EUpDates July 2021

India's federal FISCAL DEFICIT, or gap between Union government expenditure and revenue, stood at
Rs.274,245 crore, which is 18.2% of the BE. While revenues have been buoyant, the government has also gone a
tad slow on the capital expenditure front. The fiscal deficit at the end of June 2020 was 83.2% of the BE for
2020-21. The fiscal deficit for 2020-21 was 9.3% of GDP. For the current financial year, the government expects
the fiscal deficit at 6.8% of GDP or Rs. 15,06,812 crore. The government received Rs. 4.12 trillion of tax
revenues, Rs. 1.27 trillion of non-tax revenues and Rs. 7,402 crore of non-debt capital receipts. Rs. 1,17,524
crore was transferred to state governments as devolution of share of taxes by the Government of India up to
June 2021. Total expenditure incurred by the government was Rs. 8.21 trillion at 23.6% of corresponding BE
2021-22. Out of the total amount, Rs. 7.10 trillion was on the revenue account and Rs. 1.11 trillion was on the
capital account.
Interbank overnight call money rates remained below the lower end of RBI’s rate corridor throughout the
month of June, indicating that the system remained flush with liquidity. Triparty Repo rates in the overnight
market also mostly remained below the floor rate. The MIBOR remained aligned to the policy repo rate even as
the LIBOR moved up towards mid-month. Constant maturity yields (CMYs) of government securities firmed up
marginally across the maturity spectrum in June, reflecting higher inflation and improved growth prospects.
Very short-term yields of 3-months to 1-year left to maturity increased 5 bps. 2- and 3-year yields fell by a
larger 4 and 9 bps in June. For the rest of the maturity categories, the CMY firmed by 3 to 7 bps, while the CMY
for greater than 20 years left to maturity increased 18 bps. The RBI in its monetary policy review on August 6,
opted for a status quo and left interest rates unchanged. Accordingly, the repo rate remains at 4%, the reverse
repo rate under the LAF stands at 3.35%, the MSF rate and the Bank Rate at 4.25%. However, the MPC
maintained an accommodative stance, as the MPC believes that the higher inflation trend is transitory since it is
caused by supply-side constraints.
INDIAN EQUITY INDICES continued to remain volatile in June following the broader global trend after scaling
new highs in May, while macroeconomic fundamentals kept oscillating from positive to poor economic outlook.
The benchmark indices were more or less range bound because of the confidence around the growth and
progress of India which balanced out the uncertainty around the 3rd Covid wave. While the S&P BSE Sensex
rose 1% in June, the Nifty 50 rose 0.9%. Small Caps continued to lead the way; S&P BSE SmallCap registered a
monthly return of 7%which left the index of smaller Indian companies with a 22% total return for Q2, a 40%
gain year-to-date, and more than 100% since June 2020. The Nifty Small Cap Index gained 5.03% in June.
Among sectors IT was the strongest performer gaining 9.3% and 7.6%, respectively on the BSE and NSE, helped
by the weakening of the rupee during the month. Healthcare too saw significant gains. The Sensex reached a
High of 53,126.73 and a Low of 51,450.58 in June and closed the month at 52,482.71, up from 51,937.44 in the
previous month. The Nifty reached a High of 15,915.65 and a Low of 15,450.90 in June and closed the month at
15,721.50, up from 15,582.80 in the previous month. A gauge of global equity price movements, the MSCI All
Country World equity index gained 1.20% in the month reaching a High of 722.41 and a Low of 702.69 in June.
FPIs net investments in the Indian equity markets turned positive in June from outflows of Rs. 2954.34 crore
($0.39 billion) during May to inflows of Rs. 17215.01 crore ($2.4 billion). FPI net investment in the Indian debt
market reversed with net outflows of Rs. 3945.56 crore ($0.54 billion) in June following inflows of Rs. 287.07
crore ($0.03 billion) registered in May. MF net investment in the Indian equity market remained positive with
inflows to the tune of Rs. 6437.08 crore recorded in June. MF net investment in the Indian debt market
increased and inflows to the tune of Rs. 6449.01 crore inflows were recorded in June. Net inflows into equity
MFs fell by half in June 2021 from the previous month and stood at Rs. 46.1 billion in June. The contribution of
monthly SIP increased to an all-time high of Rs. 91.6 billion in June, However, net inflows were at Rs. 40.4
billion in January to June of this year compared to robust inflows of Rs. 411.4 billion in the same period last
year. As on June 30, the total AUM for the MF industry increased from Rs. 33.06 trillion in end-May to Rs. 33.67
trillion in end-June.
E-UpDates July 2021
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