040 14.9 9,953 3.6 -9.8 11,091 11.4
Goods and service tax 5,988 2.5 6,905 15.3 5,151 -14 -25.4 6,300 22.3
Custom Duties 1,093 -7.2 1,380 26.3 1,120 2.5 -18.8 1,360 21.4
Excise Duties 2,406 4.2 2,670 11 3,610 50 35.2 3,350 -7.2
States Share -6,507 -14.5 -7,842 20.5 -5,500 -15.5 -29.9 (6,656) 21.0
Transferred to NCCD -25 37.8 -29 18.1 -58 134.7 98.6 (61) 4.8
Non-Tax Revenue 3,272 38.8 3,850 17.7 2,107 -35.6 -45.3 2,430 15.4
Dividends and profits 1,861 64.1 1,554 -16.5 965 -48.1 -37.9 1,035 7.2
Central govt. revenue receipts 16,841 9.1 20,209 20 15,552 -7.7 -23.0 17,884 15.0
Non-Debt Capital Receipts 686 -39.2 2,250 227.8 465 -32.2 -79.3 1,880 304.3
Misc. Receipts (inc. divestment) 503 -46.9 2,100 317.5 320 -36.4 -84.8 1,750 446.9
Total Receipts 17,527 5.8 22,459 28.1 16,017 -8.6 -28.7 19,764 23.4
Revenue Expenditure 23,506 17.1 26,301 11.9 30,111 28.1 14.5 29,290 -2.7
Interest Payments 6,121 5 7,082 15.7 6,929 13.2 -2.2 8,097 16.9
Major subsidies 2,623 17.6 2,621 -0.1 6,487 147.3 147.5 3,699 -43.0
Capital Expenditure 3,357 9.1 4,121 22.7 4,392 30.8 6.6 5,542 26.2
Total Expenditure 26,863 16 30,422 13.2 34,503 28.4 13.4 34,832 1.0
Fiscal Deficit 9,336 41.6 7,963 -14.7 18,487 98 132.1 15,068 (18.5)
Fiscal Deficit/GDP 4.6 3.5 9.5 6.8
Source: Budget Documents, CGA. BE: Budget Estimates; RE: Revised Estimates; A = Actual
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RBI Monetary Policy: Status quo on rates; Inflation/growth forecasts revised upwards
The RBI’s Monetary Policy Committee (MPC) unanimously decided to keep the policy rates unchanged and continue
with the accommodative stance as long as necessary. While growth outlook has improved significantly, with the
recovery turning more broad-based, the RBI underscored the need to continue to support and revive growth on a
durable basis particularly amid expectations of a stable near-term inflation trajectory. The RBI now expects GDP growth
at 10.5% in FY22—a tad higher than our estimate of 9.5%, with average growth in H1FY22 pegged at 17.3%
(26.2%/8.3% in Q1/Q2 vs. 21.9%/6.5% estimated earlier).
The RBI decided to restore CRR (Cash Reserve Ratio) to pre-pandemic levels in two phases beginning March 2021 and
utilise the space for injecting additional liquidity. This probably points towards OMO (Open Market Operations)
purchases in the offing which was expected amid enhanced Government borrowing requirements. Extension of
enhanced HTM (Held to Maturity) limit of 22% for SLR securities bought by banks in FY22 and direct access of retail
investors to the Government securities market through RBI would further help in absorbing heavy supply of Government
paper. Other key announcements include a) inclusion of NBFCs in TLTRO On Tap scheme 3 for incremental lending to
stressed sectors, b) extension of MSF (Marginal Standing Facility) relaxation by six months, c) exemption to banks from
including loans to new MSME borrowers in CRR calculation, and d) exemption of FPI investment in defaulted corporate
bonds from the short-term limit and minimum residual maturity requirement.
The RBI’s upbeat views on the economy along with sustained cost-push pressures on inflation fortifies our stance of no
rate cuts in the foreseeable future, notwithstanding sustenance of an accommodative stance. The RBI is likely to focus
on gradually normalising ultra-loose policy settings prevailing since March 2020 while maintaining adequate liquidity in
the system to strengthen economic recovery that’s currently underway. Amidst a heavy Government borrowing
programme, sustained OMO purchases will be crucial in keeping a check on rising yields.
• RBI keeps policy rates unchanged; maintains an accommodative stance: In the
first bi-monthly monetary policy review of the year, the RBI’s MPC unanimously The RBI expectedly kept
voted to keep the policy rates unchanged and maintain an accommodative stance policy rates unchanged
as long as necessary. As such, the repo, reverse repo and bank/Marginal Standing and maintained an
Facility (MSF) rates remain unchanged at 4.0%, 3.35% and 4.25% respectively. accommodative stance,
While the RBI acknowledged a significant and broad-based improvement in growth reiterating the need to
outlook since the December policy meeting, it underscored the need for supporting support growth.
growth and helping the economy return to a higher growth trajectory, deriving
comfort from the recent fall in inflation trajectory. The RBI also reiterated on
maintaining adequate systemic liquidity, thereby keeping financial conditions easy.
• Growth outlook turns favourable: The RBI provided an upbeat outlook on growth,
citing continued improvement in high-frequency indicators including consumer The RBI has revised
confidence, power consumption, manufacturing PMI, mobility, and trading activity. inflation and growth
forecasts upwards.
The ongoing vaccination drive and fiscal impulse in the Budget should further
strengthen the recovery process. Flow of funds to the commercial sector has also
improved meaningfully. Accordingly, the RBI now expects GDP growth in FY22 at
10.5%—a tad lower than our estimate of 9.5%, with growth in Q1FY22 and Q2FY22
pegged at 26.2% and 8.3% vs. earlier estimates of 21.9% and 6.5% respectively.
• Inflation forecasts marginally revised upwards: A sharp fall in vegetable prices,
thanks to higher arrivals and supply-side policy intervention, had led to a significant
moderation in inflation trajectory over the last two months, with a high base effect
3
To provide liquidity to specific sectors that have backward and forward linkages, the RBI announced On tap Targeted Long-term Repo Operation (TLTRO) scheme on
October 9th, 2020 (link here). Liquidity availed by banks under this scheme is to be deployed in corporate bonds, commercial papers and non-convertible debentures by
entities in the specified sectors or to extend loans to these sectors.
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providing an added support. While vegetable inflation is expected to remain

benign, aided by larger winter supplies of vegetables, inflation in other food items
may remain elevated. Core inflation faces upside risks on rising cost-push
pressures, thanks to record-high fuel prices, increase in input costs and enhanced
pricing power on improving demand. While the RBI has lowered its inflation
forecast for Q4FY21 from 5.8% to 5.2%, it has marginally raised its inflation
forecasts for FY22, expecting it in the range of 5.0-5.2% in H1FY22 (vs. 4.6-5.2%
estimated earlier) and 4.3% in Q3FY22. Importantly, the RBI called out for a
concerted policy action by the Government to prevent escalation of cost-push
pressures on inflation.
• Liquidity support for enhanced Govt. borrowing programme: The RBI reiterated
RBI announced measures
its commitment towards seamlessly managing the Govt.’s borrowing programme to ensure seamless
and consequently ensuring financial stability and orderly evolution of yield curve. completion of Govt.’s
This is reflected in the slew of measures announced today. The RBI decided to borrowing programme:
restore CRR (Cash Reserve Ratio) to pre-pandemic levels in two phases beginning 1. CRR normalisation to
March 2021 (from 3.0% currently to 3.5% w.e.f. March 27th, 2021 and 4% w.e.f. create space for further
May 22nd, 2021) and utilise the space for injecting additional liquidity. This liquidity injection
probably points towards OMO (Open Market Operations) purchases in the offing 2. Extension of enhanced
which was expected amid enhanced Government borrowing requirements. HTM limit by a year, and
Extension of enhanced HTM limit of 22% for SLR securities bought by banks in 3. Direct Government
FY22 and direct access of retail investors to the Government securities market securities market access to
(primary as well as secondary) by allowing them to open Gilt accounts with RBI are retail investors
some of the other measures announced today to facilitate absorption of heavy
supply of Government paper in the next fiscal year.
• Additional measures: Other key measures include: a) Inclusion of NBFCs in TLTRO
On Tap scheme for incremental lending to sectors specified earlier including 26
stressed sectors identified by the Kamath Committee, b) Extension of MSF
relaxation by another six months wherein banks will be allowed to dip into SLR up
to 3% of NDTL until September 30th, 2021, c) A one-year exemption to banks from
including loans up to Rs2.5mn to new MSME borrowers extended this year until
October 1st, 2021 in CRR calculation, d) Exemption of FPI investment in defaulted
corporate bonds from the short-term limit and minimum residual maturity
requirement, and e) Deferment of the implementation of the last tranche of Capital
Conservation Buffer of 0.625% and Net Standing Facility Ratio (NSFR) by another
six months to October 1st, 2021.
• Liquidity management to remain in focus: The RBI’s upbeat views on the
Rate cut cycle has come to
economy along with sustained cost-push pressures on inflation fortifies our stance
an end with the RBI likely
of no rate cuts in the foreseeable future, notwithstanding sustenance of an to focus on normalising
accommodative stance. The RBI is likely to focus on gradually normalising ultra- ultra-loose policy settings
loose policy settings prevailing since March 2020 while maintaining adequate this year, while
liquidity in the system to strengthen economic recovery that’s currently underway. maintaining adequate
Amidst a heavy Government borrowing programme, sustained OMO purchases will liquidity in the system.
be crucial in keeping a check on rising yields.
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Market Pulse
Figure 114: Current policy rates

Key rates Current value
Repo Rate 4.0%
Reverse Repo Rate 3.35%
Marginal Standing Facility (MSF) Rate 4.25%
Bank Rate 4.25%
Cash Reserve Ratio (CRR) 3.0%
Statutory Liquidity Ratio (SLR) 18.0%
Source: RBI
Figure 115: Policy rates kept unchanged

% Repo Rate (4.0%) Reverse Repo (3.35%)
8.0 Bank Rate (4.25%) Cash Reserve Ratio (3.0%)
RBI adopts flexible

COVID-19
7.0 inflation targeting (FIT)
outbreak
6.0
5.0
Demonetisation
4.0
3.0
Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20
Figure 116: India headline Consumer Price Inflation (CPI) and real interest rates
India headline CPI inflation fell below the RBI’s 6% upper bound for the first time in the post-pandemic period in
December. However, it still remains above the mid-point target of 4%, translating into persistence of negative real
interest rates for more than a year now.
% Repo rate (4% in Feb 21) CPI inflation (4.6% in Dec 20)
14 4% (RBI's current long-term target, +/-2%)
12
Demonetisation COVID-19
RBI adopts flexible
10 outbreak
inflation targeting (FIT)
6
RBI's target band for
4
headline CPI inflation
0
2013 2014 2015 2016 2017 2018 2019 2020
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Market Pulse
Figure 117: RBI expects headline CPI inflation to average at 5.1% in H1FY22
While the RBI has lowered its inflation forecast for Q4FY21 from 5.8% to 5.2%, thanks to continued moderation in
vegetable prices, it has marginally raised its inflation forecasts for FY22, expecting it in the range of 5.0-5.2% in H1FY22
(vs. 4.6-5.2% estimated earlier) and 4.3% in Q3FY22.
%
India consumer inflation trajectory
12.0 CPI inflation Core CPI Inflation RBI projections
10.0
8.0
6.0 5.2 5.0

5.2
4.0 4.3
2.0
0.0
Q4FY2…
Q1FY2…
Q2FY2…
Q3FY2…
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Source: CSO, RBI. Core inflation is calculated as CPI inflation excluding food, pan, tobacco & intoxicants and fuel & light.
Figure 118: GDP growth trend and estimate for FY22

The RBI provided an upbeat outlook on growth, citing continued improvement in high-frequency indicators, with the
ongoing vaccination drive and fiscal impulse announced in the Budget further strengthening the recovery process.
Accordingly, the RBI now expects GDP growth in FY22 at 10.5%—a tad lower than our estimate of 9.5%, with growth in
Q1FY22 and Q2FY22 pegged at 26.2% and 8.3% vs. earlier estimates of 21.9% and 6.5% respectively.
% Annual GDP growth trend
15.0
10.5
10.0 7.9 8.1 7.9 8.5 8.0 8.3
7.7 7.4 7.0
6.4 6.1
5.2 5.5
4.2
5.0 3.1
(5.0)
(10.0) -7.7
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21AE FY22*
Source: RBI. * FY22 figure is RBI’s estimate.
Liquidity management to remain in focus: The RBI’s upbeat views on the economy
along with sustained cost-push pressures on inflation fortifies our stance of no rate cuts
in the foreseeable future, notwithstanding sustenance of an accommodative stance. The
RBI is likely to focus on gradually normalising ultra-loose policy settings prevailing since
March 2020 while maintaining adequate liquidity in the system to strengthen economic
recovery that’s currently underway. Amidst a heavy Government borrowing programme,
sustained OMO purchases will be crucial in keeping a check on rising yields.
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Market Pulse
Figure 119: Net lending under RBI’s Liquidity Adjustment Facility

Surplus liquidity in the system has remained north of Rs5trn over the last three months.
Rs bn
Net lending under RBI's Liquidity adjustment facility
Outstanding amount under repo operations
4000 Outstanding amount under reverse repo operations Figure greater than zero
Net lending under LAF indicates deficit liquidity in
the system
2000
-2000
-4000 Figure less than zero indicates

surplus liquidity in the system
-6000
-8000 Liquidity has remained in a

huge surplus the whole of
2020
-10000
May-18
May-19
Jul-18
Jul-19
Sep-19
Sep-20
Mar-18
Oct-18
Nov-20
Jan-18
Feb-19
Feb-20
Jan-21
Jun-20
Dec-18
Dec-19
Apr-20
Figure 120: India sovereign yield curve

The India sovereign yield curve has risen across the tenors in the last month or so, and particularly after the budget,
thanks to the enhancement in Government’s borrowing plan for the current fiscal year by Rs800bn and a much higher-
than-expected borrowing figure for the next fiscal year.
% India sovereign yield curve
31-Dec-19 31-Dec-20 5-Feb-21
8.0
7.2 7.1
6.7
6.4 6.5
5.6
5.1
4.8
4.0
3.4
3.2
3.1
2.4
3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y 15Y 19Y 24Y 30Y
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Market Pulse
Figure 121: Movement in bank lending rates and market rates vs. policy repo rate
% Movement in bank lending and market rates
3M G-sec 10Y G-sec 3M AAA-rated Corp
WALR on fresh loans WALR on O/S loans Repo rate
10.9
9.9
8.9
7.9
6.9
5.9
4.9
3.9
2.9
May-19
May-20
Jul-19
Sep-19
Jul-20
Sep-20
Oct-19
Mar-20
Oct-20
Nov-19
Nov-20
Jan-20
Feb-20
Jan-21
Jun-19
Jun-20
Apr-19
Aug-19
Dec-19
Apr-20
Aug-20
Dec-20
Source: RBI, Refinitiv Datastream, NSE.
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Market Pulse
Economic Survey 2020-21: V-shaped recovery with 11% GDP growth in FY22
The Economic Survey 2020-21 4 predicts a V-shaped recovery for the Indian economy with a GDP growth of 11% in
FY22, following a 7.8% contraction in FY21. The recovery would be led by a strong performance of the agricultural
sector, normalization of activities due to falling COVID-19 cases and a mega vaccination drive. The Government’s fiscal
response was tailored to the needs of the economy, starting with food security and support to businesses, followed by
a stimulus to encourage consumption and investment in the economy. The Survey notes that going forward, debt
sustainability is not expected to be a concern for India due to the negative interest rate differential while counter cyclical
fiscal policy is encouraged during an economic crisis. The Survey also argues about India’s sovereign rating being not
reflective of its macroeconomic fundamentals.
The Survey places emphasis on healthcare expenditure in the future and the need to build a robust healthcare system
in India. The areas of concern written about were insufficient human resources in many states and information
asymmetry between the public and private sector with a recommendation to set up a regulator for the same. Regarding
recovery of loans, a recommendation to conduct an Asset Quality Review once forbearance is withdrawn was also made.
• V-shaped recovery with 11% GDP growth in FY22: The Indian economy saw the
worst contraction ever of 23.9% YoY in the first quarter of FY21, thanks to a
stringent and strict lockdown implemented during this period to slow down the
spread of COVID-19. Restrictions were slowly eased in June and the economy
started recovering gradually as is seen in the lower-than-expected 7.5% GDP
contraction in Q2FY21. The NSO estimates a contraction of 7.7% in FY21, as
compared to 4.2% growth in FY20. The agricultural sector was the high performing
sector of the economy, thanks to normal monsoon, record-high production and
strong policy support. For FY22, the Survey estimates a real GDP growth of 11%
(+15.4% in nominal terms), attributed to normalization of economic activities and
the mega vaccination drive. The Government’s expansionary fiscal policy via higher
investment in infrastructure (roads, railways, urban infra) and manufacturing
(support through Productivity Linked Incentive Scheme) as well as further
improvement in consumption demand following a more widespread roll-out of the
vaccine are expected to further aid the recovery process. The Survey’s estimates
point to a two-year period to reach pre-pandemic growth levels, in line with the
IMF’s outlook for India.
• Fiscal policy responses announced in a step-by-step manner: The Economic
Survey states the extreme impact of the lockdown on economic activity and income
streams was recognized at early stages of the pandemic. The Government issued
fiscal packages in a step-by-step manner instead of a single announcement.
Initially, the response leaned towards providing food security and transfers to the
poor and vulnerable along with debt moratoria and liquidity support to businesses.
This was followed by Atmanirbhar 2.0 and 3.0 which catered to investment and
consumption demand. The timing of the stimulus was imperative since a
premature push would have been met with supply constraints and hence been
ineffective. India also initiated structural reforms on the supply side which are
aimed at productivity gains in the medium- to long-term. Emphasis has been
placed on capital expenditure given the high multiplier effect it has on the
economy. The Survey also notes the steady increase in GST collections, at 1.12
4
https://www.indiabudget.gov.in/economicsurvey/
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Market Pulse
lakh crore in December (which rose further to Rs1.2trn in January 2021), attributed
to quick economic recovery and improved compliance.
• India’s negative interest rate differential ensures sustainability of debt: The
Survey notes that economic growth results in debt sustainability while the opposite
does not necessarily hold in the Indian scenario due to the negative interest rate
differential. Fiscal multipliers tend to be unusually higher during economic crises
and the negative interest rate differential will ensure that a growth stimulus will
lead to a lower debt-to-GDP ratio. The strong correlation between the interest rate
differential and the change in government debt is also highlighted. Debt
sustainability, therefore, is not anticipated to be a worry for India and the use of
counter-cyclical fiscal policy is promoted to encourage aggregate demand and
stimulate growth during economic slumps.
• Sovereign rating not reflective of India’s macroeconomic fundamentals: India’s
zero sovereign default history, supported by our low foreign currency denominated
debt and comfortable foreign exchange reserves, speaks for the Government’s
willingness to pay. In the past, the low sovereign rating has had no impact on
fundamentals like stock foreign exchange yield, Sensex return and yield on
government securities. The survey calls for the ratings methodology to be made
more transparent, less subjective and more reflective of an economy’s
fundamentals.
• Investment in healthcare to build robust healthcare systems: The government
must prioritize building a robust healthcare system along with drafting policies
concerning communicable and non-communicable diseases as well as sanitation
and drinking water. In India, healthcare is a state subject and the National Health
Accounts of 2017 showed 66% of healthcare expenditure is carried out by states.
Expenditure varies across states but is not completely determined by GSDP.
Additionally, the survey finds that richer states spend a smaller proportion of their
GSDP on healthcare. An increase in public healthcare expenditure from 1% to 2.5-
3% of the GDP can potentially reduce out-of-pocket expenditure from 65% to 35%
of overall healthcare expenditure. The Survey highlights insufficient human
resources and skewed distribution of health workers across states along with
information asymmetry reflected in widely different treatment costs through the
public and private sector. Establishment of a healthcare regulator to supervise
quality of care and regulate failures arising from information asymmetries is
recommended.
• Asset Quality Review to be conducted post withdrawal of forbearance: The
Economic Survey recommends withdrawing forbearance soon after the economy
shows signs of recovery. An Asset Quality Review must be conducted, keeping in
mind the information asymmetry between banks and the regulator, along with
strengthening the legal infrastructure for loan recovery.
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Market Pulse
Figure 122: Summary of major structural reforms undertaken as part of the Atmanirbhar Bharat Package
Sector Structural Reforms Undertaken
Deregulation and Liberalization of Sectors
• Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.
Industry • Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020.
• Essential Commodities (Amendment) Act, 2020.
• New MSME definition covering almost 99 per cent of all firms enabling MSMEs to grow in size and create jobs.
MSMEs
• Removal of artificial separation between manufacturing and service MSMEs.
• Enactment of four labour codes namely, Wage Code, Industrial Relations Code, 2020, Code on Occupational Safety,
Labour Health & Working Conditions, 2020 & Social Security Code, 2020.
• 'One labour return, one license and one registration'.
Business Process • Simplification of the Other Service Provider (OSP) guidelines of the Department of Telecom. Several requirements,
Outsourcing which prevented companies from adopting ‘Work from Home’ and ‘Work from Anywhere’ policies have been removed.
• Tariff Policy Reform: DISCOM inefficiencies not to burden consumers, progressive reduction in cross subsidies, time
Power bound grant of open access, etc.
• Privatization of Distribution in UTs.
• PSUs in only strategic sectors.
PSUs
• Privatization of PSUs in non-strategic sectors.
• Commercial Mining in Coal Sector.
• Removal of distinction between captive and merchant mines.
Mineral Sector • Transparent auction of mining blocks.
• Amendment to Stamp Act, 1899 to bring uniformity in stamp duty across States.
• Introduction of a seamless composite exploration-cum-mining-cum-production regime.
Strengthening Productive Capacity
• Production Linked Incentive (PLI) Scheme for 10 identified sectors.
Industry
• National GIS-enabled Land Bank system launched.
• Level playing field provided to private companies in satellites, launches and space-based services.
Space
• Liberal geo-spatial data policy for providing remote-sensing data to tech-entrepreneurs.
• Corporatization of Ordnance Factory Board.
Defence • FDI limit in the Defence manufacturing under automatic route to be raised from 49 per cent to 74 per cent.
• Time-bound defence procurement process.
• PM-eVidya to enable multi-mode and equitable access to education.
Education
• Manodarpan initiative for psychosocial support.
• Scheme for Financial Support to Public Private Partnerships (PPPs) in Infrastructure Viability Gap Funding (VGF).
Social Infrastructure
• Scheme extended till 2024-25.
Ease of Doing Business
• Direct listing of securities by Indian public companies in permissible foreign jurisdictions.
Financial Markets • Provisions to reduce timeline for completion of rights issues by companies.
• Private companies which list NCDs on stock exchanges not to be regarded as listed companies.
• Including the provisions of Part IXA (Producer Companies) of Companies Act, 1956 in Companies Act, 2013.
• Decriminalization of Companies Act defaults involving minor technical and procedural defaults.
Corporates • Power to create additional/ specialized benches for NCLAT.
• Lower penalties for all defaults for Small Companies, One-person Companies, Producer Companies & Start Ups.
• Simplified Proforma for Incorporating Company Electronically Plus (SPICe +) introduced.
• Revised guidelines on Compulsory retirement to remove ineffective or corrupt officials through Fundamental Rule
56(j)/(l) and Rule 48 of CCS (Pension) Rule.
Administration
• Faceless tax assessment and a 12-point taxpayers charter.
• Fast track Investment Clearance through Empowered Group of Secretaries.
Source: Economic Survey 2020-21.
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Figure 123: Revenue and capital expenditure in India

%
Revenue and capital expenditure growth trend
40 Revenue expenditure Capital expenditure
35
30
25
20
15
10
5
0
-5
-10
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Database of Indian Economy, RBI. Note: Data for FY21 are Revised Estimates and data for FY22 are Budget Estimates.
Figure 124: Share of Centre’s revenue expenditure on healthcare, and water supply and sanitation
% share of Centre's revenue expenditure on social services

