Rise in wholesale inflation, snapshot of NBFCs performance, and MFs increase holdings: Three things Teji Mandi investors should know on May 18, 2021
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Rise in India's WPI Inflation

In April 2021, India's wholesale price inflation increased to 10.5%, up from 7.4% in March 2021 and down 1.6% in April 2020. This increase is the fastest in 11 years led by higher oil and commodity prices and low base effect.

Inflation in all sub-components escalated. Primary articles were up 4% points to 10.2% higher than 6.4% in March 2021 driven by food and crude. Fuel and power were up 11% points to 21% as compared to 10.3% in the previous month led by mineral oils. Lastly, manufactured products were up by 1.7% points higher than 7.3% in March 2021. Basic metals, chemicals, textiles, food manufacturing, motor vehicles, machinery, and equipment contributed to this increase.

Notably, the retail inflation eased to a three-month low of 4.29% in April 2021.

Prices of many commodities have surged amidst global optimism about the COVID-19 vaccine rollout, sharp economic revival in key commodity consumer countries, and depreciation in the rupee along with the continuous impact of the second COVID-19 wave.

Performance of NBFCs During the Pandemic

With COVID-19 hitting the NBFC sector very hard, let’s see the performance of select NBFCs during Q2 and Q3 of FY21.

In Q2 and Q3 of FY21, NBFCs' consolidated balance sheets expanded at a slower pace. NBFCs, on the other hand, were able to continue credit intermediation at a lower cost, demonstrating the sector's resilience.

Profitability of the sector improved in Q2 and Q3 of FY21. This was due to NBFCs’ expenditures registering a steeper fall than income. The asset quality of NBFCs improved in Q2 and Q3 of FY21, v/s Q4 of FY20.

The industrial sector, particularly micro and small and large industries, were hit the most as they posted a decline in credit growth. Because of their low misconduct, the retail loan sector remained ahead of the game.

NBFCs had strengthened their balance sheet and raised liquidity levels after the 2018 liquidity crisis. This enabled them to withstand the COVID-19 pressures, especially during H1FY21.

Mutual Funds Increase Holdings

In April, domestic mutual funds increased their investments in key index heavyweight stocks. Yet, the equity segment reported a decline during the same period.

According to the data released by Edelweiss Alternative Research and ACE MF, mutual fund houses added stocks such as Reliance Industries, Axis Bank, Tata Steel, HCL Technologies, SBI, etc., in their portfolios. This suggests trend reversal as compared to the past few months.

The net inflow for the month was about Rs 92,900 crore, reflecting the second consecutive month of net inflows through equity funds indicating renewed retail investor interest. Domestic funds showing faith in Indian equities in tough times give us a sense of the attractiveness of the Indian market and this would benefit going ahead.

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