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India’s recovery from the slowdown inflicted by the coronavirus pandemic is projected to be higher than other member nations, according to the BRICS Economic Bulletin 2021 released by the Reserve Bank of India (RBI) on December 10.

"Charting the expected growth recovery for 2021, India’s recovery is projected to be higher than other BRICS nations," the bulletin said.

Among the BRICS nations, Brazil’s response has been the largest of the most emerging market economies (EMEs), including the other BRICS countries, the bulletin said citing the IMF’s data on countries fiscal measures in response to the COVID-19 pandemic.

Both South Africa and India also implemented sizeable expansionary fiscal responses, the bulletin said.

The second wave of infection in India since March 2021 has led to regional lockdowns, stringent restrictions, and halting of activity in many sectors which could affect the pace of its recovery.

A lot has been written about the second-quarter GDP that came in at 8.4 percent year-on-year after a 20.1 percent spurt in the first quarter of FY22.

In Q2FY22, the absolute real GDP of Rs 3,57,300 crore is also larger than the absolute real GDP reported for Q2FY20, at Rs 3,56,100 crore, thus making it appear that the catch-up for the economy to the pre-COVID era is now complete.

This is great news. However, growth does not yet seem to be broad-based and possibly continues to mask the deep pains of certain segments of the population that come under the unorganized sector. Importantly, the crucial understanding that policymakers should now have is the extent of durable damage that has been inflicted by the COVID-19 crisis, and, thus hone up the policy framework in a way to mitigate or at least reduce its impact.

So far as the organized and listed entities are concerned, they are back on their feet and are doing relatively well, and are profitable. Business confidence surveys conducted by the RBI indicate that the mood is relatively buoyant. But these entities are likely to have gained market share vis-à-vis the smaller ones who may have by now gone out of business.

Conditions for a pick-up in private investments are also clearly in place as most companies had chosen to de-leverage during the peak of the pandemic. Negative real interest rates, as well as the government’s Productivity Linked Incentive (PLI) scheme, are the likely enablers. For the private sector, capacity underutilization continues to be large (save a few sectors) and hence they would not immediately push for increasing capacity.

Note that Private Final Consumption Expenditure (PFCE) remains the most crucial contributor to the economy (50 percent plus share in the GDP) and PFCE is yet to regain the pre-COVID phase, even as it shows a 9 percent on-quarter growth in Q2FY22.

Consumer confidence surveys by the RBI indicated a recovery that is still short of levels seen in the pre-COVID period.

The stress in the rural sector is likely large as the demand for jobs under MNREGA has continued to stay higher than jobs generated by the scheme. The government has had to increase the allocation for this program by Rs 25,000 crore for FY22 to enable a larger number of people to be accommodated. Rural wage growth has also been poor, especially for non-agricultural jobs.

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Let’s now focus on another area – generally not an area that economists might have looked at in the GDP. This is the item classified as ‘valuables’ that has jumped by 603 percent on a QoQ basis in Q2FY22 and is also up 183 percent, compared to the same quarter last year. As a proportion of GDP, valuables in Q2FY22 were at 3.3 percent in real terms, up from a meager 0.5 percent in the previous quarter.

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And what exactly are these valuables? These are nothing but expensive durable goods that do not deteriorate over time and are not used in consumption or even production and are acquired primarily as a store of value. Examples of valuables are works of art, precious stones, metals, and so on. This indicates that the excess savings that had probably been piled up by the upper strata of the society during COVID-19 is now being spent for these purposes.

This indicates that growth remains inequitable and needs nurturing before it once again realises its full potential. The reforms measure of the government to kick-start investments will take time to work itself through.

In the meantime, the government needs to ensure that livelihood requirements are taken care of. To this end, the government has again extended its free food programme till March 2022. The RBI is also expected to keep the monetary policy accommodative, yet flexible and attempt at nurturing the nascent recovery while maintaining a hawk eye on the inflation dynamics.

The Indian economy is not yet strong enough for self-sustaining amid the ongoing COVID-19 pandemic and therefore, it needs policy support, said Reserve Bank of India (RBI) Governor Shaktikanta Das on December 8.

Speaking after the MPC meeting, Das said that the government consumption has picked from October 2021. The private consumption is still below pre-pandemic levels, he said.

RBI kept the benchmark lending rate unchanged for the ninth time in a row at 4 percent, Das informed on the day. The bank also continued with an accommodative stance to revive and sustain growth on a durable basis, he said.