40
Medical and public health Water supply and sanitation
35
30
25
20
15
10
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Source: CMIE Economic Outlook. Note: Data for FY21 are Revised Estimates and data for FY22 are Budget Estimates (BE).
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IMF WEO and World Bank GEP: IMF paints a rosier picture than World Bank
The International Monetary Fund’s (IMF) World Economic Outlook (WEO) 5, released last month, revised global GDP
growth forecast upwards from -4.4%/5.2% for 2020/2021 estimated in October 2020 to -3.5%/5.5%, and 4.2% in
2022. This was premised on expectations of further strengthening of economic activity following wide-spread
vaccination drives and additional policy support in advanced economies. The World Bank’s Global Economic Prospects
(GEP) 6, however, estimates 2021 global GDP growth at a much lower 4%—a tad lower than 4.2% estimated in June
2020, and 2021 growth at 3.8% assuming proper pandemic management, effective vaccination and continued policy
support. That said, the World Bank’s forecasts still point to 2021 global GDP being 5.3% below the pre-pandemic level.
Both IMF and World Bank noted that most countries have responded swiftly to policies aimed at protecting the global
financial system from COVID-19 crisis. While advanced economies have limited space for further monetary support,
emerging and developing countries (EMDEs) have used accommodative monetary policy and generous fiscal packages,
resulting in bigger debt burdens. Lasting damage to the global economy includes adverse effects on supply potential
and declining per capita income levels in EMDEs. Global trade is estimated to grow by 8% in 2020 and 6% in 2021,
according to the IMF. The World Bank has a more conservative estimate of 5% in 2020 due to incomplete recovery of
global travel until transmission of COVID-19 is greatly reduced.
The IMF upgraded India’s economic outlook with an estimated contraction of 8% in FY21, followed by a 11.5% growth
in FY22. The revision was due to a faster-than-expected recovery as the lockdown restrictions were eased beginning
June 2020. The World Bank on the other hand projects India’s GDP growth at -9.6% and 5.4% in FY21 and FY22
respectively. Economic projections of the IMF and World Bank are contingent on a widespread vaccine roll-out and
continued monetary and fiscal policy support. Political instability due to Brexit and a further surge of cases in Europe
and the US would adversely affect forecasts while falling cases and a higher number of vaccinations would accelerate
global recovery process.
• IMF estimates a higher global GDP growth than the World Bank: The World
Bank, in its latest Global Economic Prospects report, estimates the global economy
to contract by 4.3% in 2020—a recession surpassed only by the two World Wars
and the Great Depression—followed by a 4% growth in 2021 (revised lower by
20bps as compared to June WEP) and 3.8% in 2021. The recovery in 2021 is
predicted on a wide-spread vaccination roll-out as well as continued fiscal and
monetary policy support. Notwithstanding a recovery, the World Bank’s projections
point to a global GDP in 2021 falling short of the pre-pandemic level by 5.3% or
US$4.7trn. The IMF on the other hands has painted a far rosier picture of the global
economy, projecting a much lower contraction of 3.5% in 2021 and still a much
higher growth of 5.5% in 2021 (revised up by 30bps) and 4.2% in 2022. Similar to
the World Bank, the IMF also doesn’t expect the output gap to close before 2022.
• Recovery supported by aggressive policy response: Most affected countries
responded effectively to quick monetary, fiscal and financial sector policies which
prevented the global financial system from collapsing in 2020. According to the
World Bank, advanced economies have limited space for monetary policy support
while fiscal support has assumed prominence. Regarding future policy changes,
there is a need for reforms for digitalization and strengthening of social safety nets.
EMDEs have focused on accommodative monetary policy responses, asset
purchase programmes and huge fiscal responses by countries that had higher debt
levels even prior to the pandemic. Debt burdens have increased as corporates had
5
IMF World Economic Outlook January 2021: https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update
6
World Bank Global Economic Prospects: https://www.worldbank.org/en/publication/global-economic-prospects
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reduced sales and sovereigns financed large stimulus packages. The World Bank
estimates long-term damage to growth and incomes for these countries.
• Long lasting damage caused by the pandemic: As stated by the IMF in their
October 2020 WEO, the financial crisis has disproportionately affected some
groups viz. women, less educated workers, youth and informal labour. Countries
with a larger proportion of contact intensive industries and commodity exporters
have been adversely affected. School closures and reduced access to technology
for online learning will hamper human capital building and consequently, supply
potential of a country. The World Bank reports lower per capita incomes in 90% of
EMDEs, removing 10 years of progress and forcing millions back into poverty,
estimating a long-term damage to growth and incomes for these countries.
Moreover, debt burdens have risen owing to reduced sales for corporates and large
fiscal responses financed by governments.
• Global trade to grow moderately in 2021: The IMF WEO projects global trade to
grow by 8% in 2021, with growth expected to moderate to 6% in 2022. Trade in
services will fall behind recovery in merchandise volumes until transmission of the
virus is brought further under control. The World Bank estimates global trade
growth at a much lower 5% in 2021, reflecting dampened global investment that
has been persistent in nature as well as incomplete recovery of global travel levels.
Trade policy uncertainty has also fallen since 2019 but is still above historic levels
due to trade tensions between advanced economies.
• IMF revises India’s growth forecasts upwards: The IMF has revised upwards
India’s GDP growth forecast for FY21 from a contraction of 10.3% estimated in
October 2020 to -8% now. GDP growth for FY22 has also been revised upwards
and is now projected to be 11.5%, the highest among EMDEs, with growth in FY23
pegged at 6.8%. The World Bank, on the other hand, has more conservative
projections, estimating a contraction of 9.6% in FY21, followed by a modest 5.4%
and 5.2% in FY22 and FY23 respectively.
• Uncertainty surrounding economic outlook: The IMF as well as World Bank
highlighted the high level of uncertainty lingering on the global economic outlook.
Economic projections of the IMF and World Bank are contingent on a widespread
vaccine roll-out and continued monetary and fiscal policy support. Political
instability due to Brexit and a further surge of cases in Europe and the US would
adversely affect forecasts while falling cases and a higher number of vaccinations
would accelerate global recovery process.
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Figure 125: IMF World Economic Outlook projections

Difference from October
Oct-20 (% YoY) Jan-21 (%YoY)
Countries 2019 2020 WEO projections
2020E 2021E 2020E 2021E 2022E 2021E 2022E
Real GDP growth

World 2.8 –4.4 5.2 –3.5 5.5 4.2 0.3 0.0
Advanced Economies 1.6 –5.8 3.9 –4.9 4.3 3.1 0.4 0.2
United States 2.2 –4.3 3.1 –3.4 5.1 2.5 2.0 –0.4
Euro Area 1.3 –8.3 5.2 –7.2 4.2 3.6 –1.0 0.5
Germany 0.6 –6.0 4.2 –5.4 3.5 3.1 –0.7 0.0
France 1.5 –9.8 6.0 –9.0 5.5 4.1 –0.5 1.2
Italy 0.3 –10.6 5.2 –9.2 3.0 3.6 –2.2 1.0
Spain 2.0 –12.8 7.2 –11.1 5.9 4.7 –1.3 0.2
Japan 0.3 –5.3 2.3 –5.1 3.1 2.4 0.8 0.7
United Kingdom 1.4 –9.8 5.9 –10.0 4.5 5.0 –1.4 1.8
Canada 1.9 –7.1 5.2 –5.5 3.6 4.1 –1.6 0.7
EMDEs* 3.6 –3.3 6.0 –2.4 6.3 5.0 0.3 –0.1
China 6.0 1.9 8.2 2.3 8.1 5.6 –0.1 –0.2
India 4.2 –10.3 8.8 –8.0 11.5 6.8 2.7 –1.2
Russia 1.3 –4.1 2.8 –3.6 3.0 3.9 0.2 1.6
Brazil 1.4 –5.8 2.8 –4.5 3.6 2.6 0.8 0.3
Mexico -0.1 -9.0 3.5 -8.5 4.3 2.5 0.8 0.2
World Trade Volume 1.0 –10.4 8.3 –9.6 8.1 6.3 –0.2 0.9
Source: IMF World Economic Outlook. *EMDEs: Emerging Market and Developing Economics
Figure 126: World Bank Global Economic Prospects projections

Percentage point differences
GEP (Jan 2021) (% YoY)
from June 2020 projections
2019 2020E 2021E 2022f 2020E 2021E
World 2.3 -4.3 4.0 3.8 0.9 -0.2
Advanced Economies 1.6 -5.4 3.3 3.5 1.6 -0.6
United States 2.2 -3.6 3.5 3.3 2.5 -0.5
Euro area 1.3 -7.4 3.6 4.0 1.7 -0.9
Japan 0.3 -5.3 2.5 2.3 0.8 0.0
Emerging market and developing economies 3.6 -2.6 5.0 4.2 -0.1 0.4
China 2.3 -5.0 3.4 3.6 -0.7 0.1
India 4.2 -9.6 5.4 5.2 -6.4 2.3
Russia 1.3 -4.0 2.6 3.0 2.0 -0.1
Brazil 1.4 -4.5 3.0 2.5 3.5 0.8
Mexico -0.1 -9.0 3.7 2.6 -1.5 0.7
World Trade Volume 1.1 -9.5 5.0 5.1 3.9 -0.3
Source: World Bank Global Economic Prospects.
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Figure 127: IMF real GDP growth projections under different scenarios (percentage from baseline)
percentage points IMF Real GDP growth: Scenario Analysis (percentage from baseline)
World Advanced Economies Emerging Economies

1.5
1.0
0.5
0.0
-0.5
-1.0
Upside Scenario Downside Upside Scenario Downside Upside Scenario Downside
Scenario Scenario Scenario
2020 2021 2022

Source: IMF World Economic Outlook.
Figure 128: World Bank trade growth projections under different scenarios
% YoY
Trade growth: Scenario analysis
6 2020 2021
-2
-4
-6
-8
-10
Baseline Upside Scenario Downside Scenario
Figure 129: Global activity indicators

% YoY Global activity indicators
Industrial production
10.0 120.0
Manufacturing PMI: New orders
Monthly world trade volumes (s.a., 2018=100, RHS)
5.0 100.0
0.0 80.0
-5.0 60.0
-10.0 40.0
-15.0 20.0
-20.0 0.0
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Dec-20
Source: IMF World Economic Outlook; Note: * three-month moving average annualised percent change; ** deviations from 50
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Figure 130: Global debt as percent of government revenue

%
Global debt as percent of government revenue
300 World EMDEs Advanced economies
250
200
150
100
50
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Insights
Dialogue 4: Conflict of Interest
Conflict of Interest (COI) arises when an individual’s personal interest conflicts with her/his professional interest, or
when an individual mixes or misuses her/his position for personal gains, above duty. One of the responsibilities of the
Board is to identify existing and potential COI, and build adequate systemic safeguards for building integrity, and
accountability having regard to Corporate Governance standards.
COI can exist in different situations, and at different levels, within an organisation. It can be caused by an association
with more than one organisation, because of directorships, relationships, family businesses or liabilities. COI arises
when an individual, with competing interests with the company, occupies a position by which any decision made
promotes one such interest, at the cost of endangering the other interest. When such a situation emerges, propriety
demands that one should recuse oneself from participating in the decision-making process. Encouraging competing
interests may at times end up compromising organisational goals for personal gains.
The fiduciary responsibilities of the corporate Board are to make decisions that are in the best interest of the
organisation and its stakeholders, including minority shareholders. COI therefore cannot be ignored and should be
disclosed promptly and adequately. It enables the Board to distance the conflicted individual or institution from the
decision or transaction, in the interest of good Corporate Governance standards.
Related Party Transactions (RPT) norms in India provide corporates with guidance on dealing with such situations. In
November 2019, SEBI constituted a Working Group to extend the norms pertaining to RPTs. The Working Group in its
report, submitted in January 2020, has provided several recommendations to strengthen the monitoring and
enforcement of norms of RPTs. The key recommendations include widening of the definitions of Related Parties and
RPTs, lowering the materiality threshold of transactions requiring approval of shareholders, and enhanced responsibility
of Audit Committee for the approval of RPTs.
In this context, NSE, jointly with Excellence Enablers - a corporate governance advisory firm, had organized a webinar
on “Conflict of Interest” – the fourth dialogue in the Corporate Governance Webinars series on December 16th, 2020.
The panel discussion focused on how corporates should deal with situations of conflicting interests. The panel
comprised very eminent and highly regarded speakers from the legal and corporate governance fraternity – Ms. Zia
Mody, Founder and Managing Partner, AZB & Partners, Prof. Umakanth Varottil, Associate Professor, Faculty of Law at
the National University Singapore (NUS) and Mr. M. Damodaran, Former SEBI Chairman and Founder, Excellence
Enablers. This report provides a summary of the deliberations.
• COI is all pervasive: It exists everywhere and cannot be wished away. Putting in
Please click here to listen
place fail-safe systems is not possible. COI must be addressed as and when they to the recording of the
manifest themselves. COI is an absolute concept, and not a relative concept. One webinar.
is either conflicted or is not conflicted. If conflicts are not confronted at the first
opportunity, additional problems will get created. There are several situations in
which COI might exist. A few of the examples are:
o A Director, while dealing with a proposal in a boardroom, acting in a manner

that is against the interest of the company, and furthers her/his interest.
o Regulators sitting on the Boards of regulated entities is a major conflict. RBI,

while having a majority shareholding in State Bank of India, had a very senior
functionary on the Board.
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o Trying to further the promoter’s interest because the promoter brought the
Director concerned on the Board.
o Independent Directors sitting on the Boards of competitors who are in the

same sector/ market, and have similar products.
COI could go against the interest of all stakeholders, and not just minority
shareholders.
• Recusal from decision-making: One of the ways in which a conflicted Director

deals with a situation of conflict is by recusing herself/himself from the
discussions. Recusal from decision-making can take several forms. There are
instances in which the conflicted Director continues to sit in the boardroom, and
only the minutes of the meeting mention that she/he had recused from
discussions, and decision-making in the matter involving COI.
This approach has its own problems, since discussions, taking place in the
presence of the conflicted Director, often shy away from addressing the
seriousness of the problem. Even a silent presence can be persuasive when it
comes to decision-making. While conflicts cannot always be anticipated, it is
important to deal with them as soon as they are noticed. There are of course
cases of individuals who are in a situation of conflict, but either do not recognise
it or, what is worse, refuse to act on it.
• Doing what is right: Simply stated, conflicts are best avoided by doing what is
right. This is a commonsensical approach, without technicalities clouding the
concept. Avoidance of COI is a key concept of Corporate Governance. It is
sometimes possible that there are doubts about whether a particular situation
presents a COI. In the event of doubt, disclosure is the best option, since no
person can level any allegations later if some conflict is noticed.
• COI should be disclosed promptly and adequately: The promptness with which
the conflict is dealt with is important. One should not wait for it to be discovered
by someone else, or for it to fester. It sometimes happens that the problem
involving COI is noticed on the first day of a due diligence exercise. if it is not
disclosed at the first opportunity, and is subsequently disclosed, it remains the
problem of the person who delayed the disclosure.
It is useful to remember that third parties often look at possible COI, with the
benefit of hindsight, after a long period has elapsed. Sometimes, it attracts the
suspicions of Regulators, media, and also of some colleagues in the organisation.
One of the tests when dealing with COI is to look at how it would be seen and
dealt with by different stakeholders. Dealing with COI is a duty of loyalty, both to
the people you are working with, and the entity that you represent or are a part
of. Diversion of corporate opportunity is a relatively common example of COI.
• Conflicts could be at different levels: There are conflicts at an individual/

personal level. As a Board member, one could be in conflict with larger
stakeholders. There could also be situations of conflict among different
stakeholders. Viewed through the ESG lens, there could be a conflict perceived
between the company and society at large.
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There is no one-size-fits-all solution that can be followed in situations of COI.

Continuous improvement should be attempted, remembering that, like
Corporate Governance, avoidance of/ dealing with COI will always be work-in-
progress. The business of business is much more than business. It is necessary
to have trust so that the company’s performance is not impeded, but at the same
time, questions should be asked to ensure that the trust is not misplaced.
• Conflict recognition should lie in the eyes of the beholder: COI seems
theoretical, but it has a lot of practical elements. In the context of a fiduciary,
there could be an actual conflict which is easy to identify. There are perceived
conflicts, and it is important to ensure that the world should not perceive that
there is a conflict, where none exists. Then there are potential conflicts which
could arise in the future because of some change that has occurred. Detailed
explanations often do not help the cause. The simple test to follow when
addressing COI is “I know it when I see it”.
• How and where does COI manifest itself? Firstly, it could be at the Board level.
Secondly, it could percolate to other levels of stakeholders such as shareholders.
RPTs are also indicative of possible COI, and at AGMs interested parties will have
to recuse themselves from voting. There is no clarity in India on whether
institutional investors, having significant shareholding in competitor companies,
are in a situation of conflict. Elsewhere, Anti-Trust Regulators and Securities
Regulators have started looking at these as possible indications of the existence
of conflict. Intermediaries, such as auditors, credit rating agencies and
investment advisors, should also be considered for assessing potential COI.
• How to deal with COI? Disclosure is the low hanging fruit to deal with COI.
Fiduciaries should err on the side of caution. In some cases, such as material
RPTs, there is the possibility of moving the decision-making to another body,
namely the shareholders. This is an internationally accepted practice. In the case
of M&As, a substantive review of a decision could also be outsourced. In India,
this concept is at a nascent stage. Institutions, such as ombudsman and a
whistleblower mechanism, often help in dealing with COI. However, a check the
box approach is never the answer. Form over substance is never the best
approach.
RPTs constitute the best example of COI. Abolishing them is hardly a solution
since there could be transactions which are beneficial to the company.
Prescribing majority of minority voting could sometimes lead to playing into the
hands of an influenceable minority.
Stringent regulations do not necessarily translate to the best way of addressing

an issue of this nature. Contextually, it is relevant to examine whether Proxy
Advisors are also sometimes in situations of COI. While SEBI is seeking to
regulate them through the SEBI (Research Analysts) Regulations, 2014,
elsewhere, Proxy Advisors remain unregulated on the plea that freedom of
expression should not be curtailed.
• Premature disclosures could be detrimental: When it comes to whistle-

blowing, India has the maximum number of complaints. Resultantly, there is a
need to be extraordinarily vigilant both as a Board and as individuals, and to nip
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in the bud any situation which is likely to result in a COI. At the same time, there
exists the possibility of premature disclosures that can cause harm to corporate
entities and to the individuals concerned.
SEBI’s recent directive that as soon as a company commences a forensic audit,

it should be reported, and brought into the public domain, would appear to be
creating a situation of premature disclosures in some cases. While news
regarding the starting of a forensic audit will necessarily give rise to doubts and
suspicion, and could possibly impact on share prices, it is possible that on
conclusion of the audit, the allegation is found to be baseless. The damage done
from the time it was disclosed, to the time when the complaint was found to be
baseless, cannot be repaired. It is also possible that as soon as there is
information in the public domain, regarding a forensic audit, some shareholders
could get together and opt to file a class action suit, especially if any security of
that entity is listed abroad. The damage having been done, a subsequent finding
that the complaint is not established, might not attract any attention in the media
or elsewhere.
Fortunately, Regulators have been responsive and should be expected to put in

place a procedure that balances the consideration of disclosure, while avoiding
unintended damage to the reputation of a company or an individual. It must be
recognised that no one can stop persons from filing complaints. Therefore,
Directors, who are likely to be adversely affected, should continuously seek to
place themselves in a position which is better than what is normally possible.
• Every entity should have a policy on COI: What should be the components of a
policy on COI, and what can make it actionable? One way would be to identify,
based on past experiences, situations where things have gone wrong, and to
make a list of do’s and don’ts for the company. SEBI has a policy on COI, which
requires its Board members to indicate issues in regard to which they may have
conflicts, as soon as the agenda for the meeting is received by them. One way to
look at conflicts is to follow the three colour codes used in arbitration cases,
which will give a fair indication of what should be done and what should not be
done.
While policies can be very detailed and formal, they could be counterproductive.
Having the right balance is important. The policy can contain incentives and
disincentives. However, it should be recognised that while financial disincentives
can be dealt with, the adverse impact on reputation is the major problem that
needs to be anticipated and addressed.
• Reputational damage resulting from COI can be high…: This is something that
should always remain in the minds of Independent Directors and members of
senior management. It is universally recognised that sunlight (disclosure and
transparency) is the best disinfectant. A simple test is to adopt the position “if it
does not feel right, drop it”. Ultimately it boils down to individual character and
conscience. In a business environment, there should be a balance between being
sensible and being too good. Behavioural aspects are critical when it comes to
identifying conflict of interest, disclosing it, and mitigating it.
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• …but all conflicts are not necessarily bad: The differentiation between
confluence of interest and COI must be clear. Simply stated, a COI is an existence
of an interest that should not adversely impact on the interest of the company.
One question that has been raised is whether a COI policy can be sufficiently
anticipatory. This is a very big ask. It is adequate if a potential conflict or a
possible conflict, when first identified, is appropriately dealt with.
Avoidance of COI is inherent to Corporate Governance. It either protects or
destroys your reputation, depending on how you handle it. The acid test is
whether a fiduciary is ultimately acting in the interest of the company.
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Dialogue 5: Strengthening Institutions for the Coming Decade

