Retail demand remained weak in August!

Indian imports hit nine-month high! 

India’s gold market in August: Indian imports hit nine-month high but retail demand remained weak, inks Mukesh Kumar, Market Intelligence Group-World Gold Council. 

The domestic gold price decreased by 4.4% m-o-m but ended the month 31.1% higher y-t-d, Economic indicators sent mixed signals during August, suggesting that the Indian economy is unlikely to witness a quick recovery! Foreign Institutional Investors (FIIs) inflows into Indian equities touched an all-time high of US$6.4bn and USD/INR appreciated by 1.6% during the month.

Retail gold demand weakened as consumers waited on the side lines following a sharp correction in the domestic gold price amid rising COVID-19 cases, 1: Demand for safe haven assets and strong year-to-date performance, coupled with the price correction likely seen by investors as a buying opportunity, supported gold ETF flows. Total holdings for Indian gold ETFs reached 25.7t at end of August; a net inflow of 1.8t during the month.

2: The Reserve Bank of India (RBI) added 33.2t of gold to its reserves between February and August 2020

Cumulative rainfall between June and August was 9.8% above the Long Period Average (LPA) rainfall, with Kharif sowing 7.2% higher than last year. 

Economic indicators sent mixed signs in August as lockdown restrictions have gradually eased; some indicators have started to show a recovery in economic activity, A: India’s manufacturing purchasing managers’ index (PMI) rose to a six-month high of 52 in August from 46 in July.

B: Retail sales of tractors improved in August – 27.8% higher y-o-y, C: Nomura India Business Resumption Index (NBRI) rose to a post-lockdown high of 75.7 at the end of August, up from 73.4 the week before. 

However, other indicators still point to weakness in the economy are, i: India’s power demand continued to be marginally negative in August (0.9% lower y-o-y), ii: Average daily e-way bills stagnated at 1.6mn in August, iii: GST collections in August totalled Rs864.49 bn (12% lower y-o-y and 1.1% lower m-o-m). 

Consumption of petroleum products remained negative in August (16.2% lower y-o-y and 7.5% lower m-o-m). Thus, key activity indicators presented a mixed picture, with some showing signs of improvement while others moderated. This indicates that the Indian economy is unlikely to witness a quick turnaround. 

Foreign Institutional Investors (FIIs) inflows into Indian equity markets touched an all- time high, the risk-on sentiment in global equity markets  triggered by global monetary easing policies weakening the USD and the Fed’s new policy towards average inflation targeting – has created liquidity in the market, a part of which went into the Indian equity market. 

Against such a global scenario, inflows into the Indian equity market through foreign institutional investors touched an all-time high of Rs470.8bn (US$6.4bn) in August. This combined with the RBI’s willingness to accept Rupee appreciation to combat imported inflation, saw the rupee appreciate by 1.6% in August, reaching INR73.6/USD at end of the month.