“Indian economy hauled itself out of its deepest contraction; we are better prepared to deal with COVID-19,” Das said.

“If there’s one thing the history of evolution has taught us, it’s that life will not be contained. Life breaks free, it expands to new territories, and crashes through barriers painfully, maybe even dangerously… [in simple words] Life finds a way.” – Ian Malcolm, Jurassic Park

The Omicron – the latest WHO variant of concern, is déjà vu all over again in the ongoing evolutionary battle between humanity and the virus. After multiple COVID waves across countries, we can now safely conclude that COVID is more likely to co-exist with humanity than just pass away. Consequently, policymakers and financial markets must take into account this ‘co-existence’ as part of their decision framework.

Along with the virus, it is the nature of inflation that has undergone multiple mutations in the COVID-era. Over the last few months, there has been an endless debate on ‘transitory’ inflation. There are three parties to this conundrum – those who believe inflation is transitory, those who believe it’s ‘time to retire’ the word ‘transitory’ and those who are paying high prices while the debate rages on. In fact, everything that can be said about inflation has already been said, while little has been done to address it yet. And just when the world is beginning to expect the possibility of a measured policy response to manage inflation, as if on cue, arrives the Omicron.

But, as always, this time it’s different. Unlike in the first half of 2021, inflation has now started to hit the common man through high energy and consumer prices. The recent US CPI inflation of 6.2 percent is the highest in 30 years. Eurozone inflation too hit a record high in November. In India, inflation is visibly on the uptrend amid higher vegetable prices, revision in GST rates and most recently due to price hikes by FMCG and Telecom companies. This puts at risk RBI’s headline CPI tolerance level of 6 percent, despite the recent excise duty cuts on fuel.

Furthermore, any COVID-related slowdown may have additional adverse consequences for the already high inflation, complicating the policy response.

Prior to Omicron, India’s Interest Rates Swaps market were expecting a swift pace of normalisation by the RBI over the next few quarters. The government securities market was pricing the same, albeit to a lesser extent, possibly due to expectation of favourable demand dynamics from the Global Bond Index inclusion and continuing RBI support. Since then, financial markets have substantially watered down their expectations of central bank normalisation across the board, given the Omicron uncertainty.

In a few weeks, as we get better, data-driven understanding of the threat posed by the Omicron, financial markets may again realign to the new realities. The only market certainty during times of high uncertainty is high volatility amid reduced participation. Going forward, prudent policy making dictates that in order to minimise policy-related volatility in markets, the central banks should consistently under-deliver on tightening compared to market expectations. That way, the element of positive surprise is maintained even during policy normalisation, thereby keeping undue volatility in check.

In India, this should begin from the December policy. The MPC is likely to keep all interest rates unchanged and continue with its accommodative policy stance. We also expect the RBI to continue to extend the tenors and quantum of existing VRRR (variable rate reverse repo) operations, thereby continuing to nudge the overnight rates higher.

Rate action, if any, will be accompanied by sufficiently dovish commentary, building a case for modest future actions compared to markets’ expectations. Over time, we expect orderly evolution of Yield Curve – an acknowledged “public good”, to continue as this cycle of dovish policy normalization begins.

Albeit, a noticeably slower than expected pace of policy normalization coupled with the reduced Central Bank purchases amidst high government borrowing could threaten yet another consensus trade of Yield Curve flattening.

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The IPO, during its subscription period, seems to have got all the right ingredients for a bumper listing on December 13.

Subscription record

The initial public offering has broken records of achieving the highest subscription from qualified institutional buyers (QIB) category in the last decade. On December 03 which was the last day of subscription, the QIB portion was subscribed 215.5 times. Overall, the issue was oversubscribed by 219.0 times.

It may be noted that the previous highest subscription for QIB portion was achieved by HDFC Asset Management Company Ltd which got 192.3 times subscription from QIB investors for its IPO that was launched from 25th – 27th July, 2018.

This was followed by Indigo Paints at 189.6 times and , Tatva Chintan which got 185.2 times subscription for its QIB portion.

Strong response to QIB category indicates that investors are willing to put their good money in quality IPOs and as per the market experts, QIBs are evincing interest in new businesses where there are few or no companies that are listed.

To be sure, the Bids had come in for 209.36 crore equity shares against an offer size of 95.68 lakh in the QIB category.

The IPO has seen strong demand for all investors. The retail portion has been subscribed 29.4 times and the portion for non-institutional investors was subscribed 666.2 times.