Institutions are mechanisms that define how humans or group of humans interact with one another politically, socially
and economically. These rules or codes of conduct, in turn, are established by the culture and the norms of society. It
is, therefore, crucial that institutions represent the collective will of the population. Institutions, in governance parlance,
refer to formal institutions such as the government and its departments, judiciary, law enforcement agencies, regulatory
bodies and markets. Stable and robust institutions are fundamentally important to improve governance standards and
achieve sustainable economic development.
Institutions govern human behaviour and regulate businesses in a society. Their primary responsibility is to ensure trust
by encouraging adherence to laws of the land and ethics, resolving conflicts and delivering justice to the aggrieved.
Institutions must also ensure equitable access to basic resources and judicious use of these resources. It has been well
documented in literature that the strength and robustness of institutions determine the level of economic development
of a country. It can also be said that economic development, in general, leads to the development of institutions that
help sustain it.
Stock exchanges are important market infrastructure institutions (MII), given their role in ensuring fair trading practices,
efficient dissemination of information and a level-playing field for all market participants. It is the institutional strength
of an MII that, amongst other things, allows it to deal with a crisis. Global markets have seen a few major incidents in
the last two decades, and our markets have been able to measure up to the requirements each time.
In this context, NSE, jointly with Excellence Enablers - a corporate governance advisory firm, had organized a webinar
on “Strengthening Institutions for the Coming Decade” – the fifth dialogue in the series of Corporate Governance
Webinar series on January 19th, 2021. The panel discussion focused on the importance of robust institutions, the current
state of institutions in our country, and what can be done to make them better so that the citizens of our country can
benefit from adequate institutional performance. Institutional strengthening is a constant work in progress, which
involves having the right rules and making sure that they work to achieve the larger goal i.e. creating a society where
people respect and look after each other. The panel comprised very eminent and highly regarded speakers from the
legal fraternity – Mr. Arvind Datar, Senior Advocate, Supreme Court of India and Dr. G. Mohan Gopal, Former Member,
Law Commission of India; Former Director, National Judicial Academy and Former Vice Chancellor, NLSIU, Bangalore.
The discussion was moderated by Mr. M. Damodaran, Former SEBI Chairman and Founder, Excellence Enablers. This
report provides a summary of the deliberations.
• Institutions and organisations are different: Institutions work within a

framework of rules, and organisations are expected to follow rules that exist. It
to the recording of the
is not easy to create a framework of rules. The mother problem seems to be that webinar.
bureaucracy wants to control the political system. Common ground needs to be
established with political, managerial and technocratic consensus in place.
• Why do institutions require strengthening? Institutions constitute a very

essential part of the structure that sustains our ecosystems. While there is no
shortage of institutions in India, the important question is how many of them
have lost their relevance and/or legitimacy, and have proved to be inadequate in
terms of the objectives that they were set up with. The principle “if it ain’t broken,
don’t fix it” seems to be part of the problem, since institutions that aren’t broken,
but are breaking down need to be fixed before they reach the stage of being
beyond fixing.
• Lack of role clarity a deterrent to successful institutional building: With a
plethora of institutions, there are turf issues that have arisen among some of
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them, arising from lack of role clarity, and leading to underperformance. In some
cases, the doctrine of separation of powers is not being respected, with the
Judiciary stepping into the space of the Executive, and in recent times, into the
area of the Legislature. This is useful when the Executive is dragging its feet, or
the Legislature is not doing what it is expected to do. However, if this becomes
routine, there will be avoidable friction between the different organs of the
Government.
• Capacity building is crucial for adequate performance: Capacity building is a
crying need for many institutions. Given the vastly increased scope of
responsibilities of some of them, the workforce could be inadequate in terms of
numbers and/or in terms of skillsets. Having adequate human capital with right
skills, attitude, commitment and conviction is crucial for institutional capacity
building.
• Corruption as a challenge for institutional strengthening: Increasing
centralisation and moving away from federalism has worked to the detriment of
institutions. Simultaneously, the possibilities of corruption have been enhanced.
There is disagreement on the impact of elected officials on governance. One view
is that this is to be avoided as it inter alia promotes corruption. The contrary view
is that it is through elected officials that the voice of the common man is getting
factored into decision-making. The truth is somewhere in between.
Institutions are adversely affected by several factors. These include, besides

corruption, arbitrariness by decision-makers, and the lawlessness of the
powerful. Sycophancy is also seen as a major detractor. The absence of
performance standards, which are objective, is a part of the problem of weak
institutions. Recognising that all problems cannot be solved at the same time,
work must commence on improving institutions that can be strengthened in a
reasonable timeframe.
• An eye on the future: As far as the three organs of the Government are
concerned, there is much work to be done, without further loss of time. In the
case of Parliament, it has been noticed that there is inadequate debate before a
legislation is passed. There are increasingly fewer references being made to
Select Committees for detailed examination of legislative proposals. This is an
area that needs to be strengthened.
In the case of the Judiciary, many reforms exist in theory. The next steps have
been identified, but implementation is proceeding at a leisurely pace. A major
part of the problem is the delay in appointment of an adequate number of judges,
especially in the High Courts, and in the subordinate judiciary. In most cases, the
date of the impending vacancy is known sufficiently in advance, and yet, between
the Judiciary and the Executive, considerable time is taken in the process of
selection and appointment of the new incumbents. Filling up of the vacancies as
per the sanctioned strengths is the most important requirement of strengthening
the Judiciary as an institution. As for the subordinate judiciary, even if there is no
all-India judicial services examination, a state-level examination can be
conducted to recruit an adequate number of judicial officers of the right quality.
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As we look at the next decade, it is useful to start with the clear understanding
that most of the laws that we require are already in place. It is better and timely
implementation of the laws that is called for.
• Strengthening functioning of tribunals: Tribunalisation of justice has for many
years been considered one of the major responses to addressing the problem of
overburdening of the judiciary. Tribunalisation comes with its own set of
problems. Firstly, the bureaucracy/ Executive is reluctant to give Tribunals
adequate autonomy. It is only recently that there has been a ruling that the Law
Ministry should be the administrative ministry for Tribunals. This has given rise
to an expectation of significant improvement. It is not enough for Tribunals to
function independently. It is equally important for them to be perceived as
functioning autonomously. This is an instance where perception is at least as
important as reality. Even in India, there are examples of functionally
autonomous institutions that have gained credibility because of perceived
insulation from political influence.
• Empowering NGOs: One of the institutions in India which has suffered
disempowerment is the NGO sector. With increasingly complex laws and
regulations to comply with, and with limited administrative resources, since they
are not-for-profit entities, NGOs are facing existential issues.
• Accountability and decision-making: One of the major drawbacks in our system
is the way accountability has been defined or interpreted. Briefly stated, errors
of commission are pounced upon, and give rise to punishment, whereas errors of
omission are often ignored. This would seem to legitimise a culture of avoidance
of decision-making. If this area is not addressed immediately, institutions will
come to a standstill because of the safety associated with not taking decisions.
• Building appropriate human capital for institutions: The manning of

institutions, especially of important institutions such as Tribunals, is critical.
Persons with appropriate experience and qualifications, as also with a Judicial
temperament, should be identified to man positions in such organisations. This
will ensure insulation from political intervention. It is equally important to ensure
that these institutions do not become sinecures for superannuated officials.
Experience has shown that Tribunals with persons who opt to serve in them,
while in active service, are often more productive, since they have members that
come in for the right reasons.
• Empowering local constitutional bodies: Over time, State Governments and

local bodies have been increasingly disempowered with more centralisation
having crept in. Federalism which is one of the pillars of our Constitutional
framework, must be respected, leading to institutions at the State and sub-State
level being enabled to play their legitimate role. Adequate empowerment of local
constitutional bodies with adequate responsibility and capacity will help address
the needs of our vast and diverse country.
• Need for assessing the impact of institutions: There is a reasonably clear

understanding of what is required to fix our underperforming institutions. One of
the important aspects that needs increasing attention is the assessment of
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impact of the work being done by the institutions. Absent this, institutions will
underperform without anyone being the wiser.
• Institutions should reinvent themselves: Improving institutions will always be
work-in-progress. As expectations increase, institutions that seek to serve the
public good must continuously reinvent themselves. It is also useful to recognise
that what seems easy and attractive in the short-run, might not be what society
requires in the long-run.
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Webinar by the NSE-ISB Trading Lab: Putting Academic Research to Practice

Finance and accounting journals are aflush with research papers that claim to have identified a market anomaly which
predicts future stock returns. These anomalies can be translated into trading strategies and a strict adherence to the
strategy should be able to generate positive returns in the market. But the question is, if this information is already out
there in the form of a published paper, doesn’t everyone already know about these strategies and has the anomaly
already not been priced away? McLean and Pontiff try to answer this question in their 2016 Journal of Finance paper
“Does Academic Research Destroy Stock Return Predictability?”
Most of these published papers use data from the US market and hence, the applicability of these trading strategies is
best suited to stock markets in the US. Therefore, the pertinent question is how relevant these anomalies for other
markets are, especially in India. Jacobs and Muller address this question in their paper published in Journal of Financial
Economics in 2020. They find that returns on these anomaly-based trading strategies go down post publication only in
the US market and persist quite well in 38 out of 39 countries in their study, including India. Now, once we know these
strategies work in India, what are some challenges in implementation? These are some very interesting questions and
NSE_ISB Trading Laboratory organized a webinar to address the same.
In this context, the NSE-ISB Trading Lab had organized a webinar for students and capital market participants on
December 23rd, 2020. The session was titled “Putting Academic Research to Practice: A webinar for Capital Market
Participants”. The webinar began with opening remarks from Mr Ravi Varanasi (Chief Business Development Officer,
NSE) and Dr Tirthankar Patnaik (Chief Economist, NSE). The panellists of the webinar were Prof Nitin Kumar (Assistant
Professor, ISB), Prof Prachi Deuskar (Assistant Professor, ISB) and Prof Ramana Sonti (Clinical Associate Professor, ISB)
while Prof Prasanna Tantri (Assistant Professor, ISB) moderated the discussion. The panellists discussed about
anomalies that exist in the capital market and characteristics of these anomalies in emerging markets like India. We
summarise some key points of the discussion below:
• Academic researcher vs casual or opinion-based approaches: It is a widely held

notion that academic research is based on the grounds of ideal conditions and is to the recording of the
not very relevant to draw parallels to the real world. This notion can be particularly webinar.
dismissed especially with financial markets research as it takes into account all
the practical aspects of the dynamics of the markets while being mathematically
rigorous. Academic research is more reliable than other casual or opinion-based
approaches which are usually based on a few observations. These approaches
usually suffer from the effects of biases like Selective Memory. Selective Memory is
an ability to remember certain information and not remember other information.
So, when systematic recording of observations is not present, and a casual outlook
is carried forward, one tends to remember information that is to one’s likeability
or suitability and not remember the other information. Also, academic research
helps distinguish between useful and useless information and random or
systematic occurrence of an event.
• There are no free rides: It is given in financial markets that there are no free rides
or free lunches and that there aren’t any easy ways to beat the markets.
Nevertheless, there are certain anomalies that seem to exist in markets and lure
investors. Anomalies have their presence with almost no warnings and their
existence from time to time is very random. One example of an anomaly is Post-
Earnings Announcement Drift or Earnings based momentum. This anomaly
documents that the stocks that report better than expected earnings bring positive
returns until sometime after the earnings announcements (likewise with stocks
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with worse than expected earnings) i.e. the stock prices tend to drift in a particular
direction. Over the decades, there has been huge literature with research
focussing on this anomaly. The first documented result which was based on US
markets was very strong after which the effects showed up in the markets, but the
magnitudes diminished as traders picked up this anomaly.
• It is important understand anomalies before applying them to trading

strategies: An anomaly is something which should not occur as per established
theories or knowledge: It is with respect to what we believe it should be. What we
believe could be wrong. So, academicians should be humble enough to understand
that the existing paradigm itself could be wrong. For example, under-pricing of
IPOs (i.e., offer price is on average less than the intrinsic value) is a very well know
phenomenon. Academicians were interested in finding what will be the trends of
such firms’ performance in long run and it is found that on an average IPOs seem
to under-perform relative to a benchmark portfolio. With these findings at hand,
there is a possibility that investors especially the institutional kind could think of
selling off their holdings in such firms around their follow-on offering window as
these firms are expected to underperform after the offering. On further study, it is
found that some firms have indeed outperformed while the average on all firms
showed underperformance. Hence, it is very important to be prudent while
understanding numbers and especially averages. The context of a paper which
brings forward anomalies or trading approach should be understood before
applying it to one’s trading strategy. Prof Ramana quoted: “Remember, when you
don’t know why you are making money, you should be afraid. More afraid than
when you are not making money and you have given up.”
• Quantifying competition in Mutual Funds using non-traditional metric: Prof

Nitin discussed on how he started working on mutual funds competitions as there
are some mutual funds in India that outperformed unlike those in US where the
mutual fund performance reduced significantly over time with number of funds.
He discussed how quantifying competition amongst mutual funds can be
customized instead of just relying on the popular prior measures in earlier
literature like size and values, which are in general noisy in nature. He mentioned
his findings from his work for (Hoberg, Kumar, and Prabhala, RFS 2018) that US
funds that operated in less crowded space performed better. This can be given
with intuitive understanding that in less crowded locations there is low scope for
arbitrage capital and so, funds can sustain their alphas (return with respect to
benchmark).
• Better leverage opportunities may not always be good news: Prof Prachi and
Prof Nitin discussed about their recent paper that looks at margin traders and how
better leverage opportunities may not always be good news like most prior
literature and popular intuitions identify. There are regulations in place that
restrict the amount one can borrow from brokers to invest in markets based on
their value of investments. When these traders are convinced that a particular
stock or market will do well, they utilize the leverage capacity to the best possible
extent otherwise there will be excess borrowing capacity. If this buffer exists, it
indicates that they are being conservative to some extent. In this context, Prof
Prachi and Nitin find that larger the buffer in the traders taking credit with respect
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to available leverage opportunities, lower are the future returns on the market.
They also find that these signals also reflect in the macroeconomic indicators. This
finding is based on US data but the idea that signals can be identified by
aggregating behaviour of sophisticated investors can be applied to understand
Indian markets as well.
• Regular learning is key to understanding markets: Discussing on the approaches

one needs to take up while trying to understand and absorb the research findings,
the panellists shared their insights on how learning should be approached. Prof
Ramana suggested that regular practice of attempting to understand and
connecting pieces of information which could be from any source such as
newspapers, journals or books should be inculcated rather than consuming
information right away and developing beliefs or conclusion. Prof Nitin added, “To
start with, understanding the crux of a journal paper, sources of data and how it’s
used will help”.
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Procyclicality of CCP margin models: Is it possible to find an efficient, prudent, and safe
margin model with minimum procyclical behaviour? 7
The global financial system faced tremendous stress during the first week of March’20 when the Coronavirus cases
started rising at an alarming rate across almost all major countries globally. The market volatility index increased to
levels higher than the Global Financial Crisis (GFC) period, while stock and commodity prices plummeted, and market
liquidity deteriorated to all time low. During this unprecedented time, the financial market infrastructure once again
proved to be resilient. There are several requirements which are necessary to absorb such uncertainty in the market
including the margin requirement by the central counterparties (CCPs) from their members. These margin requirements
help to mitigate counterparty risk, ensuring that the CCPs are sufficiently collateralized and the CCPs can effectively
manage financial contagion.
Generally, margin requirements include initial margin and variation margin. The initial margin helps to protect against
potential future uncertainty in case of members default, whereas the variation margin can facilitate to avoid building up
risks and limit the current exposure. While initial margin is necessary to maintain soundness of CCPs and resilience of
the entire system, there is an argument against variation margin requirement particularly during an unprecedented time
when a sudden rise in margin requirement may result an additional pressure to the members at a time when the
members are already struggling. This may amplify the market stress and potentially compromise financial stability. This
can be characterised as procyclicality of CCPs’ margin requirements.
Several measures have been put in place over the last 10 years to reduce the effect of
such procyclical behaviour related to the market, including regular disclosure of
information by CCPs about their initial margin models and their calibration, and the
requirement for CCPs to monitor the procyclicality of their margin requirements. Given
limitations of initial margin (IM) to fully capture market risks, variation margin (VM)
becomes essential. However, there is an urgent need to minimize the procyclical
behaviour of variation margin, otherwise we need to find out alternatives to maintain
financial resilience with less procyclical margin requirements.
In this context, Pedro Gurrola-Perez has recently published a paper on “Procyclicality of

CCP margin models - systemic problems need systemic approaches” (December 2020) 8
that calibrated different margin models and tested the models’ performance during the
first months of 2020 to understand how these models can determine adequate margin
requirement during a time of uncertainty. He has also examined how these models
performed in a worse-case-scenario like a member default and what would be the overall
impact on the soundness of CCPs. The key objective of the paper is to find a margin model
with least procyclical behaviour given the model is efficient, prudent, and safe.
Several studies argued in favour of choosing and calibrating initial margin models that will
provide expected coverage to the market stability while having least possible procyclical
behaviour. However, fragilities in the system exists that contributed towards adverse
liquidity feedback loops during an unprecedented time like March 2020. Hence, this
study argued that imposing further calibrated constraints to only initial margin model may
not resolve the issue, as initial margin is only one component of total margin calls. And,
data suggests margin calls are significantly dependent on variation margin, not initial
margin. Further, the calibration approach to procyclicality are generally limited as these
7
https://www.world-exchanges.org/storage/app/media/Procyclicality_cut7.pdf
8
https://www.world-exchanges.org/storage/app/media/Procyclicality_cut7.pdf
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models need to be risk sensitive to measure risk exposures accurately. Besides, we may
get different outcomes under different initial situations due to stochastic nature of the
initial margin model.
The study tested several standard initial margin models using S&P 500 data during March
2020 to examine how these models can suitably estimate margin requirements to
maintain market stability when the conditional volatility of S&P500 became five times
during the Covid-19 pandemic. The Filtered Historical Simulation (FHS) margin models
reacted adequately to this large increase in volatility, but the models with less procyclical
behaviour failed to capture the risks and led to a significant loss which caused
hypothetical member to default. Overall, margin calls should be assessed based on rise
in volatility levels, while the risk of CCPs should be adequately collatelised.
CCPs play a crucial role in the market, and the margin model should indirectly enforce
CCPs to follow financial discipline. While margin requirements incentivise participant to
manage their risk suitably, one should not focus on minimising procyclical behaviour that
may increase market risk indirectly. In summary, only initial margin may not be enough
to estimate margin calls. We need to consider variation margin as well even though it is
procyclical in nature. Procyclicality is a systemic property and the solution to reduce it
would require considering the system incorporating interdependencies, incentives and
behaviours simultaneously, but not compromising financial stability.
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Market Performance
Market Round-up
Emerging markets continue to ride on global liquidity
Emerging market (EM) equities began 2021 on a strong footing as portfolio flows remained buoyant amid supportive
surplus global liquidity. Vaccination roll-outs across the globe, continued economic recovery, strengthened
expectations of a fiscal stimulus in the US after the Democrats got control over Congress and dollar weakness kept
investor sentiments strong for EM equities. Developed markets, however, ended the month in red, reversing all gains
seen in the initial part of the month. While US equity markets were hurt by coordinated short squeezes in stocks by retail
investors on the Robinhood platform, thereby increasing market volatility and reducing risk appetite, European equities
suffered from a relatively slow roll-out of COVID-19 vaccines, political uncertainty in Italy and lockdown restrictions.
While the MSCI Emerging Market Index ended the month of January 3% higher (+15.8% in 2020), the MSCI World Index
fell by 1.1% (+14.1% in 2020).
After a strong start to the year, Indian equity markets faltered in the run up to the Union Budget, resulting in its sharp
underperformance as compared to the broader EM pack in January. Profit booking ahead of the Union Budget, coupled
with geo-political tensions, contributed to the sell-off in Indian equities in the latter part of the month, notwithstanding
strong foreign portfolio inflows. Consequently, the Nifty 50 and Nifty 500 Index fell by 2.5% and 1.9% respectively in
January. On the positive side, high-frequency indicators continued to point towards a steady economic recovery, further
aided by continued decline in daily COVID-19 cases and casualties, resulting in upgrades in growth forecasts across the
board. Indian equities, however, rallied post the Budget announcement as investors cheered the Government’s focus
on reviving growth and bringing about transparency in finances, with the Nifty 50 and Nifty 500 Index rising by more
than 10% in February thus far (as of February 10th).
Global fixed income markets continued to decline, with yields rising across the board, thanks to stronger growth
prospects amid vaccination roll-outs and expansion in fiscal and monetary policy support. India was no different, with
yields inching up across the curve, particularly more so at the shorter-end. While short-end rose sharply amid
expectations of normalisation in liquidity conditions, long-end hardened on budget uncertainty. A much higher-than-
expected fiscal deficit for the current as well as next financial year dampened investor sentiments, leading to further
rise in bond yields post the Budget announcement. The RBI’s commitment on maintaining adequate liquidity in the
system and doing whatever it takes to ensure smooth execution of the Government’s borrowing programme comforted
markets to some extent. While the 10-year G-sec yield has inched up by 12bps in 2021 thus far (As on February 10th),
the 1- and 5-year G-sec yields have risen by a much higher 26bps and 119bps respectively during this period.
Commodities also rallied further, in-line with other risky asset classes, attributed to a weak dollar and ramp-up of
vaccination programmes, thereby boosting growth outlook.
• Domestic equity market rally faltered in the run up to the budget but resumed
The Nifty 50/ Nifty 500 fell
thereafter: Indian equity markets broke the three-month winning streak and
by 2.5%/1.9% in January,
ended the month of January in red, led by profit booking ahead of the Budget accompanied by a sharp
announcement. Additionally, continued farmer protests and geo-political tensions 20% rise in market
weighed on investor sentiments. On the positive side, foreign portfolio inflows volatility.
remain strong, several high-frequency indicators point to continued recovery in
economic activity and daily COVID-19 infections and casualties continue to
decline, leading to further easing of lockdown restrictions. This, along with an
effective vaccination drive, is expected to further aid the recovery process.
The Nifty 50 and Nifty 500 Index fell by 2.5% and 1.9% respectively in January,
accompanied by a 20.1% increase in market volatility. Mid-caps and small-caps
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outperformed, with the Nifty Mid-cap 100 and Nifty Small-cap 100 rising by 0.3%
and 1.3% respectively in January.
Indian equities, however, rallied post the Budget announcement as investors

cheered the Government’s focus on reviving growth by spending more on
infrastructure (social and physical) and manufacturing sector as well as bringing
about transparency in finances. This led to markets rallying by more than 10% in
February thus far (As on February 10th).
In cash markets, average daily turnover rose by 16% MoM to Rs725bn after
declining by 6.6% MoM in the previous month. Average daily turnover in the cash
market in the current financial year thus far (Apr-Jan 2021) has shot up by ~63%
YoY to Rs595bn as compared to the average daily turnover of Rs364bn during the
same period in FY20. Average daily derivative turnover in January also increased
by 21.4% MoM to Rs1,413bn following a 11.8% MoM drop in the previous month.
In FY21 thus far (Apr-Jan 2021), average daily equity derivative turnover rose by
31.1% to Rs1,217bn.
Sector-wise, except for Automobiles, IT and Media, all other sectors ended in red
in January 2021 led by Pharmaceuticals (-5.8%), Metals (-5.4%), FMCG (-3.1%),
Real Estate (-2.6%) and Banks (-2.2%). While Automobiles sector generated a
strong 6.7% return last month, IT and Media posted relatively modest 1.6% and
0.1% gains respectively.
• Fixed income markets remained under pressure: Global fixed income markets
Indian fixed income markets
continued to decline, with yields rising across the board, thanks to stronger growth
declined ahead of the
prospects amid vaccination roll-outs and expansion in fiscal and monetary policy budget amid expectations of
support. India was no different, with yields inching up across the curve, particularly reversal in surplus liquidity
more so at the shorter-end. While short-end rose sharply amid expectations of conditions. A higher-than-
normalisation in liquidity conditions owing to RBI’s discomfort with persistence of expected fiscal deficit in the
money market rates below the policy corridor, long-end hardened on budget Union Budget worsened the
uncertainty. A much higher-than-expected fiscal deficit for the current as well as sell-off.
next financial year dampened investor sentiments, leading to further rise in bond
yields post the Budget announcement. The 10-year yield inched up by 11bps on
the budget day and another 7bps on the following day. The RBI’s commitment on
maintaining adequate liquidity in the system and doing whatever it takes to ensure
smooth execution of the Government’s borrowing programme comforted markets
to some extent, resulting in some decline in bond yields over the last few days.
While the 10-year G-sec yield has inched up by 12bps in 2021 thus far (As on
February 10th), the 1- and 5-year G-sec yields have risen by a much higher 26bps
and 50bps respectively during this period.
On the global front, while China 10-year bond yield rose by 2bps in January, Japan
10-year bond yield rose by a slightly higher 3bps to 0.05%. The US 10-year
benchmark yield shot up by 18bps in January to 1.09%, while Germany 10-year
bond yield rose by 6bps to -0.52%.
• FII buying into Indian equities came off in January: After remaining strong
buyers of Indian equities over the previous three months, Foreign Institutional
Investors (FIIs) reduced their purchases in January despite continued policy
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support. Unusual trading by retail investors in the US and slower pace of

vaccinations in Europe led to some reduction in risk appetite. FII net buying of
Indian equities stood at US$2.5bn in January (Source: Refinitiv Datastream)—
much lower than net FII inflows of US$9bn and US$8.5bn in November and
December respectively. FII buying resumed in February post the budget
announcement, with the first nine trading sessions of the month seeing net FII
inflows of US$2.7bn. In FY21TD (Apr-Jan 2021), net FII buying in Indian equites
stands at US$32bn. FII activity in the debt market remained muted, with net
inflows at a meagre US$19mn, translating into net outflows of US$6.8bn in this
fiscal thus far (Apr-Jan 2021). Domestic institutional investors (DIIs) remained
strong sellers of Indian equities for the fourth month in row, with net outflows at
Rs120bn in January, translating into net outflows of Rs1.2trn in FY21 thus far.
• Emerging markets outperformed developed markets in January: The month of

