Retail participation soars up:
The participation of retail investors continues to increase post-market crash during March-April 2020. SEBI has disclosed that ~63 lakh new Demat accounts are opened in the last nine months.
The brokerage houses are witnessing growing affection for equities in tier II and III cities. It signals the deeper penetrations of equity markets. Telangana tops the list with a 157% increase in new client registration. Andhra Pradesh is a distant second with a 33.39% rise in rising participation from smaller cities.
We understand that people needed to pursue new activities while staying at home. That explains increased participation in equity markets during the lockdown. The market crash made equity investment attractive which acted as further motivation.
Increasing retail participation is a common phenomenon post any market crash. They tend to be in search of quick money and often lack investment perspective. Their experience often turns sour once the market gets choppy.
Retail inflation eased a little:
Retail Inflation has eased marginally to 6.93% in November. Reducing vegetable prices has been a key driver for it. Retail inflation has come down after staying above 7% for two months in a row.
Ease in retail inflation has come as a relief after the increase in wholesale inflation. The wholesale price index-based inflation rate rose to a 9 month high of 1.55% in November.
Food inflation should fall further in December with new crops entering the market. But, we don't see inflation coming down drastically. At best, it could see a moderate decline.
The RBI is unlikely to restrict liquidity in the market to support growth. Surplus liquidity will keep inflation high. RBI also estimates that inflation is likely to remain elevated despite mild moderation.
Budget preparations get going:
Finance Minister Nirmala Sitharaman held her first pre-budget consultation with top industrialists on Monday. With that, she has officially started the preparations for budget 2021.
The ideas from the industry are critical in budget preparation. It helps the government to identify critical areas for reforms. It holds even more significance this year under the pandemic effect.
The economic recovery is going to be the most significant aspect of budget 2021. The government has already hinted that it is looking to increase spending. Hence, the government could soften up its fiscal deficit target.
Though there is a long way to go before the budget, we assume several announcements for the manufacturing sector. There may be an extension of Performance linked incentive (PLI) scheme beyond the existing 10 sectors.
Employment generation is another aspect that requires the government's attention. It will keep the Infrastructure sector under the spotlight.