The primary offer of the company was entirely an offer for sale (OFS) of 1.37 crore equity shares offloaded by the company’s existing shareholders and promoters. The price band fixed for the offer was fixed at Rs 443-453 per share.

On November 30, the company had already mopped up Rs 186 crore from 14 anchor investors, who were allotted 41.0 Lakh equity shares at the upper price band of Rs 453 per share.

Mill-Liner Market

Globally on the basis of revenues, the company is the second-largest producer of polymer-based mill liners as of June 30, 2021. To be sure, mill liners are part of recurring consumables in global mineral beneficiation, mining and bulk solids handling industry.

75% of the total demand for mill liners came from copper and gold mining during 2020 while 25% came from iron ore, cement and other aggregates.

In the year 2020, the global mill liner market was estimated at USD 1.73 billion with demand skewed majorly in favor of replacement for existing grinding machines compared to that for fixing in new grinding machine. The ratio is expected to be about 70-80% from replacement and 20-30% are in the new installed machines.

Strong Grey Market Premium

The offer is commanding a strong premium of Rs 410 per share in the grey market and the reason for such a high premium is fundamentally strong business.

Ujjawal Kumar, Research Analyst, Green Portfolio attributes the high grey market premium to the fact that, “the company makes specialized critical products with high barriers to replacement or substitution

and is insulated from mining capex cycles as its products cater to after-market spends, providing recurring revenues”.

The company’s long standing relationship with marquee global customers supported by global manufacturing & sales capabilities puts it in good stead compared to its competitors which has helped improve the margin profile and ROCE consistently over the last couple of years, he added.

Prashanth Tapse, VP Research, Mehta Equities concurred with Kumar, saying that, “We like the recurring revenues business model as Tega products cater to the after-market spend of a mining processing unit resulting in repeat orders of spares which is typically 3 times of the upfront capex spend over the lifecycle of a mill”.

On valuations aspect, at upper price band (Rs 453/-), the issue seems to be reasonably priced and well in line with listed peer and we believe there is still something is left on the table for new investors, Tapse added.

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The company has a strong rationale for investment because of debt free books, robust free cash flows and growth prospects. Hence it commands a strong premium in the grey market.

Manoj Dalmia Founder & Director, Proficient Equities Limited, attributes the high grey market premium to, “Strong NII and QIB portion coupled with positive market sentiment and attractive valuation compared to its peer”.He expects the stock to list in the region of Rs 853-863 per share resulting in the listing gains of nearly 90% - 100%.

“Investors can hold onto the issue and expect the price to increase further”, Dalmia advised.

The government has extended credit guarantee cover of Rs 67.91 crore to more than 200 farmer producer organisations (FPOs) in the last seven years, Parliament was informed on Friday.

In 2013-14 fiscal, the government through Small Farmers’ Agribusiness Consortium (SFAC) had created the 100 crore Credit Guarantee Fund to finance the project load of FPOs.

"Till date, 202 farmer producer companies (also called FPOs) have been extended credit guarantee cover amounting to Rs 67.91 crore," Agriculture Minister Narendra Singh Tomar said in a written reply to the Rajya Sabha.

The minister further said the Centre has created a credit guarantee cover with the National Bank for Agriculture and Rural Development (NABARD) as part of the central scheme that aims to establish and promote 10,000 FPOs across the country.

Also Read :- Govt buys 291 lakh tonnes of paddy for Rs 57,032 crore so far in 2021-22 kharif marketing year

A quantity of 290.98 lakh tonnes of paddy has been procured in KMS 2021-22 till November 30. "Till now about 18.17 lakh farmers have been benefitted with MSP value of Rs 57,032.03 crore," the statement said.

Kharif marketing season runs from October to September. In Uttar Pradesh, about 14.72 crore National Food Security Act (NFSA) beneficiaries are covered under the PM Garib Kalyan Anna Yojana (PM-GKAY).

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In Uttar Pradesh, about 14.72 crore National Food Security Act (NFSA) beneficiaries are covered under the PM Garib Kalyan Anna Yojana (PM-GKAY). Separately, the government said that under the PM-GKAY scheme, the food ministry had allocated a total of almost 139.14 lakh tonnes of foodgrains to Uttar Pradesh, incurring an estimated total subsidy of Rs 43,335 crores.

In the wake of economic disruptions caused by the outbreak of COVID-19, the government in March 2020 had announced the distribution of free-of-cost foodgrains to about 80 crore National Food Security Act (NFSA) beneficiaries at the scale of five kilogram per person per month under PM-GKAY.