The month of January saw a
January saw a diverging performance from emerging and developed market
diverging performance from
equities. While EM equities ended the month in green as portfolio flows remained
emerging and developed
buoyant amid supportive surplus global liquidity, vaccination roll-outs across the
market equities.
globe, continued economic recovery, dollar weakness and strengthened
expectations of a fiscal stimulus in the US, developed markets saw a reversal in While the MSCI Emerging
gains seen in the first half of the month and ended the month with a loss. While US Market Index ended the
month of January 3% higher,
equity markets were hurt by coordinated short squeezes in stocks by retail
the MSCI World Index fell by
investors on the Robinhood platform, thereby increasing market volatility and
1.1%.
reducing risk appetite, European equities suffered from a relatively slow roll-out of
COVID-19 vaccines, political uncertainty in Italy and slower economic recovery led
by lockdown restrictions. While the MSCI Emerging Market Index ended the month
of January 3% higher (+15.8% in 2020), the MSCI World Index fell by 1.1%
(+14.1% in 2020).
US: After a two-month winning streak, the US equity markets faltered in the second
half of January, reversing all gains seen in the initial half. This was primarily on the
back of abnormal and targeted trading by several retail investors wherein these
investors bought small and heavily shorted stocks causing a number of hedge
funds to cover these shorts by liquidating profitable positions in other more liquid
large-cap stocks. This, in turn, resulted in a sharp rise in market volatility, thereby
outweighing the optimism around the anticipated fiscal stimulus following the
Democratic victory over Congress.
On the macro front, high frequency indicators pointed to mixed economic

performance. The Manufacturing Purchasing Managers’ Index (PMI) rose further
from 57.1 in December to 59.2 in January, pointing to record factory output, while
Services PMI also shot up from 54.8 in December to 58.3 in January—the second
highest reading since March 2015. The unemployment rate dropped sharply from
6.7% in December to 6.3% in January, with ~49k jobs added during the month—
lower than market expectations of a 50k rise. Consumer demand also came off a
bit, with retail sales rising by 2.9% YoY in December—the weakest growth in last
five months and consumer sentiment index declining from 80.7 in December to 79
in January.
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On the monetary policy front, the US Federal Reserve kept policy rates unchanged
but remained committed to supporting the US economy. The Fed Chair Jerome
Powell also remarked that the actual unemployment rate is nearly double of the
officially recorded rate, as the reported figure doesn’t consider the millions of
people who have left the labour force due to the pandemic and highlighted the
need for fiscal support for economic recovery. On the fiscal policy, the new
Government proposed a US$1.9trn ‘American Rescue Plan’ on top of the
US$900bn stimulus plan agreed upon in December.
Europe: European markets also ended the month of January in red as sentiments
and growth outlook worsened. Political turmoil in Italy leading to Prime Minister
Conte’s resignation, worsened economic outlook due to lockdown restrictions and
slower pace of vaccinations dampened investor sentiments. Following strong
returns over the previous two months, the FTSE 100 and DAX 30 Index fell by 0.8%
2.1% respectively, while CAC Index declined by a higher 2.7%.
On the macro front, pace of economic recovery slowed down meaningfully—a

consequence of re-imposition of restrictions following a second wave of infections
in several European countries and slower pace of vaccinations. Manufacturing PMI
declined from 55.2 in December to 54.7 in January, while Services PMI fell deeper
in the contraction zone from 46.4 in December to 45.4 in January, marking the fifth
successive month of contraction (sub-50 reading). The euro area unemployment
rate remained steady at 8.3%, with the number of unemployed edging up by 55k
MoM to 13.6mn. Consumer confidence dropped from -13.8 in December to -15.5
in January. On the positive side, retail sales inched up by 0.6% YoY in December
following a 2.2% YoY drop in the previous month. The Eurozone’s ECB left
monetary policy unchanged during its January 2021 meeting, as policymakers
adopted a wait-and-watch approach following last month's decision to expand and
extend its pandemic emergency programme but remained committed on taking
further policy action if required.
In the UK, economic recovery remained patchy. Manufacturing PMI declined from
57.5 in December to 54.1 in January, while Services PMI fell deeper into the
contraction zone to 49.4 in December to 39.5 in January—the steepest contraction
since May 2020. Retail sales grew by 2.9% YoY in December, a tad higher than
2.1% growth reported in the previous month. Consumer confidence fell to -28 in
January from -26 in the previous month. On the policy front, the Bank of England
left policy rates on hold (Bank Rate at 0.1%) while also leaving the size of its bond
buying program unchanged at £875 bn. While vaccine roll-outs has improved the
economic outlook, the Central Bank cautioned about the recent surge in cases and
associated re-imposition of lockdown restrictions.
Asia: The Asian markets generated strong returns for yet another month as global
roll-out of COVID-19 vaccination drives, continued economic recovery and
strengthened expectations of a fiscal stimulus in the US following the Democratic
party’s victory over Congress. While the Hang Seng Index (Hong Kong) and Nikkei
225 Index (Japan) shot up by 3.9% and 0.8% respectively in January, SSE
Composite Index (China) underperformed with a 0.3% return. Meanwhile, Indian
markets underperformed the broader EM pack, with the Nifty 50 falling by 2.5%
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YoY in January amid budget uncertainty but rose by ~10% in the first 10 days of
the month led by a pro-growth budget.
On the macro front, recent high-frequency indicators in India pointed to continued

economic recovery. Manufacturing PMI inched up to a three-month high of 57.7 in
January from 56.4 in the previous month. Services PMI also recorded a modest
expansion from 52.3 in December to 52.8 in January, marking the fourth
successive month of expansion in the services sector. Consumption also picked up
further, reflected in a strong 8% YoY growth in non-oil, non-gold, a 13.5% YoY
growth in passenger vehicle sales, further improvement in consumer confidence
and record-high GST collections. The FY22 Union Budget focused on reviving the
economy by providing an investment-led boost to growth and significantly
deviating from the erstwhile ambitious fiscal consolidation roadmap, targeting
4.5% by FY26.
Economic activity in China remained steady, with a) Real GDP growth reverting
back to the trend growth rate of 6.5% YoY in Q4 2020, making it the only large
economy to report a positive GDP growth in 2020, b) Manufacturing PMI falling for
the second month in a row to a seven-month low of 51.5 in January from 53 in the
previous month, c) Service PMI dropping to a nine-month low of 52 in January, d)
industrial production growing by a strong 7.3% YoY in December—the steepest
pace of expansion since March 2019, e) exports surging by a strong 18.1% YoY in
December to fresh record-high levels, and f) retail sales rising by 4.6% YoY in
December following a 5% gain in the previous month.
• Vaccination-led optimism drive commodities higher in January: Commodities

Commodities rallied for yet
also rallied in line with other riskier asset classes, supported by a weaker US dollar another month in January,
and rising hopes of a cyclical recovery amid vaccine roll-outs across the globe. supported by a weaker US
Crude oil prices shot up by 7.8% in January on top of a 8.8% increase in the dollar and rising hopes of a
previous month, and is further up around 9% in February thus far to reach pre- cyclical recovery amid
COVID levels. Not just Crude oil, most other hard commodities also witnessed a vaccine roll-outs across the
surge in January, led by Tin and Nickel. Safe haven commodities remained weak in globe.
January, with Gold prices falling by 2.1% even as Silver and Platinum posted
modest gains.
• Continued dollar weakness supported EM currencies: The US dollar gained some

strength in January amid expectations of fiscal stimulus and consequent surge in The US dollar gained some
bond yields, with the dollar index rising by 0.7% in January. However, the strength in January, with the
greenback faltered again in February owing to weak job data. The dollar rally was DXY index rising by 0.7%.
largely on the back of a 1.4% and 0.7% drop in Yen and Euro respectively against
Meanwhile, the INR remained
the dollar. This, in turn, kept emerging market currencies weak steady during the
stable during the month.
month following a steady appreciation over last several months. Meanwhile, the
INR also remained broadly stable and ended the month at 73.1 against the dollar
gained strength and ended the year 1.3% higher at 73.1 against the dollar.
104/160
Market Pulse
Market performance across asset classes

Figure 131: Performance across equity indices, fixed income, currency and commodities
Indicator Name Jan-21 1M ago 3M ago 12M ago 1M (%) 3M (%) 6M (%) 12M (%) YTD (%)
Equity Indices
NIFTY 50 13,635 13,982 11,642 11,962 -2.5 17.1 23.1 14.0 -2.5
NIFTY 500 11,302 11,518 9,582 9,861 -1.9 18.0 25.1 14.6 -1.9
MSCI INDIA 1,560 1,600 1,357 1,358 -2.5 15.0 19.6 14.9 -2.5
India Volatility Index (%) 25 21 25 17 20.1 2.4 4.8 45.9 20.1
MSCI WORLD 2,662 2,690 2,293 2,342 -1.1 16.1 15.5 13.6 -1.1
S&P 500 COMPOSITE 3,714 3,756 3,270 3,226 -1.1 13.6 13.6 15.2 -1.1
DOW JONES INDUSTRIALS 29,983 30,606 26,502 28,256 -2.0 13.1 13.5 6.1 -2.0
HANG SENG 28,284 27,231 24,107 26,313 3.9 17.3 15.0 7.5 3.9
FTSE 100 6,407 6,461 5,577 7,286 -0.8 14.9 8.6 -12.1 -0.8
NIKKEI 225 27,663 27,444 22,977 23,205 0.8 20.4 27.4 19.2 0.8
Fixed Income
India 10YR Govt Yield (%) 5.95 5.89 5.88 6.60 5bps 7bps 11bps -65bps 5bps
India 3Month T-Bill Yield (%) 3.41 3.11 3.27 5.23 31bps 14bps 6bps -182bps 31bps
US 10YR Govt Yield (%) 1.09 0.91 0.86 1.52 18bps 24bps 56bps -43bps 18bps
Germany 10YR Govt Yield (%) -0.52 -0.58 -0.62 -0.44 6bps 11bps 2bps -7bps 6bps
China 10YR Govt Yield (%) 3.23 3.20 3.19 3.05 2bps 3bps 25bps 18bps 2bps
Japan 10YR Govt Yield (%) 0.05 0.02 0.04 -0.06 3bps 1bps 4bps 11bps 3bps
Currency
USD/INR 73.0 73.1 74.1 71.4 -0.1 -1.5 -2.5 2.2 -0.1
EUR/USD 1.2 1.2 1.2 1.1 -0.7 4.3 2.7 9.6 -0.7
GBP/USD 1.4 1.4 1.3 1.3 0.5 6.2 4.6 4.2 0.5
USD/YEN 104.7 103.2 104.5 108.4 1.4 0.1 -1.0 -3.4 1.4
USD/CHF 1.1 1.1 1.1 1.0 -0.6 3.0 2.3 8.4 -0.6
USD/CNY 6.5 6.5 6.7 6.9 -1.2 -3.6 -7.4 -6.8 -1.2
Commodities
Brent Crude Oil (US$/bbl) 56.0 51.9 37.5 58.2 7.8 49.0 29.7 -3.9 7.8
LME Aluminium (US$/MT) 1,982 1,974 1,847 1,706 0.4 7.3 18.3 16.2 0.4
LME Copper (US$/MT) 7,862 7,749 6,708 5,551 1.5 17.2 22.4 41.6 1.5
LME Lead (US$/MT) 2,009 1,976 1,807 1,898 1.7 11.2 7.9 5.8 1.7
LME Nickel (US$/MT) 17,648 16,554 15,123 12,772 6.6 16.7 28.5 38.2 6.6
LME Tin (US$/MT) 23,199 20,545 17,724 16,425 12.9 30.9 29.5 41.2 12.9
LME Zinc (US$/MT) 2,557 2,729 2,514 2,212 -6.3 1.7 10.8 15.6 -6.3
SHC Iron Ore Spot (US$/MT) 158 159 118 97 -0.3 33.9 44.3 63.7 -0.3
Gold Spot Price (US$/troy ounce) 1,858 1,898 1,881 1,587 -2.1 -1.2 -5.9 17.1 -2.1
Silver Spot Price (US$/troy ounce) 27 26 24 18 2.4 14.3 10.7 49.7 2.4
Platinum Spot Price (US$/ounce) 1,110 1,068 852 959 3.9 30.3 22.7 15.8 3.9
Palladium Spot Price (US$/ounce) 2,327 2,342 2,228 2,295 -0.6 4.4 12.7 1.4 -0.6
105/160
Market Pulse
Figure 132: Performance across NSE sector indices

Indicator Name Jan-21 1M ago 3M ago 12M ago 1M (%) 3M (%) 6M (%) 12M (%) YTD (%)
Auto 9,813 9,194 7,758 8,087 6.7 26.5 34.8 21.4 6.7
Bank 30,566 31,264 23,901 30,834 -2.2 27.9 41.3 -0.9 -2.2
FMCG 33,121 34,177 29,428 30,775 -3.1 12.6 7.3 7.6 -3.1
IT 24,646 24,251 20,917 16,144 1.6 17.8 36.4 52.7 1.6
Media 1,650 1,649 1,419 1,835 0.1 16.3 28.4 -10.1 0.1
Metals 3,077 3,255 2,344 2,569 -5.4 31.3 43.3 19.8 -5.4
Pharma 12,170 12,916 11,244 8,139 -5.8 8.2 9.2 49.5 -5.8
Real Estate 306 314 228 331 -2.6 33.9 52.1 -7.7 -2.6
Figure 133: NIFTY sector performance during January 2021 (rebased to 0)
15 Bank Nifty 50 15
Auto Nifty 50
10 10
5 5
0 0
-5 -5
-10 -10
4 11 18 25 4 11 18 25
Jan 2021 Jan 2021
15 Pharma Nifty 50 15 IT Nifty 50
10 10
5 5
0 0
-5 -5
-10 -10
4 11 18 25 4 11 18 25
Jan 2021 Jan 2021
15 Media Nifty 50 15
FMCG Nifty 50
10 10
5 5
0 0
-5 -5
-10 -10
4 11 18 25 4 11 18 25
Jan 2021 Jan 2021
15 15 Real Estate Nifty 50
Metal Nifty 50
10 10
5 5
0 0
-5 -5
-10 -10
4 11 18 25 4 11 18 25
Jan 2021 Jan 2021 Source: Refinitiv Datastream
106/160
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 trend India 10-year benchmark g-sec yield movement over
10 6.6 last 12 months
9
6.4
8
6.2
7
6 6.0
5
5.8
4
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
Feb-19
Feb-20
Feb-21 5.6
Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21
Figure 136: India sovereign yield curve

India’s sovereign yield curve risen across the tenor in 2021 thus far, and particularly more so after the budget. This is
primarily led by an expanded borrowing plan for this fiscal year (by Rs800bn) and an elevated plan for the next financial
year as the Government has budgeted for a much higher-than-expected fiscal deficit of 6.8% of GDP in FY22. This, in
turn, may lead to an imbalance in supply-demand dynamics—the concerns of which are evident from the devolvement
of recent G-sec auctions. The RBI, however, comforted the market to some extent by announcing several measures
aimed at ensuring a smooth execution of the Government’s borrowing programme. These include OMOs, enhanced
retail access to G-sec markets and extension of enhanced 22% HTM limit for banks. Continued OMO purchases will be
crucial in keeping a check on rising yields.
% India sovereign yield curve
31-Dec-19 26-Mar-20 31-Dec-20 5-Feb-21
8.0
7.2 7.1
6.7
6.4 6.5
5.6
5.0
4.8
4.0
3.4
3.2
3.1
2.4
3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y 15Y 19Y 24Y 30Y
107/160
Market Pulse
Figure 137: Sovereign yield curve across G20 countries as of January 31st, 2021
Dec 2020 3m 6m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 30y
US 0.06 0.07 0.08 0.12 0.18 0.45 0.78 1.09 1.86
Japan -0.09 -0.10 -0.12 -0.13 -0.12 -0.12 -0.11 -0.10 -0.07 -0.03 0.01 0.05 0.66
Germany -0.63 -0.61 -0.64 -0.73 -0.77 -0.77 -0.73 -0.73 -0.69 -0.64 -0.58 -0.52 -0.08
France -0.63 -0.58 -0.62 -0.69 -0.68 -0.64 -0.59 -0.53 -0.47 -0.39 -0.33 -0.26 0.46
UK 0.00 0.03 -0.13 -0.11 -0.08 -0.07 -0.03 0.03 0.12 0.18 0.27 0.33 0.90
Italy -0.49 -0.43 -0.40 -0.36 -0.30 -0.01 0.07 0.28 0.35 0.47 0.61 0.64 1.55
Canada 0.07 0.09 0.12 0.16 0.19 0.31 0.42 0.46 0.89 1.47
EU -0.63 -0.61 -0.64 -0.73 -0.77 -0.77 -0.73 -0.72 -0.69 -0.64 -0.58 -0.52 -0.08
Argentina 39.23 48.95 50.88
Australia 0.05 0.12 0.13 0.26 0.41 0.58 0.68 0.88 0.97 1.10 2.15
Brazil 2.04 2.37 3.89 4.99 6.14 6.20 7.29 7.58
China 2.83 2.85 2.91 3.03 3.22 3.23 3.80
India 3.37 3.54 3.90 4.19 4.71 5.22 5.30 5.74 5.86 6.05 6.07 5.95 6.53
Indonesia 3.47 3.74 4.24 5.14 5.20 6.26 7.08
South Korea 0.64 0.87 0.97 1.23 1.32 1.77 1.91
Mexico 4.24 4.20 4.22 4.20 4.39 4.91 5.27 6.78
Russia 4.23 4.28 4.73 4.63 4.69 5.65 6.04 6.29
South Africa 4.92 4.66 6.69 8.74 10.80
Turkey 14.23 14.77 14.60 14.25 13.63 12.93 12.57
Figure 138: Sovereign yield curve across G20 countries as of January 31st, 2019
Dec 2018 3m 6m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 30y
US 2.40 2.46 2.55 2.46 2.44 2.44 2.52 2.64 3.00
Japan -0.24 -0.19 -0.18 -0.17 -0.17 -0.17 -0.16 -0.15 -0.15 -0.11 -0.05 0.65
Germany -0.54 -0.48 -0.52 -0.57 -0.54 -0.47 -0.34 -0.25 -0.15 -0.10 -0.01 0.16 0.75
France -0.55 -0.52 -0.52 -0.45 -0.34 -0.20 -0.07 0.07 0.13 0.35 0.50 0.56 1.52
UK 0.70 0.80 0.77 0.75 0.76 0.80 0.87 0.92 0.96 1.03 1.12 1.22 1.72
Italy -0.23 -0.07 0.06 0.28 0.72 1.25 1.52 1.83 2.09 2.15 2.40 2.59 3.48
Canada 1.65 1.73 1.82 1.78 1.78 1.79 1.79 1.82 1.88 2.14
EU -0.54 -0.48 -0.52 -0.57 -0.53 -0.46 -0.34 -0.25 -0.15 -0.11 -0.01 0.16 0.75
Argentina 29.83 28.90
Australia 1.89 1.85 1.75 1.76 1.89 1.99 2.08 2.15 2.20 2.24 2.78
Brazil 6.38 6.37 6.39 7.10 7.67 8.07 8.79 8.87
China 2.42 2.70 2.69 2.92 3.08 3.13 3.76
India 6.58 6.68 6.74 6.94 6.98 7.18 7.22 7.46 7.43 7.53 7.54 7.48 7.66
Indonesia 6.22 6.43 6.37 7.54 7.87 8.05 8.95
South Korea 1.77 1.81 1.81 1.90 1.88 2.00 2.05
Mexico 8.20 8.32 8.36 8.18 8.23 8.28 8.49 8.75
Russia 7.79 7.98 7.55 7.78 7.80 7.99 8.04 8.11
South Africa 6.96 6.99 7.77 8.59 9.63
Turkey 20.15 20.49 18.31 17.61 16.39 15.07 13.84
108/160
Market Pulse
Corporate bond market performance

Corporate yields have risen across the board over the last month or so and more than the sovereign yields, leading to
widening of spreads particularly at the shorter end. For instance, spreads for 3-month AAA-rated corporate bonds
widened from ~13 bps in the beginning of January to ~60bps post the budget announcement. A heavy Government
borrowing programme for the next fiscal year has raised concerns of the potential crowding out of the private sector.
Figure 139: Spreads for 3-month corporate bonds across segments

bps
Spreads for 3-month corporate bonds across segments
3M Corp (-) 3M G-sec 3M NBFC (-) 3M G-sec 3M PSU (-) 3M G-sec
340
300
260
220
180
140
100
60
20
-20
May-19
May-20
Sep-19
Sep-20
Mar-19
Mar-20
Nov-19
Nov-20
Feb-19
Feb-20
Feb-21
Jun-19
Dec-18
Aug-19
Jun-20
Dec-19
Aug-20
Dec-20
Source: Refinitiv Datastream, Bloomberg.
Figure 140: Spreads for 3-year corporate bonds across segments.

bps
Spreads for 3-year corporate bonds across segments
3Y Corp (-) 3Y G-sec 3Y NBFC (-) 3Y G-sec 3Y PSU (-) 3Y G-sec
320
280
240
200
160
120
80
40
0
-40
May-19
May-20
Sep-19
Sep-20
Mar-19
Mar-20
Nov-19
Nov-20
Feb-19
Feb-20
Feb-21
Jun-19
Jun-20
Dec-18
Aug-19
Dec-19
Aug-20
Dec-20
109/160
Market Pulse
Figure 141: Spreads for 5-year corporate bonds across segments

bps
230
200
170
140
110
80
50
20
-10
May-19
May-20
Sep-19
Sep-20
Mar-19
Mar-20
Nov-19
Nov-20
Feb-19
Feb-20
Feb-21
Jun-19
Dec-18
Aug-19
Jun-20
Dec-19
Aug-20
Dec-20
Figure 142: Spreads for 10-year corporate bonds across segments

bps
180
160
140
120
100
80
60
40
20
May-19
May-20
Jul-19
Sep-19
Jul-20
Sep-20
Mar-19
Mar-19
Oct-19
Mar-20
Oct-20
Nov-19
Nov-20
Jan-19
Jan-20
Feb-20
Jun-19
Jun-20
Dec-18
Apr-19
Aug-19
Dec-19
Apr-20
Aug-20
Dec-20
Figure 143: AAA-rated corporate bond yield curve Figure 144: AA-rated corporate bond yield curve
% % AA-rated corporate yield curve
AAA-rated corporate yield curve
9.0 31-Dec-19 31-Dec-20 4-Feb-21 9.0 31-Dec-19 31-Dec-20 4-Feb-21
8.0
8.0
7.0
7.0
6.0
6.0
5.0
4.0 5.0
3.0 4.0
3M 6M 1Y 2Y 3Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 3M 6M 1Y 2Y 3Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y
Source: Bloomberg.
110/160
Market Pulse
Figure 145: Change in AAA-rated corporate bond yields Figure 146: Change in AA-rated corporate bond yields
in 2021 thus far in 2021 thus far
bps bps Increase in AA-rated corp bond yields across tenors
Increase in AAA-rated corp bond yields in 2021 thus far
in 2021 thus far
60 56 60 55
54 53 52
52 51
50
50 44 50
43 42 42 41 40
38
40 40 37
34
31
30 30 25 26 26
21
20 17
20 15
10 10
0 0
3M 6M 1Y 2Y 3Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 3M 6M 1Y 2Y 3Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y
Source: Bloomberg. *Data for October is as of October 20th, 2020.
Figure 147: Net lending under RBI’s liquidity adjustment facility

Surplus liquidity in the system has remained north of Rs5trn over the last three months.
Rs bn
Net lending under RBI's Liquidity adjustment facility
Outstanding amount under repo operations
4000 Outstanding amount under reverse repo operations Figure greater than zero
Net lending under LAF indicates deficit liquidity in
the system
2000
-2000
-4000 Figure less than zero indicates

surplus liquidity in the system
-6000
-8000 Liquidity has remained in

a huge surplus the whole
of 2020
-10000
May-18
May-19
Jul-18
Jul-19
Sep-19
Sep-20
Mar-18
Oct-18
Nov-20
Jan-18
Feb-19
Feb-20
Jan-21
Jun-20
Dec-18
Dec-19
Apr-20
Source: CMIE Economic Outlook.
111/160
Market Pulse
Institutional flows across market segments in India

In the equity segment, FIIs’ net inflows recorded an exponential rise since Nov’20:
FIIs’ net investment continued to rise in January 2021 as well to reach at US$33bn as of
February 3rd as market sentiment remained positive thanks to positive rally in equity
prices, ample liquidity available in the system, a V-shape recovery in economic activities,
and vaccination drive started in several countries.
No sign of recovery in FIIs net outflows in the debt segment: In contrast to the equity
market, FIIs’ net inflows did not improve in the debt segment. FIIs remained net sellers
in the Indian debt since March’20. FII outflows in debt segment rose significantly since
the month of March from negligible amount of net inflows to around US$7.5bn net
outflows by the end of May. Since then, it remained low, and there is no sign of
improvement in the debt segment thus far amid deteriorating debt market, persistent
concerns on India’s growth outlook as well as Government’s fiscal imbalances and
increasing concerns of default of outstanding loans in the private sector. FIIs’ net inflows
in the debt segment remained at US$6.8bn as of February 4th, 2021.
Figure 148: Overall net inflows of FIIs in India

