Geopolitical Tension Takes Its Toll

India’s manufacturing Purchasing Managers’ Index (PMI) improved to 54.9 in February after dropping to a four-month low of 54 in January, as the Omicron variant spread like wildfire throughout the country

Domestic frontline benchmark indices Nifty 50 and Sensex plummeted 5.59 per cent and 5.81 per cent, respectively, over the fortnight primarily due to escalating geopolitical tensions between Russia and Ukraine and sky-high crude oil prices.

BSE Mid-Cap and Small-Cap indices also bore the brunt of weak global cues, plunging 4.09 per cent and 3.13 per cent, respectively. However, BSE Metal index managed to buck the trend, becoming the top gainer and registering healthy gains of 7.57 per cent. This surge comes on the back of consistent rise in metal prices due to sanctions being imposed on Russia, which opens up a window of opportunity for Indian metal exporters. 

Data released by the Ministry of Statistics and Programme Implementation showed that India’s GDP growth slowed down to 5.4 per cent in the third quarter ended December 31, 2021 from 8.5 per cent in the previous quarter. The Ministry has also said that India’s GDP will likely grow by 8.9 per cent in FY22, down from its first advance estimate of 9.2 per cent, released in early January 2022. India Ratings and Research has recently revised its outlook on the overall banking sector for FY23 to ‘improving’ from ‘stable’ as the banking system’s health is at its best in decades.

The agency expects the improvement in health trend of the sector to continue in FY23, backed by strengthened balancesheets and an improving credit demand outlook. Also, the credit growth should be supported by a pick-up in economic activity post Q1 of FY22, higher government spending on infrastructure and a revival in retail demand. BSE Bankex index slipped 8.32 per cent during the fortnight. According to data analytics firm Nielsen, the Indian FMCG industry witnessed a consumption slowdown in urban markets and de-growth in rural areas in 2021 as the sector was hit hard by higher inflation levels, thus forcing companies to go for successive price hikes

In 2021, the industry had to go for double-digit price growth in three consecutive quarters to protect margins, which converted into a price-driven growth of 17.5 per cent in comparison to a year ago in 2020. The BSE FMCG index fell by 3.98 per cent over the fortnight, closing at 12,736.31. Semiconductor shortage continues to take a toll on sales of passenger vehicles. Major manufacturers such as Maruti Suzuki India, Hyundai Motor India, Toyota and Honda have reported a decline in their sales for the month of February compared to the same month last year.

Maruti Suzuki’s domestic sales fell 6.70 per cent to 1,37,607 units during the month, while Hyundai reported a 14.60 per cent drop to 44,050 units.

Mahindra and Mahindra and Tata Motors reported a jump in sales and bucked the trend. The BSE Auto index was the top loser during the fortnight, recording losses of 12.49 per cent. As per data released by IHS Markit, India’s manufacturing Purchasing Managers’ Index (PMI) improved to 54.9 in February after dropping to a four-month low of 54 in January as the Omicron variant spread like wildfire throughout the country.

A level above 50 is considered as expansion while a level below 50 is considered a contraction in manufacturing activity. India’s manufacturing activity picked up in February as state governments lifted the pandemic-related restrictions with the abatement of the third wave. Meanwhile, favourable demand conditions supported an improvement in sentiment, which reached the strongest since October 2021. Trading data shows that during the fortnight, FIIs were net sellers to the tune of ₹ 42,406.6 crore while DIIs were net buyers to the tune of ₹ 38,254.54 crore.