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

40 25
FY16
FY17
FY18 20
30 FY19
FY20 FY16
FY21TD 15 FY17
FY18
20 FY19
10 FY20
FY21TD
10 5
0
0
-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
Domestic institutional investors’ (DIIs) net sales continued to decline in January as

well in the equity market: Post a significant rise in May, DIIs net investment remained
muted in June and started falling since the month of July and ended in the negative
territory by the end of August, as can be seen in the following chart. The situation
remained low in September, even as there was a partial rise in net investment towards
the end of September. October and November saw further decline in net investment
partly due to profit booking activities done by institutional investors over these months
even as FIIs net inflows rose in the equity segment along with the global rally in equity
prices.
112/160
Market Pulse
Figure 149: Overall net inflows by DIIs in Indian equity markets

Cumulative DII net flows over last five years (FY)
x 1,000 Equity Inflows (Rs mn)
1,500
FY16
FY17
FY18
1,000
FY19
FY20
FY21TD
500
-500
-1,000
-1,500
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
113/160
Market Pulse
Fund mobilisation through NSE

Market Statistics: Primary market
Fund-raising through equity issuance recorded an increase MoM: Companies raised
Rs114bn through equity issuances in January as compared to Rs11bn in the previous
month. Nearly 46% of these funds were raised through Preferential Allotment with 13
issues and 43% through IPOs with two issues – one of them being the public sector
enterprise Indian Railway Finance Corporation. Fund-raising by corporates through
equity issuances (IPOs, Rights Issue, Preferential Allotment and QIPs) had dropped in
the first two months of this fiscal post a nation-wide lockdown, due to the COVID-19
pandemic, that shut business activities. However, equity issuances picked up by the end
of first quarter as lockdown restrictions were eased by the Government and business
activities resumed. Corporates have raised Rs1,717bn in this fiscal thus far, with QIPs
and Preferential Allotment being the most preferred option (nearly 60% of the total equity
issuances).
Debt fund-raising moderated in January: Fund raising through debt markets moderated
during the month of January to witness high fund-raising activity in December (-41.8%
MoM), with corporates raising nearly 87% of the total funds or Rs762bn through debt
markets (CPs and bonds) as compared to Rs1309bn in December and Rs882bn in
November. Corporates turned to raising funds through debt markets this fiscal as
borrowing costs were brought down due to monetary policy easing by RBI.
Figure 150: Funds mobilised through NSE platform

Particulars Jan-21 Dec-20
Amount Amount
No. of Amount Raised No. of Amount
Raised Raised
Issues (Rsm) Issues Raised (Rsm)
(USDm) (USDm)
Equity issuances
IPOs 2 49,334 675 2 1,351 18
Rights Issue 1 813 11 1 299 4
Preferential Allotment 13 51,985 711 8 1,678 23
QIPs 1 11,700 160 4 7,423 101
Total equity raised 113,831 1,557 10,751 146
Debt issuances
Public issue of NCDs 2 20,546 281 1 8,146 111
Public issue of G sec, T-Bills & SDLs 77 2,511,799 34,361 98 3,228,442 43,853
Private Placement of NCD* 41 370,994 5,075 67 464,145 6,305
Private Placement of CPs* 92 370,780 5,072 157 837,250 11,373
Total debt raised 3,274,119 44,790 4,537,983 61,641
Total funds raised (equity + debt) 3,387,950 46,347 4,548,734 61,787
Source: NSE.
Note: In case of debt issuances, the above table reports no. of ISINs instead of issues.
114/160
Market Pulse
New listings in the month

January witnessed six new listings on NSE Main Board: Two (2) companies listed on
NSE Main Board through IPOs and two (2) through direct listing in December. The month
also witnessed migration of two (2) SME companies to the Main Board. Out of the six
company listings that happened on NSE main board in January, four (4) companies gained
on their respective listing dates.
Figure 151: Companies listed on NSE in Jan’21

Listing Listing Market Cap Gross Turnover
Security Name Listing
Date Gain % (Rsm) (Rsm)
01-Jan-21 Antony Waste Handling Cell Ltd. 38.4 11,523 10,211 IPO
01-Jan-21 Kanpur Plastipack Ltd. 3.1 1,803 2 New Listing
14-Jan-21 Acrysil Ltd. 1.8 5,312 7 New Listing
20-Jan-21 Wealth First Portfolio Managers Ltd. NA NA NA Migrated from SME to NSE Main Board
28-Jan-21 Ahlada Engineers Ltd. 4.9 887 1 Migrated from SME to NSE Main Board
29-Jan-21 Indian Railway Finance Corporation Ltd. (4.2) 324,099 9,579 IPO
Source: NSE.
115/160
Market Pulse
Trend of NSE’s turnover across different segments

Impact of macro indicators on NSE’s turnover
NSE’s turnover recorded a sharp rise in the Cash market over the months during FY2020-
21, largely led by surplus liquidity due to global central banks’ policy easing measures.
Its monthly turnover grew by an average of 73.4% on an YoY basis over the period of
Apr’20-Jan’21 and registered an average monthly turnover of Rs12.3trn during this
period.
A similar long-term trend was witnessed in the equity derivatives as well. Post a roller
coaster ride in 2019, NSE’s monthly turnover recorded a strong growth in 2020, thanks
to a sharp rise in volatility recorded by the India VIX index that increased 45.9% YoY, a
strong rally in global equity prices and a significant rise in total liquidity due to monetary
policy easing by global central banks. In FY21, total turnover in equity derivatives
segment recorded 33.2% growth till January on a YOY basis over the same period in
FY20.
In contrast, the overall trend has been quite different in the currency segment. Monthly
turnover remained stagnated during 2014-17, before rising gradually over the next three
years. In FY2020-21, total turnover in currency derivatives segment recorded 29.6%
growth till January on YOY basis over the same period in 2019-20.
Figure 152: NSE’s total monthly turnover across segments

x 1,000 x 1,000
25 Cash turnover (Rsbn) 30
Equity derivatives turnover (Rsbn)
Currency derivatives turnover (Rsbn) 28,256
25
20
20
15
14,497
15
10
10
5
5
4,604
0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: NSE.
Note: Total turnover for derivatives includes gross traded value of futures and total premium turnover of options.
116/160
Market Pulse
Faster than expected economic recovery and surplus liquidity aided growth in NSE’s
turnover: A sharp revival in economic activities over the last two (3) quarters after easing
of lockdown restrictions and ample liquidity push by global central banks has given a
boost to NSE’s turnover across all segments. A surge in trading by retail investors and
FIIs have led a rally in equity prices post sharp correction of March’20, despite selling by
DIIs.
Figure 153: Impact of global slowdown on overall turnover growth across segments
150 8
Monthly turnover - Cash market (%YOY)

Monthly turnover - Equity derivatives (%YOY) 6.5
Monthly turnover - Currency derivatives (%YOY) 6
GDP Growth - World (%YOY) (RHS) 5.5
GDP Growth - US (%YOY) (RHS)
GDP Growth: China (Mainland) (%YOY) (RHS)
100
4
80.0
50
0
36.7
18.6
-2
-2.5
0
-4
-6
-50
Jun16 Dec16 Jun17 Dec17 Jun18 Dec18 Jun19 Dec19 Jun20 Dec20
117/160
Market Pulse
An improvement in economic activities, favourable growth outlook and surplus

liquidity drove NSE’s volumes higher. Several high frequency indicators that reflect a
sharp economic recovery in India and ample liquidity support provided by the central
bank of India may have driven NSE’s volume growth.
Figure 154: Growth rates of Cash turnover and economic slowdown in India (IIP and GVA growth)
150 15
Monthly turnover - Equity derivatives (%YOY) 14
Monthly turnover - Currency derivatives (%YOY)
IIP Growth (%YOY) (RHS)
GVA Growth (%YOY) (RHS)
10
12
100
10
5
80.0
50 0
-1.9 6
18.6
-5
4
2
-10
-15
-50
-7.0
-2
118/160
Market Pulse
A risk-on sentiment among FIIs amid enhanced policy support, favourable economic
outlook and optimism over vaccine roll-out has surged NSE’s turnover growth this year,
even as DIIs net investment remained negative due to redemption pressures and profit-
booking as equity valuations touched lifetime highs.
Figure 155: Growth of NSE’s turnover vs. Institutional flows

x 1,000
140 10
Monthly turnover - Equity derivatives (%YOY)
Net DII investment (US$mn) (RHS)
Net FII inflows (US$mn) (RHS)
120
100 5
80 2,658.0
80.0
60 0
40
36.7
20 -4,867.4
-5
-20
-10
119/160
Market Pulse
Institutional investments through NSE platform

FIIs continued to be buyers in NSE’s cash segment: FIIs continued to buy on a net basis
in the NSE’s cash segment, albeit lower than previous month. The net inflow in the NSE’s
cash market touched Rs9bn in January as compared to Rs483bn in December. While FIIs
were net buyers of equities, DIIs continued to sell due to redemption pressures and profit
booking. During this fiscal, FIIs bought equities worth Rs1,418bn in the secondary
markets. DIIs, however, sold equities worth Rs1,317bn during the same period in NSE’s
cash segment.
Trading activity of institutional investors in equity and currency derivatives segment

was tad lower: While DIIs bought equity futures contracts worth Rs819bn, they sold
equity futures874bn, resulting in net outflow of Rs55bn in January compared to net
inflow of Rs2bn in December. FIIs bought equity futures contracts worth Rs4,521bn and
sold futures contracts worth Rs4,551bn, resulting in a net outflow of Rs30bn. In the
current fiscal, DIIs and FIIs have sold equity derivative contracts worth Rs158bn and
Rs290bn respectively on a net basis.
FIIs and DIIs continued to be net sellers of currency futures contracts in January.
Institutions (FIIs and DIIs) have sold futures contracts worth Rs16bn in January as
compared to Rs32bn in the previous month on a net basis. The institutional investors
have been net sellers in currency futures segment for the current fiscal too. Institutional
trading activity in the currency options continues to remain negligible.
Figure 156: Foreign and domestic institutional flows (Rs bn) up to Jan’21
Jan-21 Dec-20 FY21TD FY20TD
Category Buy Sell Net Buy Sell Net Buy Sell Net Buy Sell Net
Cash Market
DII 974 1,101 (127) 801 1161 (360) 8,104 9,421 (1317) 7,377 6,937 440
FII 1,623 1,533 90 1747 1,264 483 14,589 13,171 1418 10,668 10,828 (161)
Equity Futures
DII 819 874 (55) 791 789 2 7,183 7,342 (159) 8,225 8,556 (331)
FII 4,521 4,551 (30) 4,683 4,731 (48) 48,684 48,971 (288) 43,133 43,201 (67)
Equity Options
DII 1 0 0 0 0 0 5 3 1 4 4 1
FII 392 393 (1) 324 325 (2) 3,237 3,239 (2) 1,823 1,818 4
Currency Futures
DII 50 57 (7) 55 68 (12) 520 550 (30) 784 767 16
FII 627 636 (9) 775 795 (20) 7,123 7,252 (129) 5,606 5,645 (39)
Currency Options
DII - - 0 - - 0 - - 0 0 0 0
FII 1 0 0 1 1 1 7 3 4 4 1 2
Interest Rate Futures
DII 4 4 0 9 8 1 53 52 1 153 160 (7)
FII 0 0 0 0 0 0 5 6 (2) 43 37 5
Interest Rate Options
DII - - 0 - - 0 - - 0 - - 0
FII - - 0 - - 0 - - 0 - - 0
120/160
Market Pulse
Source: NSE. * DII – Domestic Institutional Investors, FII – Foreign Institutional Investors; Above table reports premium turnover for Options contracts.
Figure 157: Foreign and domestic institutional flows (Rsbn) during FY20 and CY20
FY20 CY21TD
Category Buy Sell Net Buy Sell Net

Cash Market
DII 9,777 8,653 1124 974 1,101 (127)
FII 13,166 14,155 (989) 1,623 1,533 90
Equity Futures
DII 9,901 10,146 (246) 819 874 (55)
FII 53,860 53,703 157 4,521 4,551 (30)
Equity Options
DII 7 9 (2) 1 0 0
FII 2,444 2,450 (6) 392 393 (1)
Currency Futures
DII 1,007 999 8 50 57 (7)
FII 7,545 7,410 135 627 636 (9)
Currency Options
DII 0 0 0 - - 0
FII 5 2 3 1 0 0
Interest Rate Futures
DII 174 178 (4) 4 4 0
FII 47 40 6 0 0 0
Interest Rate Options
DII - - 0 - - 0
FII - - 0 - - 0
Source: NSE*DII – Domestic Institutional Investors, FII – Foreign Institutional Investors; Above table reports premium turnover
for Options contracts
121/160
Market Pulse
Total turnover in CM and derivatives market

Monthly traded value in NSE’s cash segment touched the highest in January: NSE’s
total turnover increased by 5.5% MoM in January to touch Rs14.5tn – the highest monthly
turnover on record and the fourth sequential rise monthly since October last year. Ample
global liquidity, positive news on the vaccine front, better-than-expected economic
recovery and risk-on sentiment among FIIs have led to a rally in Indian equities, which
has in turn helped the growth in NSE’s turnover.
Trading activity in equity derivatives also witnessed a rise by 10.4% MoM compared to a
decline of 3% MoM in the previous month to tough the highest levels on record. The rise
in equity derivatives turnover can be attributed to the launch of new index derivative
FINNIFTY and a surge in equity options premium turnover (+16.8% MoM).
On the contrary, currency derivatives turnover witnessed a decline in January. The total
turnover in currency derivatives segment declined 19.4% MoM in January to touch
Rs4.6tn as compared to Rs5.7tn in the previous month. While currency futures turnover
declined 19.4% MoM, premium turnover in currency options declined 19.1% MoM.
Figure 158: Total turnover in different segments (Rsbn) during Apr’20 to Jan’21
Segment Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
Cash Market 9,059 10,006 13,509 13,487 12,827 12,236 10,990 13,374 13,748 14,497
Equity futures 15,497 17,586 23,151 23,521 20,994 22,761 21,852 23,698 22,795 24,987
Index futures 5,947 6,406 8,597 7,772 6,212 7,407 7,391 8,263 6,915 7,327
Stock futures 9,550 11,180 14,554 15,749 14,782 15,354 14,461 15,434 15,880 17,660
Equity options 1,419 1,616 2,388 2,297 1,930 2,354 2,547 2,689 2,800 3,270
Index options 1,209 1,368 1,985 1,797 1,505 1,902 2,126 2,228 2,250 2,545
Stock options 210 248 403 500 425 453 421 461 550 725
Currency derivatives 3,733 3,687 4,573 4,305 4,484 5,445 4,651 5,156 5,710 4,604
Currency futures 3,722 3,678 4,562 4,294 4,472 5,431 4,639 5,143 5,698 4,594
Currency options 11 9 11 11 12 14 12 13 13 10
Interest rate derivatives 94 119 166 115 88 80 60 37 55 41
Interest rate futures 94 119 166 115 88 80 60 37 55 41
Interest rate options 0.02 0.02 0.01 0.00 0.00 0.0 0.0 0.0 0 0
Commodity futures 0.6 0.8 2.1 0.5 0.9 0.7 0.1 0.2 14 8
Source: NSE. *NA refers to not applicable as Interest rate options were launched in Dec’19; Above table reports premium turnover for Options contracts
122/160
Market Pulse
Average daily turnover in CM and derivatives market

NSE’s average daily turnover (ADT) in the Cash market increased in January: While
NSE’s monthly turnover in January increased 5.5% to touch record high levels, the
average daily turnover increased significantly by 16.6 % MoM after declining 6.6% in the
previous month. The ADT in the month of January was 35% higher than the ADT for
CY2020 and 22% higher than ADT for FY2020-21TD. Average trading in Mutual Funds
nearly doubled in January touching ~Rs4bn. after increasing 317% MoM. The average
daily turnover in SME segment increased 47/5 after four sequential monthly declines.
Notably, average trading in InvITs witnessed a decline of 40% after an uptick of 67% in
the previous month.
Figure 159: Average daily turnover in Cash market (Rsm)

Product Jan-21 Dec-20 % Change FY21TD FY20TD % Change FY20 CY21TD
Cash Market 724,858 624,891 16.0 594,867 349,384 70.3 364,399 724,858
Exchange Traded Funds 2775 2,446 13.4 2,505 1,963 27.7 2,069 2,775
SME Emerge 41 28 47.0 36 56 (35.1) 53 41
Sovereign Gold Bonds 43 39 11.8 34 9 287.3 10 43
InvITs 69 115 (40.0) 110 45 143.1 51 69
Mutual Funds (Close Ended) 4 2 92.7 2 1 47.1 1 4
Source: NSE.
January witnessed an increase in derivatives trading, led by equity options: Average

daily turnover of NSE’s equity derivatives increased 21.2% MoM in January after declining
11.8% MoM in the previous month to touch Rs1,410bn as compared to Rs1,163bn in the
previous month. Equity options have led the surge in the equity derivatives turnover in
January. The month witnessed launch of new index derivative FINNIFTY, which recorded
a turnover of Rs46bn during the month.
The ADT in equity derivatives in the current fiscal till January, however, recorded a jump
of 28.1% YoY to touch Rs1,154bn compared to Rs901bn during the same period last
fiscal. Average daily premium turnover of stock options surged 45% MoM to touch
Rs36bn in January - the highest on record.
Figure 160: Average daily turnover in Equity derivatives (Rsm)

Single stock derivatives
Stock futures 882,984 721,813 22.3 695,211 601,425 15.6 602,216 882,984
Stock options 36,251 24,988 45.1 21,138 8,672 143.7 9,245 36,251
Index futures
BankNifty 173,812 162,317 7.1 175,033 109,770 59.5 113,155 173,812
Nifty 190,495 151,984 25.3 172,058 143,328 20.0 157,060 190,495
Finnifty 2,047 0 NA 197 0 NA 0 2,047
NiftyIT 0 0 NA 7 132 (94.5) 121 0
Index options
BankNifty 75,762 62,987 20.3 52,978 21,009 152.2 22,493 75,762
Nifty 51,226 39,293 30.4 37,927 17,042 122.6 21,090 51,226
Finnifty 240 0 NA 23 0 NA 0 240
NiftyIT 0 0 NA 0 0 (30.1) 0 0
Source: NSE. Above table reports premium turnover for Options contracts; FINNIFTY was launched on January 11th, 2021
123/160
Market Pulse
Currency derivatives trading witnessed a decline across most contracts: The average
daily turnover of currency derivatives declined 11.3% MoM after a moderate rise in the
previous month to touch Rs230bn in January compared to Rs259bn in the previous
month. The fall in average turnover was largely led by decline in trading across most
contracts including the USD-INR contracts – the highly traded contracts on NSE’s
platform – which witnessed a decline of ~10% MoM. The average daily turnover of
USDINR contracts touched Rs164bn in January as compared to Rs184bn in the previous
month. The ADT in currency derivatives surged 25.4% this fiscal as of end of January
compared to same period in the previous fiscal.
Figure 161: Average daily turnover in Currency derivatives (Rsm)

Currency futures
EURINR 18,531 20,903 (11.3) 17,520 6,437 172.2 7,000 18,531
EURUSD 238 369 (35.4) 246 475 (48.1) 472 238
GBPINR 43,102 50,030 (13.8) 30,978 13,918 122.6 15,368 43,102
GBPUSD 403 524 (23.2) 342 476 (28.0) 514 403
JPYINR 3,552 3,742 (5.1) 4,252 2,771 53.4 3,109 3,552
USDINR 163,877 183,412 (10.7) 172,189 155,785 10.5 171,331 163,877
USDJPY 7 3 187.3 4 9 (59.9) 9 7
Currency options
EURINR 1.22 0.98 24.3 0.29 0.02 1198.4 0.06 1.22
EURUSD 0.00 0.00 NA 0.00 0.00 26.6 0.00 0.00
GBPINR 3.01 9.34 (67.7) 1.58 0.17 826.5 0.25 3.01
GBPUSD 0.00 0.01 (100.0) 0.02 0.01 86.8 0.01 0.00
JPYINR 0.00 0.01 (55.0) 0.01 0.02 (68.4) 0.02 0.00
USDINR 502.71 559.40 (10.1) 561.77 494.69 13.6 548.49 502.71
USDJPY 0.00 0.00 NA 0.00 0.00 NA 0.00 0.00
Source: NSE. Above table reports premium turnover for Options contracts
Trading in interest rate futures was limited to two contracts vs four in the previous
month: Average daily turnover of interest rate futures in January declined 16.4% MoM
after improving 33% MoM in the previous month. After witnessing trading in four futures
contracts in the previous month, January witnessed trading in two contracts only. While
645GS2029 witnessed a 44.1% MoM decline in ADT, average trading in 577GS2030
decline 15% MoM.
Figure 162: Average daily turnover in Interest rate futures (Rsm)

Product Jan-21 Dec-20 % Change FY21TD FY20TD % Change FY20 CY20
Interest rate futures (Rsm)
577GS2030 2,038 2,397 (15.0) 724 0 NA 0 2,038
645GS2029 9 16 (44.1) 3,367 1,518 121.8 8,617 9

Source: NSE. Data for only those contracts which were traded in the month of January 2021 have been reported in the above table.
124/160
Market Pulse
Turnover of top traded symbols over the month

The turnover of top 10 traded stocks increased 8% MoM in the month of January,
resulting in an increase in the share of these stocks in the overall CM turnover from 24.3%
in December to 24.8% in January. Five out of the top 10 stocks witnessed an uptick in
the total traded turnover in January, with Tata Motors and Bharti Airtel increasing 287%
and 110% MoM respectively.
Figure 163: Top 10 symbols based on total turnover of Cash market (Rsm)
Symbol Jan-21 Dec-20 %Change
TATAMOTORS 790,159 204,095 287.2
RELIANCE 587,868 847,982 (30.7)
BAJFINANCE 341,074 575,368 (40.7)
TATASTEEL 293,788 228,741 28.4
HDFCBANK 293,224 347,878 (15.7)
INFY 274,361 231,188 18.7
TCS 268,057 174,388 53.7
BHARTIARTL 262,050 124,884 109.8
AXISBANK 249,741 337,925 (26.1)
HDFC 241,264 262,060 (7.9)

Source: NSE
While the turnover of the top 10 traded stocks in the single stock futures segment
increased 4.5% MoM in January, the turnover of top 10 single stock options increased a
significant 56.2% MoM during the same period. The share of the top 10 stocks increased
from 32.7% to 38.7% of the overall stock options turnover. Although seven stocks were
common in the top 10 list across Cash, Futures and Options segment, Tata Motors
registered the top position in January across all three segments.
Figure 164: Top 10 symbols based on total turnover of Stock futures (Rsm)
TATAMOTORS 869,399 192,988 350.5
RELIANCE 731,194 1,230,307 (40.6)
BHARTIARTL 539,314 325,402 65.7
BAJFINANCE 502,369 734,832 (31.6)
TATASTEEL 498,914 315,106 58.3
HDFCBANK 453,553 432,191 4.9
INFY 444,779 330,765 34.5
ICICIBANK 429,615 531,751 (19.2)
SBIN 416,575 504,601 (17.4)
AXISBANK 364,991 424,275 (14.0)

Source: NSE
125/160
Market Pulse
Figure 165: Top 10 symbols based on total turnover of Stock options (Rsm)
TATAMOTORS 77,216 9,774 690.0
RELIANCE 37,160 62,168 (40.2)
SBIN 25,393 27,157 (6.5)
TATASTEEL 24,826 13,807 79.8
BAJFINANCE 24,504 28,154 (13.0)
BHARTIARTL 22,119 8,186 170.2
INFY 20,543 7,510 173.5
TCS 18,092 6,080 197.6
WIPRO 15,772 2,728 478.1
AXISBANK 14,934 14,045 6.3

Source: NSE
126/160
Market Pulse
Client category-wise participation in total turnover

This section gives a detailed analysis on client-wise participation in total trading activities
across all product segments at NSE. The clients are broadly classified into six categories,
viz. Foreign institutional investors (FIIs), Domestic institutional investors (DIIs),
Corporates, Proprietary traders, Individual investors and Others. The Individual investors
category includes individual domestic investors, NRIs, sole proprietorship firms and
HUFs. The category Others includes Partnership Firms/LLP, Trust / Society, AIF,
Depository Receipts, PMS clients, Statutory Bodies, FDI, OCB, FNs, QFIs, VC Funds,
NBFC, etc. which are not included in any other categories mentioned above.
Participation by individual investors witnessed a steady rise in the last six years: The
last six (fiscal) years have witnessed a considerable change in the distribution of NSE’s
total turnover in Cash market across different client categories. Notably, the market share
of individual investors rose sharply from 33% in FY16 to 46% in FY21 till January end
while the percentage share of FIIs and public and private corporates declined during the
same period. The significant rise in the share of individual investors in FY21 can be
attributed to the increase in new investor registrations witnessed in this fiscal. NSE has
added nearly 68 lakh new investors in the current fiscal year till January.
While the percentage share of DIIs in the overall turnover was steady during FY16-FY20,
it has witnessed a decline in the current fiscal to 7% of the overall market, as they lost
market share to individual investors participating directly in the secondary markets. The
percentage share of corporates has halved during this period from 10% to 5%.
Notwithstanding a decline in market share for a brief period during FY17 and FY18 from
21% in FY 16, Proprietary traders have maintained their market share between 22%-
25% in the last three years.
Figure 166: Share of client participation in Capital Market at NSE (%)

Others PRO Individuals investors FII DII Corporates
100% 4 5 6 7 8 7
90%
21 17 18
80% 22 23 25
70%
60% 33 36
39
50% 39 39
46
40%
30% 23 21
16
15 15
20%
10 10 11
9
10% 10 10
12 7
10 11 6
0% 5 5
FY16 FY17 FY18 FY19 FY20 FY21
Source: NSE.
Note: DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, Prop traders: Proprietary Traders, Individual investors: individual domestic investors,
NRIs, sole proprietorship firms and HUFs, Others: Partnership Firms/LLP, Trust / Society, AIF, Depository Receipts, PMS clients, Statutory Bodies, FDI, OCB, FNs, QFIs,
VC Funds, NBFC, etc. FY21 considers data till January 2021.
127/160
Market Pulse
Individual investors and FIIs gained significant share in equity derivatives segment:
The last six years has witnessed the share of individual investors increase significantly in
equity derivatives segment, in-line with change in their share in cash segment. While the
share of FIIs in overall cash turnover has fallen in the last six years, their share in equity
derivatives has increased. The FIIs share of total premium turnover in the segment
jumped up from 16% in FY16 to 25% in FY20 and falling to 22% in FY21 till January end.
The share of proprietary traders’ and corporates has gradually declined from 31% to 29%
and 15% to 8% respectively over the same period, which was primarily offset by the rise
in participation by individual investors and FIIs. DIIs’ contribution, however, remains low
over the period due to the extant regulatory restrictions.
Figure 167: Share of client participation in Equity Figure 168: Share of client participation in Equity
Derivatives (Notional Turnover) at NSE (%) derivatives (Premium Turnover) at NSE (%)
Corporates DII Corporates DII
FII Individuals investors
FII Individuals investors
PRO Others
PRO Others
100% 100%
5 8 9 9 9 7 7 7 6 8 8
9
90% 90%
80% 80% 27 26 26 25
31 29
33
70% 49 42 42 38 41 70%
60% 60%
29 27
50% 50% 31 31
28 31
29
40% 28 40%
23 27 29 30
30% 30%
17 22 25
16 19
20% 20% 22
12 14 19
14 12 13 2 2 4 4
10% 4
10% 3
11 11 9 15 13 14 13 11
8 8 7 8
0% 0%
Source: NSE.
Note: DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, Prop traders: Proprietary Traders, Individual investors: individual domestic investors, NRIs,
sole proprietorship firms and HUFs, Others: Partnership Firms/LLP, Trust / Society, AIF, Depository Receipts, PMS clients, Statutory Bodies, FDI, OCB, FNs, QFIs, VC Funds,
NBFC, etc. FY21 considers data till January 2021.
Proprietary traders’ and corporates’ share in index futures fell in last six years: The
market share of proprietary traders has gradually declined in terms of overall index
futures turnover from 31% in FY16 to 28% in FY21 till January end, followed by
Corporates whose share has declined from 14% to 8% over the same period. This overall
fall in their shares has been largely offset by an increase in total trade by individual
investors from 32% to 41% during the same period. The share of FIIs rose marginally
from 14% in FY16 to 15% in the current fiscal after touching 18% in previous fiscal – the
highest in last six years . The share of DIIs, however, remained low during this period,
which can be attributed to the regulatory restrictions on their trading activities in the
derivatives segment.
128/160
Market Pulse
Figure 169: Share of client participation in Index Futures at NSE (%)

Corporates DII FII Individuals investors PRO Others
100%
7 8 9 8 8 8
90%
80% 29 26 27 28
31 30
70%
60%
50% 34 33
32 33 33 41
40%
30%
14 16 14 17 18
20%
1 1 1 2 15
2
10% 1
14 14 14 13 13 8
0%
Source: NSE.
Stock Futures witnessed growing FII participation in last six years: While DIIs’
contribution in stock futures turnover has increased marginally from 3% in FY16 to 5% in
FY21 till January owing to regulatory restrictions, the share of FII trading in stock futures
during the same period has increased significantly from 17% to 26% Among other
categories, Individual investors have maintained their share at 25% of the total trades in
FY21 thus far - nearly same as FY16 - after rising to 31% in FY18. Proprietary traders and
corporates have lost their share in the market, which was mainly offset by FIIs and DIIs.
In FY21, Proprietary traders and Corporates contributed 28% and 9% of total turnover
and remaining 7% were traded by Others in the segment.
Figure 170: Share of client participation in Stock Futures at NSE (%)

Corporates DII FII Individuals investors PRO Others
100%
7 7 7 6 8 7
90%
80% 26 25 25 23
30 28
70%
60%
28 25
30 31 25
50% 26
40%
30% 18 24 28
17 21 26
20%
3 3 4 5 6 5
10%
16 13 15 13 10 9
0%
Source: NSE.
129/160
Market Pulse
Proprietary traders and retail investors hold the largest share in Index options
trading: While the share of proprietary traders in Index options declined from 53% of the
total premium turnover in FY16 to 38% in FY21 till January end, they hold the largest
share in index options turnover as on date. The fall in market share of prop traders was
largely offset by a significant rise in the share of individual investors from 22% to 32%
over the same period. Among other clients, share of Corporate declined from 11% to 6%
over the period, whereas FIIs’ share increased from 11% to 16%. DIIs’ investment
remains negligible in the segment throughout the period due to regulatory restrictions in
derivatives segment.
Figure 171: Share of client participation in Index Figure 172: Share of client participation in Index
Options (Notional Turnover) at NSE (%) Options (Premium Turnover) at NSE (%)
Corporates DII
Corporates DII
FII Individuals investors FII Individuals investors
PRO Others PRO Others

100% 100%
4 3
9 9 10 9 9 7 7 8 9 8
90% 90%
80% 80%
33 33 38
70% 39 41 44 38
55 46 45 70% 53 44
60% 60%
50% 50%
29 29
40% 40% 27
28 25 32
30 25
26 28 22
30% 21 30%
20% 20% 15 21
13 19 11 15
10 14 16
12 10 13
10% 10%
10 11 9 11 10 9 11 9
7 7 7 6
0% 0%
Source: NSE.
130/160
Market Pulse
While FIIs enjoy double-digit share in equity futures segment and index options segment,
their share in stock options turnover has fallen significantly from 11% in FY16 to 5% in
FY21 till December end, which was offset by proprietary traders and Individual investors.
Out of total premium turnover in stock options, around 47% were traded by Proprietary
traders and 33% by Individual investors in FY21 till January end.
Figure 173: Share of client participation in Stock Figure 174: Share of client participation in Stock
Corporates DII Corporates DII
FII Individuals investors FII Individuals investors
PRO Others PRO Others
100% 100%
7 6 5 4 7 7 6 5 5 8
10 10
90% 90%
80% 80%
37 36 40 40
39 40 43
70% 42 70% 42 44
47 47
60% 60%
50% 50%
32 32
40% 31 31 40% 31 31
30 30
32
32
30% 30%
32 33
20% 17 20%
15 17 15 13 13 12
11
10 8
10% 6 10%
12 5
9 9 10 10 8 10 10 10 9
6 5
0% 0%
Source: NSE.
Note: DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, Prop traders: Proprietary Traders, Individual investors: individual domestic
investors, NRIs, sole proprietorship firms and HUFs, Others: Partnership Firms/LLP, Trust / Society, AIF, Depository Receipts, PMS clients, Statutory Bodies, FDI,
OCB, FNs, QFIs, VC Funds, NBFC, etc. FY21 considers data till January 2021.
131/160
Market Pulse
Proprietary traders-excl. banks maintained the highest market share in the currency
segment, even as their share declined significantly over the last six years from 60% in
FY16 to 50% In FY21 till January. Among other categories, Individual investors have
been able to increase their share in these segments over this period from 12% in FY16 to
24% in FY21. FIIs have gained a significant share in Currency futures since FY19, while
DIIs—excluding banks do not have much presence in both futures and options.
Figure 175: Share of client participation in Currency Figure 176: Share of client participation in Currency
Derivatives (Notional Turnover) at NSE (%) Derivatives (Premium Turnover) at NSE (%)
Corporates FII Corporates FII
Banks PRO ex-banks Banks PRO ex-banks
Individuals investors Others Individuals investors Others
100% 2 2 1 2 4 100% 2 2
4 3 3 2 2
90% 12 12 13 16 12 12 13 14
90% 18
20 22
24
80% 80%
70% 70%
60% 60% 49 49 47
52 43
60 62 63 55
42
50% 52 50%
50
40% 40%
30% 30% 12 10
16 14 8
8 17
20% 10 8 6 5
10 20% 1 4
1 3 9 14 16 16
9 9 3
10% 3
14 13 10% 19 18
10 11 9 7 12 10 10 9
0% 0%
Source: NSE.
Note: DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, Prop traders: Proprietary Traders, Individual investors: individual domestic
investors, NRIs, sole proprietorship firms and HUFs, Others: Partnership Firms/LLP, Trust / Society, AIF, Depository Receipts, PMS clients, Statutory Bodies, FDI,
132/160
Market Pulse
Figure 177: Share of client participation in Currency Futures at NSE (%)

Corporates FII Banks PRO ex-banks Individuals investors Others
100% 3 3 2 2 2 2
90% 12 12 13 14 18 22
80%
70%
60% 49 49 52 47 43
42
50%
40%
30% 14 12 10 8
16
17
20% 1 4 16
15 16
3
10% 19 18
12 10 10 9
0%
Source: NSE.
Figure 178: Share of client participation in Currency Figure 179: Share of client participation in Currency
Corporates FII Corporates FII
Banks PRO ex-banks Banks PRO ex-banks
Individuals investors Others Individuals investors Others
100% 1 1 1 1 100% 1 1 1 2 1 2
2 4 9 10 13
11 12 13 90% 17
90% 19 22 21
25
80% 28 80%
70% 70%
60% 60%
50% 75 50% 80 76 75 64
78 74 64 62 62
60 40%
40% 57
30% 30%
20% 20%
2 2
2 2
2 2 2 2 3 3
10% 2 2
2 2 3 3 10% 1
1 2 2 4
1 3 12 3 13
7 8 7 8 8 9 8 10 7
6 0%
0%
Source: NSE.
133/160
Market Pulse
The share of proprietary traders (ex-banks) was offset by banks and individual
investors: The distribution of turnover in interest rate futures across client categories
changed significantly, particularly in FY21 as compared to the previous fiscal years.
While, the participation of retail client, banks and corporate in the interest rate futures
has inched up in FY21, the share of Proprietary traders—excluding banks declined from
52% in FY19 to 29% in FY21 till December end. Notably, the market share of banks has
risen from 16% in FY16 to 29% in FY21 thus far.
Figure 180: Share of client participation in Interest Rate Futures at NSE (%)
Corporates FII Banks
DII ex-banks PRO ex-banks Individuals investors
Others
100% 3 4 1 0
3 0 0
4 5
5 5 13
90%
80%
70% 40 51 48 29
52
51
60%
5
50% 3 3
2 4
40% 1 18 27
19 20
30% 16 20
2
0 2 1
20% 3
1
23 27 24 25
10% 20 18
0%
Source: NSE.
Note: DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, Prop traders: Proprietary
Traders, Individual investors: individual domestic investors, NRIs, sole proprietorship firms and HUFs,
Others: Partnership Firms/LLP, Trust / Society, AIF, Depository Receipts, PMS clients, Statutory Bodies, FDI,
134/160
Market Pulse
Figure 181: Share of client participation in Cash market of NSE (%)

Client category Jan-21 Dec-20 Change FY21TD FY20TD Change FY20 CY21TD
Cash market
Corporates 4.1 4.2 (0.0) 4.7 5.1 (0.4) 5.3 4.1
DII 7.2 7.1 0.0 7.1 9.9 (2.9) 10.2 7.2
FII 10.9 11.0 (0.1) 11.2 14.9 (3.7) 15.2 10.9
Individuals investors 44.9 45.4 (0.5) 45.5 39.6 5.9 38.8 44.9
PRO 26.9 26.5 0.4 24.5 22.6 1.9 22.7 26.9
Others 6.1 5.9 0.2 7.0 7.7 (0.8) 7.8 6.1
Source: NSE.
Figure 182: Share of client participation in Equity derivatives of NSE (%)

Equity Derivatives (Premium Turnover)
Corporates 8.6 8.6 (0.0) 8.3 11.2 (2.9) 11.0 8.6
DII 3.0 3.1 (0.1) 3.0 4.5 (1.5) 4.4 3.0
FII 17.4 19.7 (2.2) 21.7 24.2 (2.5) 24.6 17.4
PRO 33.9 32.2 1.7 28.9 24.9 4.0 24.9 33.9
Others 9.0 8.0 0.9 7.5 7.5 0.1 7.8 9.0
Equity Derivatives (Notional Turnover)
Corporates 6.4 6.3 0.1 6.8 9.4 (2.6) 9.2 6.4
DII 0.1 0.1 0.0 0.2 0.3 (0.1) 0.3 0.1
FII 11.8 11.3 0.5 13.4 19.3 (5.9) 19.2 11.8
PRO 45.9 44.8 1.0 40.8 33.2 7.6 33.2 45.9
Others 7.5 8.3 (0.8) 8.7 8.7 (0.0) 8.9 7.5
Source: NSE.
135/160
Market Pulse
Figure 183: Share of client participation in various segments of Equity derivatives of NSE (%)
Index Futures
Corporates 9.2 9.2 (0.1) 8.4 12.6 (4.2) 12.5 9.2
DII 0.8 0.9 (0.1) 0.8 2.0 (1.2) 1.8 0.8
FII 12.9 13.3 (0.4) 14.8 17.8 (3.0) 18.2 12.9
PRO 31.0 30.2 0.8 27.7 26.5 1.2 26.6 31.0
Others 9.6 8.7 0.9 7.6 7.4 0.2 7.8 9.6
Stock Futures
Corporates 8.9 8.9 0.0 8.6 10.8 (2.1) 10.5 8.9
DII 4.4 4.6 (0.1) 4.6 5.9 (1.3) 5.9 4.4
FII 20.4 23.9 (3.5) 26.4 27.4 (1.0) 28.0 20.4
Individuals investors 23.9 23.5 0.3 25.3 25.0 0.2 24.7 23.9
PRO 33.5 31.4 2.2 27.7 23.5 4.3 23.2 33.5
Others 8.9 7.8 1.1 7.4 7.5 (0.1) 7.7 8.9
Index Options (Premium Turnover)
Corporates 5.7 5.4 0.3 5.9 8.8 (2.9) 8.7 5.7
DII 0.0 0.0 0.0 0.0 0.0 (0.0) 0.1 0.0
FII 14.0 13.5 0.6 16.1 21.4 (5.3) 21.1 14.0
PRO 41.1 41.1 (0.0) 38.2 32.9 5.3 32.7 41.1
Others 7.3 7.2 0.1 7.8 7.8 (0.0) 8.6 7.3
Index Options (Notional Turnover)
Corporates 6.4 6.2 0.2 6.7 9.3 (2.6) 9.1 6.4
DII 0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0
FII 11.9 11.2 0.6 13.3 19.3 (6.1) 19.2 11.9
PRO 46.2 45.2 1.0 41.2 33.4 7.8 33.4 46.2
Others 7.4 8.3 (0.9) 8.7 8.9 (0.2) 9.1 7.4
Stock Options (Premium turnover)
Corporates 4.8 5.8 (1.0) 5.3 8.8 (3.5) 8.7 4.8
DII 0.0 0.0 (0.0) 0.0 0.0 (0.0) 0.0 0.0
FII 4.8 3.9 1.0 4.6 8.1 (3.6) 7.7 4.8
PRO 48.3 47.6 0.8 47.1 43.3 3.9 43.8 48.3
Others 8.9 9.4 (0.6) 10.0 7.1 2.9 7.7 8.9
Stock Options (Notional turnover)
Corporates 5.0 6.3 (1.3) 5.6 8.5 (2.9) 8.3 5.0
DII 0.0 0.0 (0.0) 0.0 0.0 (0.0) 0.0 0.0
FII 6.4 5.1 1.3 6.0 10.8 (4.8) 10.5 6.4
Individuals investors 31.3 31.9 (0.7) 31.7 32.2 (0.5) 31.9 31.3
PRO 48.1 47.4 0.7 46.8 41.9 4.9 42.2 48.1
Others 9.3 9.3 (0.0) 9.9 6.5 3.4 7.1 9.3
Source: NSE. Note: DII: Domestic Institutional Investors, FII: Foreign Institutional Investors, Prop traders: Proprietary Traders, Individual investors: individual domestic
investors, NRIs, sole proprietorship firms and HUFs, Others: Partnership Firms/LLP, Trust / Society, AIF, Depository Receipts, PMS clients, Statutory Bodies, FDI, OCB,
FNs, QFIs, VC Funds, NBFC, etc. FY21 considers data till January 2021.
136/160
Market Pulse
Figure 184: Share of client participation in Currency derivatives of NSE (%)

Currency Futures
Corporates 10.3 9.0 1.3 8.9 10.0 (1.1) 10.1 10.3
FII 13.7 13.8 (0.0) 15.5 15.3 0.3 15.6 13.7
Banks 9.1 10.9 (1.8) 8.1 10.5 (2.4) 10.4 9.1
DII ex-banks 0.4 0.3 0.2 0.2 0.2 0.0 0.2 0.4
PRO ex-banks 41.0 42.9 (1.9) 42.3 43.6 (1.3) 43.3 41.0
Others 2.3 1.8 0.5 2.5 2.2 0.3 2.5 2.3
Currency Options (Premium Turnover)
Corporates 9.4 8.6 0.8 7.3 11.0 (3.7) 10.1 9.4
FII 6.2 6.5 (0.3) 4.1 2.5 1.6 2.9 6.2
Banks 2.0 2.6 (0.6) 2.7 2.1 0.7 2.2 2.0
DII ex-banks 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PRO ex-banks 56.9 59.9 (3.0) 62.2 61.1 1.1 61.7 56.9
Individuals investors 23.1 20.8 2.2 21.4 21.8 (0.4) 21.6 23.1
Others 2.4 1.6 0.8 2.3 1.5 0.8 1.5 2.4
Currency Derivates (Premium Turnover)
Corporates 10.3 9.0 1.3 8.9 10.0 (1.1) 10.1 10.3
FII 13.7 13.8 (0.0) 15.5 15.2 0.3 15.5 13.7
Banks 9.1 10.9 (1.8) 8.1 10.5 (2.4) 10.4 9.1
DII ex-banks 0.4 0.3 0.2 0.2 0.2 0.0 0.2 0.4
PRO ex-banks 41.0 42.9 (1.9) 42.4 43.7 (1.3) 43.4 41.0
Others 2.3 1.8 0.5 2.5 2.1 0.3 2.5 2.3
Currency Options (Notional Turnover)
Corporates 6.2 6.6 (0.5) 5.7 8.7 (3.1) 8.1 6.2
FII 4.5 4.7 (0.1) 3.5 2.2 1.3 2.5 4.5
Banks 2.0 2.1 (0.1) 2.6 2.0 0.7 1.9 2.0
DII ex-banks 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PRO ex-banks 53.9 56.4 (2.6) 56.9 60.1 (3.2) 60.4 53.9
Others 4.1 3.3 0.8 3.8 2.1 1.7 2.0 4.1
Currency Derivatives (Notional Turnover)
Corporates 8.0 7.8 0.3 7.2 9.3 (2.1) 9.1 8.0
FII 8.7 9.1 (0.4) 9.3 8.5 0.8 9.0 8.7
Banks 5.2 6.4 (1.2) 5.3 6.1 (0.8) 6.2 5.2
DII ex-banks 0.2 0.1 0.1 0.1 0.1 0.0 0.1 0.2
PRO ex-banks 48.0 49.8 (1.8) 49.9 52.1 (2.3) 51.9 48.0
Others 4.0 3.2 0.8 4.1 3.5 0.6 3.6 4.0
Source: NSE.
137/160
Market Pulse
Figure 185: Share of client participation in Interest rate futures of NSE (%)
Interest rate futures
Corporates 28.8 36.1 (7.3) 24.7 17.8 6.9 18.1 28.8
FII 0.8 0.6 0.2 0.7 1.4 (0.7) 1.2 0.8
Banks 24.7 27.6 (2.9) 27.4 19.9 7.4 19.7 24.7
DII ex-banks 6.7 8.7 (2.0) 5.2 4.7 0.5 4.3 6.7
PRO ex-banks 20.4 16.7 3.7 28.7 51.5 (22.8) 51.6 20.4
Others 0.1 0.0 0.0 0.1 0.2 (0.1) 0.2 0.1
Interest rate options (Premium Turnover)
Corporates NA NA NA 41.6 23.7 17.9 22.4 NA
FII NA NA NA 0.0 0.0 0.0 0.0 NA
Banks NA NA NA 18.9 12.7 6.3 3.4 NA
DII ex-banks NA NA NA 0.0 0.0 0.0 0.0 NA
PRO ex-banks NA NA NA 33.0 48.2 (15.2) 58.9 NA
Individuals investors NA NA NA 6.5 12.3 (5.9) 14.3 NA
Others NA NA NA 0.0 3.1 (3.1) 0.9 NA
Interest rate options (Notional Turnover)
Corporates NA NA NA 47.2 27.4 19.8 25.3 NA
FII NA NA NA 0.0 0.0 0.0 0.0 NA
Banks NA NA NA 15.6 9.5 6.1 4.1 NA
DII ex-banks NA NA NA 0.0 0.0 0.0 0.0 NA
PRO ex-banks NA NA NA 30.5 50.8 (20.3) 57.7 NA
Individuals investors NA NA NA 6.6 10.5 (3.9) 11.9 NA
Others NA NA NA 0.0 1.7 (1.7) 1.0 NA
Interest rate derivatives (Premium Turnover)
Corporates 28.8 36.1 (7.3) 24.7 17.8 6.9 18.1 28.8
FII 0.8 0.6 0.2 0.7 1.4 (0.7) 1.2 0.8
Banks 24.7 27.6 (2.9) 27.4 19.9 7.4 19.7 24.7
DII ex-banks 6.7 8.7 (2.0) 5.2 4.7 0.5 4.3 6.7
PRO ex-banks 20.4 16.7 3.7 28.7 51.5 (22.8) 51.6 20.4
Others 0.1 0.0 0.0 0.1 0.2 (0.1) 0.2 0.1
Interest rate derivatives (Notional Turnover)
Corporates 28.8 36.1 (7.3) 25.0 17.9 7.1 18.3 28.8
FII 0.8 0.6 0.2 0.6 1.3 (0.7) 1.2 0.8
Banks 24.7 27.6 (2.9) 27.3 19.9 7.4 19.3 24.7
DII ex-banks 6.7 8.7 (2.0) 5.1 4.6 0.5 4.2 6.7
PRO ex-banks 20.4 16.7 3.7 28.7 51.5 (22.8) 51.8 20.4
Others 0.1 0.0 0.0 0.1 0.2 (0.1) 0.3 0.1
Source: NSE.
VC Funds, NBFC, etc. FY21 considers data till January 2021. Interest options were introduced in December 2019.
138/160
Market Pulse
Asset category-wise open interest (average daily volume)

Figure 186: Average daily volume of open interest in Equity derivatives (million contracts)
Equity Derivatives
FUTSTK 4,150 3,818 8.7 3,362 4,331 (22.4) 4,294 4,150
OPTSTK 2,942 2,555 15.2 2,021 1,475 37.0 1,490 2,942
Equity Derivatives - Index Futures
BANKNIFTY 1.8 1.8 0.4 1.7 1.8 (4.3) 1.7 1.8
NIFTY 13.9 13.9 (0.3) 12.2 18.2 (32.9) 17.9 13.9
FINNIFTY 0.0 NA NA 0.0 NA NA 0.0 0.0
NIFTYIT - - NA 0.0 0.0 (96.8) 0.0 -
Equity Derivatives - Index Options
BANKNIFTY 28.9 27.9 3.8 21.4 15.1 42.5 14.7 28.9
NIFTY 149.7 157.3 (4.8) 130.8 102.8 27.2 104.2 149.7
FINNIFTY 0.0 NA NA 0.0 NA NA 0.0 0.0
NIFTYIT - - NA 0.0 0.0 (95.9) 0.0 -
Source: NSE Note: FUTSTK: Stock Futures, OPTSTK: Stock Options; FINNIFTY was launched on January 11th, 2021
Figure 187: Average daily volume of open interest in Currency derivatives (no of contracts)
Category Jan-21 Dec-20 % Change FY21TD FY20TD % Change FY20 CY21TD
Futures
EURINR 261,218 331,973 (21.3) 205,834 69,272 197.1 74,622 261,218
EURUSD 5,318 18,286 (70.9) 5,897 39,564 (85.1) 34,538 5,318
GBPINR 247,363 201,875 22.5 116,873 73,239 59.6 74,553 247,363
GBPUSD 4,347 2,387 82.2 2,729 4,972 (45.1) 4,877 4,347
JPYINR 36,039 36,814 (2.1) 36,301 49,152 (26.1) 49,206 36,039
USDINR 3,670,563 4,317,218 (15.0) 2,940,576 2,800,961 5.0 3,123,879 3,670,563
USDJPY 115 80 43.9 69 299 (76.8) 297 115
Options
EURINR 10,471 10,196 2.7 2,645 508 420.6 807 10,471
EURUSD 0 0 NA 0 0 (83.3) 0 0
GBPINR 16,819 38,514 (56.3) 7,136 1,067 568.7 1,770 16,819
GBPUSD 1 1 (26.7) 6 1 409.0 3 1
JPYINR 75 87 (13.2) 100 183 (45.6) 170 75
USDINR 4,419,772 4,105,855 7.6 3,391,212 2,862,162 18.5 2,932,818 4,419,772
Source: NSE
Figure 188: Average daily volume of open interest in Interest rate derivatives II (no of contracts)
Category Jan-21 Dec-20 % Change FY21TD FY20TD % Change FY20 CY20
Interest rate futures
577GS2030 35,328 46,927 (24.7) 12,748 - NA NA 35,328
645GS2029 598 2,904 (79.4) 38,172 14,431 NA 67,979 598

Source: NSE; Data for only those contracts which were traded in the month of December 2020 have been reported in the above table.
139/160
Market Pulse
Internet-based trading
Internet-based trading (IBT) continued to rise in FY21: Internet-based trading in FY21
till January strengthened across all segments on NSE except interest rate derivatives as
compared to the same period in the previous fiscal, largely led by increase in retail
participation in these segments. On an average, daily turnover through internet-based
trading rose by 65% YoY in Cash market to reach Rs153bn in FY21 till January (vs.
Rs93bn over the same period in FY20),
A similar trend was recorded for Equity derivatives segment as well, where the average
turnover rose by 40% YoY over the same period to reach Rs303bn daily in FY21 till
January vs Rs217bn in the previous fiscal year. Notably, IBT has gained momentum since
March’20, particularly since the nationwide lockdown, as retail investors and traders
started utilising this online platform to trade from their homes.
Average daily turnover in currency derivatives through IBT increased by 32% over the
period of Apr’20-Jan’21 on YoY basis. The trend, however, was quite different for Interest
rate derivatives, which witnessed a fall in its daily average by 23.3% YoY to Rs1.2bn over
Apr’20-Jan’21 as compared to Rs1.5bn over the same period in previous financial year.
Figure 189: Average daily turnover of internet-based trading (Rs )

Segment Jan-21 Dec-20 % Change FY21TD FY20TD % Change FY20 CY21TD
Cash Market 182,052 156,574 16.3 153,116 92,819 65.0 90,639 182,052
Equity Derivatives 342,351 274,979 24.5 303,961 217,958 39.5 217,432 342,351
Index Futures 123,569 105,381 17.3 130,902 80,166 63.3 82,859 123,569
Stock Futures 180,178 138,682 29.9 145,488 125,581 15.9 121,620 180,178
Index Options 31,227 25,644 21.8 23,026 10,170 126.4 10,875 31,227
Stock Options 7,377 5,272 39.9 4,546 2,042 122.6 2,078 7,377
Currency Derivatives 38,695 41,286 (6.3) 40,051 30,346 32.0 31,717 38,695
Currency Futures 38,564 41,162 (6.3) 39,934 30,246 32.0 31,610 38,564
Currency Options 131 123 6.5 117 100 17.6 108 131
Interest Rate Derivatives 795 709 12.1 1,170 1,525 (23.3) 1,495 795
Interest Rate Futures 795 709 12.1 1,169 1,525 (23.3) 1,494 795
Interest Rate Options 0 0 NA 0 0 205.1 0 -

Source: NSE.
Note: Average trading volume is calculated as the average of gross traded value i.e., buy side turnover + sell side turnover.
*Premium turnover is considered in case of options contracts.
140/160
Market Pulse
Record statistics
NSE registers yet another record in January: Index options premium turnover touched
a new record on January 28th, 2021 of Rs186bn in a single day. Previous record high in
Index options were registered on December 22nd, 2020 to touch Rs171bn after creating
a record on November 11th, 2020 to touch Rs164bn and on August 31st (Rs160bn) and
March 19th (Rs146bn) this year. Stock options premium turnover also touched highest
record on January 13th, 2021 to touch Rs56bn after touching Rs33bn on December 21st.
The volatility in Indian equities measured by India Volatility Index increased 46% in the
last 12 months as result of sharp rise in trading across several segments. NSE hit record
turnover in the Cash market to touch Rs1,475bn on November 27th, 2020 vs Rs990bn on
August 31st and Rs835bn on May 29th in 2020. While other segments have recorded a
significant growth in their average turnover this year, they did not cross their previous
record levels. Index futures had recorded its highest turnover of Rs860bn on September
20th, 2019 after the Finance Minister slashed the corporate tax rate from 30% to 22%.
Figure 190: Segment-wise record turnover till January 31st, 2021
Segment Turnover (Rsbn) Trading Date
Cash market 1,475 27-Nov-20
Index futures 860 20-Sep-19
Stock futures 1,954 25-Jan-18
Index options (premium) 186 28-Jan-21
Stock options (premium) 56 13-Jan-21

Source: NSE
141/160
Market Pulse
Spatial distribution of trading activities

Region-wise distribution of new investors registered
After a temporary decline during Sep-Nov’20, total number of registrations jumped up
exponentially over the next two months across all regions to reach at a record level of
1,041 thousand in Jan’21 with a 20% rise on MoM and 148% rise on YoY. Out of 1,041
thousand registration in Jan’21, 371 thousand new investors were registered in West,
followed by 351 thousand registration in North and 224 thousand registered in the
southern part of the country.
On average, monthly registration of new investors has been more than doubled from 321
thousand in FY20 to 679 thousand in FY21 till January, and all regions recorded
somewhat similar increase in registration over the year. As a result, the share of total
registration across regions remained somewhat unchanged over the period. As of Jan’21,
Western part contributed around 35% of total registration (vs. 36% in October), followed
by northern India with 30% market share, while southern and eastern regions
contributed around 25% and 10% registration respectively.
Figure 191: Region-wise distribution of new investors registered

Number of new investors (‘000)
1,200
East India North India South India West India Total 1,041
1,000
870
824
800 755
670
627 610
564
600 541
393
419
394 406 423
400
309 325
273 279
241 223 250
202
200
Source: NSE.
Note: East India is Mizoram, Odisha, West Bengal, Assam, Manipur, Arunachal Pradesh, Tripura, Nagaland, Meghalaya, Sikkim, Chhattisgarh; 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 Telengana, Kerala, Andhra Pradesh, Tamil Nadu, Karnataka, Pondicherry, Lakshadweep And Andaman &
Nicobar.
142/160
Market Pulse
Figure 192: Share of new investors across regions in Figure 193: Share of new investors across regions in
Jan’20 Jan’21
Jan-20 Jan-21
East
India East India
9%
9%
West India
West India
35% 36%
North India North India
33% 34%
South India South India

23% 21%
Source: NSE. Source: NSE.
Total registration remains concentrated in few major districts. Over the month of
November, around 7% of all new investors are from Mumbai region, which is marginally
higher than Delhi (6%). Among others, 3% of all registration over the month happened in
Pune, followed by Bangalore (2%). Besides, a significant number of investors are
registered in Ahmedabad, Surat, Jaipur, Hyderabad, and Ahmed-Nagar over the last
month.
Figure 194: Number of new investors registered in top 10 districts

80
68 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21

70 65
60
48
50
43
'000
40
30 26
20 21 20
20 16 16 16
14 13
12
11 10 9 10
9 8
10
Source: NSE
Note: Top 10 districts are chosen based on the last month data.
143/160
Market Pulse
Region-wise distribution of individual investor turnover in the cash market

The overall distribution of individual investors’ turnover in the Cash market remains
positively skewed towards western region with around 36% market share in terms of
turnover and 41.8% in terms of trade volume. Northern region, on the other hand,
contributed second largest share over the period with 29% market share in terms of
turnover in Jan’21 and 28.6% in terms of trade volumes in the Cash market. Among other
regions, South contributed around 26.6% of retail turnover and 21.3% of retail volume
over the month, while eastern part of the country is lagging behind with merely 8.5%
share of total turnover and 8.3% share of market volume.
Figure 195: Region-wise distribution of individual Figure 196: Region-wise distribution of individual
investors’ turnover in cash market (%) investors’ traded volumes
East India North India South India West India East India North India South India West India
100% 100%
39.3 36.0 36.2 36.1 36.8 36.8 36.0 36.1 36.5 36.5 36.0
90%
80% 80% 39.3 39.8 39.8 41.2 40.8 40.3 41.7 41.5 41.7 41.8
43.9
70%
60% 60%
25.5 25.6 25.9 26.8 26.7 28.3 28.1 27.4 26.8 26.6
24.0
50% 22.6 22.6 22.6 22.1 22.2 23.1 22.2 22.3 21.8 21.3
20.4
40% 40%
28.4 30.2 30.3 30.0 28.5 28.6 27.9 27.8 27.8 28.6 29.0 30%
20% 27.5 29.3 29.1 28.9 28.2 28.5 28.2 27.7 27.6 28.2 28.6
20%
10%
8.2 8.8 8.6 8.7 8.4 8.6 8.5 8.3 8.6 8.4 8.3
8.3 8.4 8.0 8.0 7.9 8.0 7.8 8.0 8.3 8.2 8.5 0%
0%
Source: NSE.
Share of total turnover and trade volume are further mostly concentrated within a few
districts over the last five months, as depicted in the following chart. Out of total turnover,
top 10 districts contributed ~40.7%, while they contributed ~37.9% to retail trade
volume over the month of Jan’21. Amongst them, Mumbai and Delhi have contributed
around 11.7% and 9.2% of total turnover respectively over the month, which are
somewhat similar over the previous months, while Bangalore contributed 4.2%, followed
by Ahmedabad (3.3%) and Pune (3.2% each) over the month.
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Market Pulse
197: Top 10 districts based on Cash turnover of individual investors
14
Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
% of Cash turnover of individual investors
11.7
12 11.4
10 9.0 9.2
6
4.4 4.2
4 3.1 3.3 3.2 3.2
2.5 2.3 2.1 2.0
1.5 1.7 1.4 1.6 1.5 1.5
2
0
Mumbai Delhi-NCR Bangalore Ahmedabad Pune Hyderabad Surat Kolkata Jaipur Chennai
(MH/TN/RG)
Source: NSE.
Note: Individual investors include Individual / Proprietorship firms and HUF. Top ten districts are chosen based on the last month data.
Figure 198: Top 10 districts based on individual investors traded
14.0
Top ten districts
% of traded volume of individual investors in cash
12.0 11.2 11.3

Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
10.0
7.9 7.9
8.0
market
6.0
3.8 4.1
4.0 3.6 3.5 3.3 3.2
1.9 2.1
2.0 1.5 1.5 1.6 1.5 1.5 1.5 1.2 1.3
0.0
Mumbai Delhi - NCR Ahmedabad Pune Bangalore Surat Jaipur Hyderabad Kolkata Rajkot
(MH/TN/RG)
Source: NSE
Note: Individual investors include Individual / Proprietorship firms and HUF. Top ten districts are chosen based on the last month data.
145/160
Market Pulse
Investment through mutual funds in India

Asset under management (AAUM) of mutual funds (MFs) maintained its upward
momentum in Dec as well,…: After a significant fall post the Covid-19 pandemic, AAUM
of mutual funds started rising since May’20 to fully offset the overall decline during the
health crisis and end at Rs31.0trn in Dec’20, thanks to a continuous rally in the equity
market, continuous recovery in high frequency indicators and sharp rise in liquidity in the
system post several monetary and fiscal policies.
…despite a sharp fall in total MF schemes: In contrast to the rise in AAUM, there is a
continuous fall in the number of MF schemes since March’20 largely due to
recategorization and rationalisation of mutual funds by the market regulator, rise in
concentration to large-cap companies, and weakening debt market over the period.
However, the decline may have bottomed out as the number of schemes remains ~1,740
over the last three months on average.
Figure 199: Monthly trend of total MF schemes and average AUM

AAUM for the month (Rstrn) - RHS No. of Schemes
2,000 35
1,950 30
1,900
25
1,850
20
1,800
15
1,750
10
1,700
1,650 5
1,600 0
Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20
Source: AMFI. *AAUM-Average Asset under Management.
MFs’ net purchase declined significantly in Dec’20 as redemption increased at a

higher rate than total purchase: There has been several ups and downs in net
investments of mutual funds over the last two financial years. Post a Rs2,127bn net sales
in Mar’20, MFs turned bet buyer in Apr’20 with Rs460bn net investment, and they
remained net buyers till Jul’20 before falling again over the next two months. The
situation improved again in Oct’20 and MFs’ net investment reached to 7-month high of
Rs986bn in Oct’20 before declining again over the next two months. Notably, their net
investment declined to merely Rs30bn in Dec’20 as gross sales rose at a faster rate than
gross purchase over the month.
146/160
Market Pulse
Figure 200: Monthly trend of total investment through mutual funds

Fund mobilized during the month (Rsbn) Repurchase/Redemption during the month (Rsbn)
Net Inflow (+ve)/Outflow (-ve) for the month (Rsbn) - RHS
25,000 2,000
1,500
20,000 1,000
500
15,000
0
(500)
10,000
(1,000)
5,000 (1,500)
(2,000)
0 (2,500)
Source: AMFI.
There is a sharp rise in the number of new schemes over the month of Dec’20: As
depicted in the following chart, total investment through new MF schemes remains quite
volatile over the last two financial years. Fund mobilisation through new MFs was
significantly low during Apr-Jun’20 as compared to the same period last year, before
increasing sharply in July. However, the rise in investment was temporary in nature and
fell sharply in August similar to that in the last year. Thereafter, there was a rise in total
number of new schemes that contributed a higher amount of funds till Oct’20 before
falling temporarily in the following month. In Dec’20, however, there is a sharp rise in
number of new schemes and a total of 14 more schemes were launched over the month
to mobilise ~Rs90bn.
Figure 201: Monthly trend of total investment through new schemes

Funds mobilized through new schemes (Rsbn) - RHS No. of new Schemes
25 250
20 200
15 150
10 100
5 50
0 0
Source: AMFI.
147/160
Market Pulse
Policy developments
India
Policy measures by the SEBI during December 2020 9
Refund of security deposit on surrender of membership by Trading Members
The Exchange shall release Security Deposit of the Trading Member (engaged in trading on
behalf of clients), on approval of surrender application by SEBI, after the period mentioned
below, whichever is earlier:
1. Three years from the date of receipt of surrender application by Exchange from the
Trading Member (to meet any investor claims), or
2. Five years from the date of disablement of Trading Member’s trading terminals by
January 6th, 2021 the Exchange.
The Exchange shall release Security Deposit of the Trading Member (engaged only in
proprietary trading in last three years prior to the date of application), on approval of
surrender application by SEBI, after the period mentioned below, whichever is earlier:
1. One year from the date of receipt of surrender application by exchange from the
Trading Member, or
2. three years from the date of disablement of Trading Member’s trading terminals by
the Exchange.
Transfer of excess contribution made by Stock Exchanges from Core SGF of one Clearing
Corporation to the Core SGF of another Clearing Corporation
SEBI decided to allow transfer of excess contribution made by Stock Exchanges from Core
SGF of one Clearing Corporation to the Core SGF of another Clearing Corporation, in the inter-
operable scenario. However, Stock Exchanges and Clearing Corporations are advised to
January 8th, 2021 ensure the following:
1. The Clearing Corporation, which receives such request from an Exchange, shall
transfer directly such excess contribution of the Exchange, in its Core SGF to the
core SGF of another Clearing Corporation.
2. The Clearing Corporations shall ensure compliance with requirements of Minimum
Required Corpus (MRC) of Core SGF as prescribed by SEBI.
Review of Volatility Scan Range (VSR) for Option contracts in Commodity Derivatives
Segment
SEBI has decided to prescribe minimum VSR values for underlying commodities based on
their volatility i.e., high, medium and low as categorised in SEBI circular dated January 27th,
2020.
January 11th, 2021
Volatility category Minimum VSR% Non-agri commodities Minimum VSR% Agri Commodities
Low 4 5
Medium 5 6
High 6 7
Clearing Corporations (providing clearing and settlement for options) shall review the value
of VSR by back-testing on a monthly basis using last 3 years’ data by 15th of every month and
9
For more details, please visit http://www.sebi.gov.in
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Market Pulse
change in VSR (if any) shall be implemented from 1st trading day of the following month. The
back-testing shall be done by using appropriate models to extract volatility (such as EWMA
(Exponentially Weighted Moving Average) volatility of the underlying futures contract,
implied volatility of options, etc.) over the relevant MPOR (Margin Period of Risk) period.
The circular shall be effective from the first trading day of the month of April 2021.
Revision in Daily Price Limits (DPL) for Commodity Futures Contracts
The Daily Price Limits in commodity futures market serve an important function of defining
the maximum range within which the price of a commodity futures contract can move in one
January 11th, 2021 trading session. The defined daily price limits protect investors from sudden and extreme
price movements and provides cooling-off period to re-assess the information and
fundamentals impacting the price of the commodity futures contract. In its endeavour to
develop commodity derivatives markets, SEBI has revised norms for DPL for commodity
futures contracts
Norms for investment and disclosure by Mutual Funds in Exchange Traded Commodity
Derivatives(“ETCDs”)
The following exposures shall not be considered in the cumulative gross exposure as
specified in paragraph 4(v) of the SEBI circular dated May 21st, 2019:
January 15th, 2021 1. Short position in Exchange traded Commodity Derivatives (ETCDs) not exceeding the
holding of the underlying goods received in physical settlement of ETCD contracts.
2. Short position in ETCDs not exceeding the long position in ETCDs on the same goods.
Mutual funds shall not write options, or purchase instruments with embedded written
options in goods or on commodity futures.
Relaxation from compliance with certain provisions of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 due to the COVID -19 pandemic
January 15th, 2021 The relaxations in Paras 3 to 6 of the SEBI Circular dated May 12th, 2020 in respect of sending
physical copies of the annual report to shareholders and requirement of proxy for general
meetings held through electronic mode, are extended for listed entities till December 31st,
2021.
Relaxations relating to procedural matters – Issues and Listing
The relaxation mentioned in point (iv) of the SEBI circular dated May 6th, 2020, pertaining to
January 19th, 2021 institutionalising of an optional mechanism (non-cash mode only) to accept the applications
of the shareholders, is further extended and shall be applicable for Rights Issues opening up
to March 31st, 2021 provided the issuer along with the Lead Manager(s) shall continue to
comply with point (v) of the same circular.
149/160
Market Pulse
Global policy developments

ESMA launches a common supervisory action (CSA) with NCAs on the supervision of costs and fees
cut 10
The CSAs aim is to assess the compliance of supervised entities with the relevant cost-related provisions
in the UCITS framework, and the obligation of not charging investors with undue costs. The NCAs will
consider the supervisory briefing on the supervision of costs published by ESMA in June 2020. The CSA
will also cover entities employing Efficient Portfolio Management (EPM) techniques to assess whether
they adhere to the requirements set out in the UCITS framework and ESMA Guidelines on ETFs and other
UCITS issues.
Publication of transparency calculations update after the end of the BREXIT transition period. 11
ESMA has published today its first Financial Instruments Transparency System (FITRS) file following the
end of the Brexit transition period. The equity transparency calculation results delta file (DLTECR)
published by ESMA contains updated transparency calculation results for equity instruments which
previously had a UK venue as the most relevant market.
10
https://www.esma.europa.eu/press-news/esma-news/esma-launches-common-supervisory-action-ncas-supervision-costs-and-fees-ucits
11
https://www.esma.europa.eu/press-news/esma-news/publication-transparency-calculations-update-after-end-brexit-transition-period
150/160
Market Pulse
Comparison of trading activities across major exchanges globally

Post a sharp fall amid pandemic, domestic market capitalisation started recovering across several exchanges globally,
thanks to a continuous rally in global equity market, significant recovery in high frequency economic indicators,
vaccination drive and availability of ample liquidity in the system. The International Monetary Fund has recently
predicated a V-shaped recovery in major countries and several companies started showing recovery in their balance
sheet as well. With this background, we have analysed how the trading pattern in the securities market has evolved over
the last two years in different segments across exchanges globally.
The analysis used data from World Federation of Exchanges (WFE) over the period Oct’18-Dec’20 that covers a total of
101 exchanges of which 58 are from the EMEA region, 24 from Asia-Pacific and the rest from the Americas region. The
analysis has highlighted NSE’s contribution in different segments across exchanges based on domestic market
capitalisation and its trading activity in the cash/spot markets and different derivatives markets—Equity, Index
derivatives and Currency segments. Major findings of the analysis are:
• NYSE remained top exchange globally with highest domestic market

capitalisation (DMC): NYSE’s market cap increased further by 4% MoM to reach at
US$26.3trn in Dec’20 to remain top exchange globally. Among others, Nasdaq-US
ranked second with US$19.1trn market capitalisation, followed by Shanghai,
Japan, Hong Kong and Euronext. Over the month, NSE’s ranking improved by one
position to become 10th largest exchange globally with a market cap of US$2.6trn
vs. US$2.3trn over the previous month.
• Except a few, large exchanges recorded a sharp rise in their market sizes in
Dec’20 on YoY basis: Except LSE Group, all top ten exchanges recorded a YoY
growth in their market cap, thanks to the positive momentum in the equity market
globally. Notably, Shenzhen Stock Exchange recorded 54% rise in market cap to
reach US$5.2trn in Dec’20 as compared to US$3.4trn in Dec’19. Nasdaq – US and
Shanghai Stock Exchange were other best performers in the year with 47% and
37% rise in their respective market caps, while Hong Kong, NSE and Euronext also
recorded significant rise in their market cap over the year, thanks to V-shape
economic recovery, several monetary easing announced by the central banks,
significant fall in yields of government bonds and ample liquidity available in the
system.
• Korea Exchange remained to be a clear winner in cash market throughout the

year of 2020: While Korea Exchange (KRX) maintained its top position throughout
the year of 2020, several other exchanges including Shanghai Stock Exchange
(SSE), NSE fought over the second position in alternative months. SSE became
second largest exchange globally since Sep’20 in terms of number of trades in cash
market. Among others, NSE ranked third over Nov-Dec’20, while CBOE Global
became fourth. Overall, there were rise in trading activities in four major exchanges
over the month of Dec’20 on MoM basis. NSE’s trading activities in the cash
segment rose by 20%, followed by CBOE Global (19%), SSE (13%) and KRX (6%).
• NSE dropped one position to be placed as fifth globally in the Stock futures
segment in December,…: Distibution of total trade volume is quite diverse across
exchnages for Stock futures. Trading acctivities increased exponentially for Borsa
Istanbul in 2020 to become top exchange gloablly in Jul’20 with 114m trades over
the month in stock futures. Except Sep’20, the exchange maintained its top
151/160
Market Pulse
position and ended the year with 180m trades in Dec’20. As a result, Korea Stock
Exchange lost its top position to Borsa Istanbul in the segment and placed second.
Among others, B3 - Brasil Bolsa Balcão gained upward momentum in the segment
and became third largest exchange in July, and NSE slipped one position in Jul’20
to become fourth largest exchange, and again in Dec’20 to end the year in fifth
position with 20m contracts traded over the month.
• …while the exchange maintained sixth position in Stock options segment:

Nasdaq – US topped in stock options with 206m contracts traded in Dec’20,
followed by B3 - Brasil Bolsa Balcão and CBOE Global with 148m and 140m
contracts traded respectively. Baring few months, NSE maintained its sixth
position over the last two years and ended with 31.5m contracts traded in Dec’20.
• NSE is leading in the equity index options over the last two years,…: NSE’s
global share in equity index options segment remained high at 78% in Dec’20, and
maintained its top position in the market over the last two years in terms of total
number of contracts traded in the segment. Other exchanges contributed a minor
portion in the market globally over the last two years, while Korea Stock Exchange,
CBOE Global and Deutsche Boerse AG traded merely 8%, 4% and 3% market
shares, respectively.
• …while its global share remained low in Equity index futures: In the Equity index
futures segment, NSE ranked merely ninth globally with 8m contracts traded over
the month of Dec’20. B3 - Brasil Bolsa Balcão retained its top position in this
segment over the last two years. Among others, CME group and Deutsche Boerse
AG hold second and third positions in the market.
• NSE topped globally in the Currency options segment and became third in
Currency futures: NSE continued to rank first in the Currency options over the last
two years, while it ranked third in the futures segment. In Dec’20, Moscow
Exchange topped with 89m contracts traded in currency futures, followed by the
B3 – Brasil Bolsa Balcão with 72.3m and NSE with 72.1m contracts traded over the
month. In the options segment, on the other hand, NSE captures 92% market share
globally with 80m contracts traded in Dec’20, while Johannesburg Stock Exchange
ranked second with 3% market share and 2.3m contracts traded.
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Market Pulse
Figure 202: Domestic market cap of top ranked Figure 203: Number of trades in Cash market of top
exchanges* ranked exchanges*
Domestic market capitalization (US$trn)* Number of trades - Cash market (mn)
1,000
NYSE KRX SSE NSE
900 CBOE Global Nasdaq - US NYSE
Nasdaq - US
SSE 800
JPX
700
HKEX
600
Euronext
SZSE 500
Dec'20 Dec'19 Dec'18
LSE Group 400
TMX Group
300
NSE
200
Tadawul
DBAG 100
Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0 24.0
Figure 204: Number of contracts traded in Stock Figure 205: Number of contracts traded in Stock
futures of top-ranked exchanges* options of top-ranked exchanges*
Number of contracts traded - Stock futures (m) Number of contracts traded - Stock options (m)
210
250
Nasdaq - US
BIST B3 - Brasil Bolsa Balcão
180 CBOE Global
KRX
200 MIAX
B3 - Brasil Bolsa Balcão ISE
150
MOEX NSE
DBAG
150 NSE 120 HKEX
90
100
60
50
30
0 0
Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
153/160
Market Pulse
Figure 206: Number of trades in Index futures of top Figure 207: Number of trades in Index options of top
ranked exchanges* ranked exchanges*
Number of contracts traded - Stock index futures (m) Number of contracts traded - Stock index options (m)
350 800
B3 - Brasil Bolsa Balcão
NSE
CME Group
300 DBAG 700 KRX
JPX CBOE Global
KRX
MOEX 600 DBAG
250
SGX TAIFEX
TAIFEX
500 India INX
NSE
200
400
150
300
100
200
50 100
0 0
Figure 208: Number of trades in Currency futures of top Figure 209: Number of trades in Currency options of top
ranked exchanges* ranked exchanges*
Number of contracts traded - Currency futures (m) Number of contracts traded - Currency options (m)
120
100
MOEX NSE JSE
MOEX TASE
NSE
100 B3 - Brasil Bolsa Balcão
B3 - Brasil Bolsa Balcão
80
CME Group
80 Matba Rofex
60
60
40
40
20
20
0 0
Source: WFE monthly statistics.

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, Tadawul - Saudi Stock Exchange (Tadawul), TASE - Tel-Aviv
Stock Exchange, MIAX - Miami International Securities Exchange, DBAG - Deutsche Boerse AG, India INX - India International Exchange. Only WFE member exchanges
are included in the analysis.
154/160
Market Pulse
Economic calendar for major countries (February 2021)

Date Country Indicator Name Period Reuters Poll Prior Period Unit
1-Feb-21 United Kingdom Markit/CIPS Mfg PMI Final Jan 52.9 52.9 Index (diffusion)
1-Feb-21 Russia Markit Mfg PMI Jan 49.7 Index (diffusion)
1-Feb-21 Japan Jibun Bank Mfg PMI Jan 49.7 Index (diffusion)
1-Feb-21 India IHS Markit Mfg PMI Jan 56 56.4 Index (diffusion)
1-Feb-21 Euro Zone Unemployment Rate Dec 8.3% 8.3% Percent
1-Feb-21 Euro Zone Markit Mfg Final PMI Jan 54.7 54.7 Index (diffusion)
1-Feb-21 China (Mainland) Caixin Mfg PMI Final Jan 52.7 53 Index (diffusion)
1-Feb-21 Brazil Markit Mfg PMI Jan 61.5 Index (diffusion)
2-Feb-21 Brazil Industrial Output YY Dec 6.30% 2.60% Percent
3-Feb-21 United States Markit Svcs PMI Final Jan 57.5 Index (diffusion)
3-Feb-21 United Kingdom Markit/CIPS Serv PMI Final Jan 38.8 38.8 Index (diffusion)
3-Feb-21 Russia Markit Services PMI Jan 48 Index (diffusion)
3-Feb-21 Japan Services PMI Jan 47.7 Index (diffusion)
3-Feb-21 India IHS Markit Svcs PMI Jan 53 52.3 Index (diffusion)
3-Feb-21 Euro Zone Markit Serv Final PMI Jan 45 45 Index (diffusion)
3-Feb-21 Euro Zone HICP Flash YY Jan 0.5% -0.3% Percent
3-Feb-21 China (Mainland) Caixin Services PMI Jan 56.3 Index (diffusion)
3-Feb-21 Brazil Markit Services PMI Jan 51.1 Index (diffusion)
4-Feb-21 United Kingdom BOE Bank Rate Feb 0.1% 0.1% Percent
5-Feb-21 United States Non-Farm Payrolls Jan 50k -140k Person
5-Feb-21 United States Unemployment Rate Jan 6.7% 6.7% Percent
5-Feb-21 Russia CPI YY Jan 5.3% 4.9% Percent
5-Feb-21 India Repo Rate 5-Feb 4.0% 4.0% Percent
10-Feb-21 United States CPI YY, NSA Jan 1.5% 1.4% Percent
10-Feb-21 China (Mainland) CPI YY Jan 0.0% 0.2% Percent
11-Feb-21 South Africa Manuf Production MM Dec -0.6% -1.3% Percent
12-Feb-21 United Kingdom GDP Prelim YY Q4 -8.1% -8.6% Percent
12-Feb-21 United Kingdom Industrial Output YY Dec -3.8% -4.7% Percent
12-Feb-21 Russia Central bank key rate Feb 4.3% 4.3% Percent
12-Feb-21 India CPI Inflation YY Jan 4.4% 4.6% Percent
15-Feb-21 Russia Industrial Output Jan -0.1% -0.2% Percent
15-Feb-21 Japan GDP QQ Annualised Q4 9.5% 22.9% Percent
15-Feb-21 India WPI Inflation YY Jan 1.2% Percent
15-Feb-21 Euro Zone Industrial Production YY Dec 0.5% -0.6% Percent
16-Feb-21 Euro Zone GDP Flash Estimate YY Q4 -5.1% -5.1% Percent
17-Feb-21 United States Industrial Production MM Jan 0.4% 1.6% Percent
17-Feb-21 United Kingdom CPI YY Jan 0.6% Percent
17-Feb-21 South Africa CPI YY Jan 3.1% Percent
18-Feb-21 Russia Unemployment Rate Jan 6.0% 5.9% Percent
19-Feb-21 Japan CPI, Overall Nationwide Jan -1.2% Percent
23-Feb-21 United States Consumer Confidence Feb 89.3 Index
23-Feb-21 United Kingdom ILO Unemployment Rate Dec 5.0% Percent
25-Feb-21 Euro Zone Consumer Confid. Final Feb Net balance
26-Feb-21 India GDP Quarterly YY Q3 -7.5% Percent
155/160
Market Pulse
Annual Macro Snapshot

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21*
National income
GDP (Current) (Rs trn) 87.4 99.4 112.3 124.7 137.7 153.9 170.9 188.9 203.5 194.8
GDP (Current) Growth (%) 14.4 13.8 13.0 11.0 10.5 11.8 11.0 10.5 7.8 -4.3
GDP (Constant) Growth (%) 5.2 5.5 6.4 7.4 8.0 8.3 6.8 6.5 4.0 -7.7
GVA (Constant) Growth (%) 5.2 5.4 6.1 7.2 8.0 8.0 6.2 5.9 4.1 -7.0
Agriculture growth (%) 6.4 1.5 5.6 -0.2 0.6 6.8 6.6 2.6 4.3 2.3
Industry growth (%) 3.6 3.3 3.8 7.0 9.6 7.7 5.9 5.3 -1.2 -7.6
Services growth (%) 5.9 8.3 7.7 9.8 9.4 8.5 6.3 7.2 7.2 -9.2
Per Capita GDP (Curr) (Rs) 71,609 80,518 89,796 98,405 1,07,341 1,18,489 1,30,061 1,42,328 1,51,760 143,734
Prices
CPI Inflation (%) 10.1 9.3 5.9 4.9 4.5 3.6 3.4 4.8
CPI – Rural (%) 10.7 9.6 6.1 5.5 5.0 3.6 3.0 4.2
CPI – Urban (%) 9.5 9.1 5.4 4.1 4.0 3.6 3.9 5.4
WPI Inflation (%) 8.9 6.9 5.2 1.2 -3.7 1.7 3.0 4.3 1.7
Primary articles (%) 9.8 11.4 9.9 2.2 -0.4 3.5 1.3 2.8 6.8
Fuel & power (%) 13.9 7.1 7.1 -6.1 -19.7 -0.2 8.1 11.6 -1.8
Manuf. prods (%) 7.3 5.3 3.0 2.5 -1.8 1.4 2.8 3.6 0.3
Money, banking & interest rates
Money supply (M3) growth (%) 13.5 13.6 13.4 10.9 10.1 10.1 9.2 10.5 8.9
Aggregate deposit growth (%) 13.5 14.2 14.1 10.7 9.3 15.3 6.2 10.0 7.9
Bank credit growth (%) 17.0 14.1 13.9 9.0 10.9 8.2 10.0 13.3 6.1
Non-food credit growth (%) 16.8 14.0 14.2 9.3 10.9 9.0 10.2 13.4 6.1
Cash Reserve Ratio (%, eop) 4.8 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Bank Rate (%, eop) 9.50 8.50 9.00 8.50 7.75 6.75 6.25 6.50 4.65
Public Finance
GOI rev. receipts growth (%) -4.7 17.0 15.4 8.5 8.5 15.0 4.4 8.2 8.4 -7.7
Net Tax receipts growth (%) 10.5 17.8 10.0 10.8 4.4 16.7 12.8 6.0 3.0 -0.9
GOI Expenditure growth (%) 8.9 8.1 10.6 6.7 7.6 10.3 8.4 8.1 16.0 28.4
Subsidies growth (%) 25.7 18.0 -1.0 1.4 2.3 -11.1 -4.4 -0.7 17.5 147.3
Interest expense growth (%) 16.7 14.7 19.5 7.5 9.7 8.8 10.0 10.2 5.1 13.2
External transactions
Exports growth (%) 21.9 -1.8 4.9 -1.5 -15.5 5.1 10.1 8.8 -5.2
POL exports growth (%) 34.9 8.7 4.3 -10.7 -46.1 3.4 18.8 24.5 -11.8
Non-POL exports (%) 19.3 -4.2 5.1 0.8 -8.6 5.4 9.0 6.6 -4.1
Imports growth (%) 32.4 0.2 -8.4 -0.3 -15.0 1.0 21.2 10.5 -8.0
POL exports growth (%) 46.4 5.7 0.7 -16.4 -40.1 5.3 25.0 29.9 -7.5
Non-POL exports growth (%) 26.8 -2.3 -13.0 9.1 -3.8 -0.2 20.1 4.5 -8.1
Net FDI (US$bn) 21.9 19.8 21.6 31.3 36.0 35.6 30.3 30.7 43.0
Net FII (US$bn) 17.2 26.9 4.8 42.2 -4.1 7.6 22.1 -0.6 -1.4
Trade Balance – RBI (US$bn) -189.7 -195.7 -147.6 -144.9 -130.1 -112.4 -160.0 -180.3 -157.5
Current Acc. Balance (US$bn) -78.2 -87.8 -32.4 -26.7 -22.1 -15.2 -48.7 -57.2 -24.6
Forex Reserves (US$bn) 294.4 292.6 303.7 341.4 355.6 370.0 424.4 411.9 475.6
Exchange rate (USDINR) 47.95 54.45 60.50 61.15 65.46 67.09 64.45 69.89 70.88
Source: CMIE Economic Outlook, NSE. * FY21 GDP data pertains to first advance estimates. FY21 public finance data are revised estimates.
156/160
Market Pulse
Our reports on the economy and markets since the beginning of 2020
Sr. No. Date Report

1 08-Feb-21 Conversations on Corporate Governance: Dialogue 5
2 05-Feb-21 Macro Review: RBI Monetary Policy
3 01-Feb-21 Union Budget FY2021-22
4 17-Jan-21 Macro Review: India Monthly Trade
5 11-Jan-21 Market Pulse January 2021: A monthly review of Indian economy and markets
6 11-Jan-21 Macro Review: FY21 GDP Advance Estimates
7 05-Jan-21 India Ownership Tracker September 2020
8 31-Dec-20 Macro Review: Q1FY21 Balance of Payments
9 16-Dec-20 Conversations on Corporate Governance: Dialogue 4
10 07-Dec-20 Market Pulse Nov-Dec 2020: A monthly review of Indian economy and markets
11 05-Dec-20 Macro Review: RBI Monetary Policy
12 28-Nov-20 Macro Review: Q1FY21 GDP
13 26-Nov-20 Q2FY21 Corporate Performance Review
14 13-Nov-20 Macro Review: IIP and Inflation
15 28-Oct-20 Conversations on Corporate Governance: Dialogue 3
16 28-Oct-20 Market Pulse October 2020: A monthly review of Indian economy and markets
17 16-Oct-20 Macro Review: India monthly trade
18 13-Oct-20 India Fiscal Stimulus 3.0
19 13-Oct-20 Macro Review: IIP and Inflation
20 09-Oct-20 Macro Review: RBI Monetary Policy
21 06-Oct-20 India Ownership Tracker June 2020
22 05-Oct-20 The State of States in India: A 360-degree view
23 30-Sep-20 Macro Review: Q1FY21 Balance of Payments
24 29-Sep-20 Conversations on Corporate Governance: Dialogue 2
25 28-Sep-20 Market Pulse September 2020: A monthly review of Indian economy and markets
26 16-Sep-20 Macro Review: India monthly trade
27 14-Sep-20 Macro Review: IIP and Inflation
28 01-Sep-20 Macro Review: Q1FY21 GDP
29 28-Aug-20 Conversations on Corporate Governance: Dialogue 1
30 26-Aug-20 Market Pulse August 2020: A monthly review of Indian economy and markets
31 22-Aug-20 Q1FY21 Corporate Performance Review
32 17-Aug-20 Macro Review: India monthly trade
157/160
Market Pulse
33 14-Aug-20 Macro Review: IIP and Inflation

34 06-Aug-20 Macro Review: RBI Monetary Policy
35 31-Jul-20 COVID-19 and Beyond: IMF’s take on the world economy and prospects for India
36 28-Jul-20 Market Pulse July 2020: A monthly review of Indian economy and markets
37 24-Jul-20 Q4FY20 Corporate Performance Review
38 15-Jul-20 Macro Review: India monthly trade
39 13-Jul-20 Macro Review: IIP and Inflation
40 01-Jul-20 Macro Review: Q4FY20 Balance of Payments
41 26-Jun-20 Market Pulse June 2020: A monthly review of Indian economy and markets
42 16-Jun-20 Macro Review: India monthly trade
43 15-Jun-20 Macro Review: IIP and Inflation
44 04-Jun-20 Impact of COVID-19 on Agriculture: NSE webinar key takeaways
45 01-Jun-20 Macro Review: Q4FY20 GDP
46 31-May-20 Market Pulse May 2020: A monthly review of Indian economy and markets
47 29-May-20 India Ownership Tracker March 2020
48 22-May-20 Macro Review: RBI Monetary Policy
49 17-May-20 Macro Review: India COVID-19 Stimulus Package (Fifth Tranche)
50 16-May-20 Macro Review: India COVID-19 Stimulus Package (Fourth Tranche)
51 15-May-20 Macro Review: India COVID-19 Stimulus Package (Third Tranche)
52 14-May-20 Macro Review: India COVID-19 Stimulus Package (Second Tranche)
53 13-May-20 Macro Review: India COVID-19 Stimulus Package (First Tranche)
54 13-May-20 Macro Review: IIP and Inflation
55 30-Apr-20 Market Pulse April 2020: A monthly review of Indian economy and markets
56 27-Apr-20 COVID-19: India Macro and Market Outlook
57 17-Apr-20 RBI response to COVID-19
58 16-Apr-20 Macro Review: India monthly trade
59 14-Apr-20 Macro Review: IIP and Inflation
60 14-Apr-20 Key takeaways from RBI Monetary Policy Report
61 27-Mar-20 India policy response to COVID-19
62 20-Mar-20 Market Pulse March 2020: A monthly review of Indian economy and markets
63 16-Mar-20 Macro Review: Q3FY20 Balance of Payments
64 11-Mar-20 A deep dive into Investment in India
65 09-Mar-20 India Ownership Tracker December 2019
66 02-Mar-20 Macro Review: Q3FY20 GDP
158/160
Market Pulse
67 29-Feb-20 Quarterly Briefing: Takeover and Corporate Governance in India

68 20-Feb-20 Market Pulse February 2020: A monthly review of Indian economy and markets
69 06-Feb-20 Macro Review: RBI Monetary Policy
70 01-Feb-20 Decoding the Union Budget FY2020-21
71 20-Jan-20 Market Pulse January 2020: A monthly review of Indian economy and markets
72 08-Jan-20 Macro Review: FY20 GDP Advance Estimates
73 01-Jan-20 Macro Review: Q2FY20 Balance of Payments
159/160
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
Simran Keswani skeswani@nse.co.in +91-22-26598163
Marketing
Rajesh Jaiswal rjaiswal@nse.co.in +91-22-26598380
Disclaimer
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This report is intended solely for information purposes. This report is under no circumstances intended to be used or
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Market Pulse Feb 2021

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February 2021

NATIONAL STOCK EXCHANGE OF INDIA LIMITED

Published by Economic Policy and Research, National Stock Exchange of

Copyright © 2020 by National Stock Exchange of India Ltd. (NSE)

Any/all Intellectual Property rights in this report including without

Average daily turnover in CM and derivatives market ................................................................................ 123

Dr. Tirthankar Patnaik

Stories of the month

• Growth over fiscal consolidation: The Government has undertaken a clean

• Transparency of fiscal accounting: Besides being a growth-focused Budget, what

• Fiscal strategy: A significant relaxation in medium-term fiscal consolidation

• Market implications: A pro-growth budget, improved transparency, privatization

A higher-than-expected borrowing plan for the next fiscal year at Rs12.06trn—a

% GDP 9.5 6.8

Figure 3: A snapshot of Government finances in FY21-22

Figure 4: FY21-22 Fiscal math (% of GDP)

Figure 5: Trend of tax collections

Figure 6: Tax buoyancy vs. nominal GDP growth

Figure 7: Tax revenues—FY22 budget estimates set realistically

Figure 8: Direct tax measures

Source: Budget Documents.

Figure 9: Revision in custom duties

Carbon Black 5% 7.5%

Builder’s ware of plastic, not elsewhere specified or included 10% 15%

Synthetic Cut and Polished Stones 7.5% 15%

Screws, Nuts, etc. 10% 15%

Solar Inverters 5% 20%

Nylon fibre and yarn 7.5% 5%

Primary/Semi-finished products of nonalloy steel 10% 7.5%

Flat products of non-alloy and alloy-steel 10%/12.5% 7.5%

Platinum, Pallidum, etc. 12.5% 10%

Figure 10: Imposition of Agriculture Infrastructure and Development Cess (AIDC)

Crude soybean and sunflower oil 20%

Coal, lignite and peat 1.5%

Specified fertilizers (Urea etc) 5%

Petrol Rs. 2.5/Litre

• Non-tax revenue collections shored by higher telecom receipts: Non-tax

Figure 11: Trend of non-tax collections

• Strong focus on asset monetization as an alternate financing avenue: Despite a

has given strong emphasis on monetization of non-core assets and privatization of

The much-awaited National Monetisation Pipeline of public infrastructure assets is

The disinvestment target for FY22 is budgeted at Rs 1.75trn—lower than Rs2.1trn

Figure 13: Divestment target pegged at Rs 1.75trn in FY22

Figure 14: Divestments in FY21 thus far

Hindustan Aeronautics Ltd. 14.8 Offer for Sale 49.2 75.2

In FY22, the Government has budgeted for a modest 1% growth in overall

Revenue expenditure, however, is budgeted to decline by 2.7% in FY22 but off a

30 25% 5.0 40%

0 -5% 0.0 -10%

Figure 17: Total expenditure trend Figure 18: Expenditure mix

Figure 19: Ministry-wise total expenditure including IEBR (Rs bn)

Source: Budget Documents. BE: Budget Estimates; RE: Revised Estimates

• Huge jump in healthcare expenditure: The Government has focused on a lot on

Fiscal management and strategy:

• Fiscal strategy: A significant relaxation in medium-term fiscal consolidation

In addition to market borrowings, the Government also utilized small savings to

Figure 31: Sources of funding the deficit

Figure 32: Centre’s gross market borrowing trend

• Market implications: A pro-growth budget, improved transparency, privatization

permanent institutional framework that would engage in the buying of investment

Figure 35: Key announcements and implications for capital markets

Foreign Portfolio Investors (FPIs)

Figure 36: Key sector-wise announcements and implications