INDIA : Economic Resilience & Political Continuity

Amid Fiscal Volatility

Strictly confidential: Only for the use of investment professionals including accredited investors, qualified purchasers and financial institutions.
Not for the use of retail investors. June 2024

Indices Performance (USD returns) Key highlights:

1M 3M 1YR • S&P Global Ratings revised its outlook for the Indian economy to
Nifty -0.30% 1.81% 20.47% ‘positive’ from ‘stable’
Sensex -0.68% 1.34% 17.05%
• Real GDP growth came in much higher than expected at 7.8% in
NSE Midcap 100 1.67% 6.26% 51.78% 4QFY24 vs. 8.6% in 3QFY24 and 6.2% in 4QFY23
MSCI EM Asia 1.23% 4.97% 10.19%
• GST collections grew by 10% YoY in May’24 vs. a growth of 12.4%
MSCI EM 0.29% 2.74% 9.43%
YoY in Apr’24 and 11.5% in May’23, led by robust growth in
MSCI World 4.23% 3.24% 23.02%
domestic activities

Levels (Local currency) 31/05/2024 52wk High 52wk Low • Election results – While BJP is set to return, the outcome is not as
convincing as expected
Nifty 22531 22968 18488
Sensex 73961 75418 62429
NSE Midcap 100 51706 52762 33761 The Nifty Index ended flat amid increased volatility due to Lok Sabha
MSCI EM Asia 571 598 487 elections 2024 (Election results announced on 4th June), geopolitical
MSCI EM 1049 1102 911 tensions and significant Foreign Portfolio Investors (FPI) outflows. Sectoral
MSCI World 3445 3480 2732 indices closed mixed. Capital goods, Power and Metals were the major
gainers and IT, healthcare and oil & gas were the major losers. Global
Sector Performance (USD returns) markets ended on a mixed note. Taiwan (+3.8%), US SPX (+3.4%) and
Germany (+3.2%) were the major gainers, whereas Russia (-5%), the
Top 3 1M 3M 1YR
Philippines (-4%) and Indonesia (-3.6%) declined the most. INR remained
BSE CapGoods Index 11.18% 21.21% 86.53% flattish and ended the month at ~83.30/USD.
BSE Power Index 6.66% 16.07% 99.79%
Nifty Metal Index 5.99% 21.93% 63.61% India General Elections 2024: NDA wins, just about

The 2024 General Election threw up a surprise, but with mandate for
Bottom 3 1M 3M 1YR
continuity. The Bharatiya Janata Party (BJP)-led National Democratic
Nifty PSU Bank Index -2.86% 5.88% 81.65%
Alliance (NDA) has won the 2024 Lok Sabha elections with a full majority
BSE IT Index -2.61% -14.14% 12.11% for an unprecedented third consecutive term, albeit the numbers were well
BSE Healthcare Index -1.43% -1.20% 46.01% below the Exit Poll predictions of ~370 seats. NDA won 292 seats in the
Note: Past performance is not an indicator of expected future performance. 2024 general elections (versus 353 in 2019), led by the BJP winning 240
Net FII inflows into debt and equity (USD Bn) seats (versus 303 in 2019). The NDA’s performance has been significantly
weaker than estimates of the exit polls and that of 2019. The weaker-than-
expected show of the BJP versus 2019 and versus exit polls reflects
weaker-than-expected performance in its strongholds of North and West
India, even as it made gains in East and South India and in a few
concurrent state elections.

Source: Bloomberg

Volumes (USDmn) May-24 % Chg 1M

India BSE & NSE 28,449 0.54

Delivery Vol (% ) May-24 Apr-24 Mar-24

49.55 46.30 47.89
BJP won 240 seats in 2024 vs. 303 seats in 2019
Source: Lok Sabha, Kotak Institutional Equities NDA-National Democratic Alliance led by BJP & I.N.D.I.A.- Indian National Developmental Inclusive
Alliance led by INC
Bond Markets (% ) May-24 Apr-24 Mar-24
10yr Gov Bond 6.98 7.19 7.06
Interbank call 6.24 6.70 6.10 DII flows continues to remain strong; while FII remains volatile
Inflation (CPI) N/A 4.83 4.85 With Fed continuing to hold rates for longer and risk of potential delay in
rate cuts, and concerns over election results outcome, led to weak and
Net flows (USDmn) May-24 Apr-24 Mar-24 volatile FII flows in CY24YTD. Also, the prevailing narrative after the first
FII (Equity) -3023 -1097 4016 two phases of elections, which saw a reduced voter turnout, created
FII (Debt) 1005 -1910 2224 nervousness and anxiety in equity markets in late April and early May. FII
DII(Equity) 6684 5299 6783 continue to remain net sellers in May’24 with outflow of USD3.3bn (vs USD
1.1bn selling in Apr’24). Continued strength in retail participation and
Currencies May-24 Apr-24 % Chg 1M strong momentum in SIP flows drove DII inflow to USD6.7bn during the
USD/INR 83.30 83.52 0.26% month, cushioning any drawdowns led by FII selling. Given the expected
political stability and policy continuity in place, FII flows can turn strong with
USD/JPY 157.31 157.80 0.31%
the concerns over election results fading.
USD/EUR 0.92 0.94 1.71%
DII remains net buyers with USD25bn of inflows in CY24YTD (higher than
Commodities May-24 Apr-24 Mar-24 inflows of USD22.3bn in CY23), whereas FII flows remains weak with
USD3.3bn of outflows in CY24YTD (vs inflow of USD21.4bn in CY23).
Gold (USD/oz) 2327 2286 2230
Brent Crude (USD/bbl) 81.11 85.61 85.35
Source: MOSPI website, Bloomberg.
Past performance is not an indicator of future performance
KMUK_NFP004_2024 Page 1 of 3
 INDIA : Economic Resilience & Political Continuity
Amid Fiscal Volatility
Strictly confidential: Only for the use of investment professionals including accredited investors, qualified purchasers and financial institutions.
Not for the use of retail investors.

6.7 FII (USD b) 7.0 DII (USD b) 6.8 6.7

5.0 5.3
4.1
3.0 2.4 3.4
2.31.7 3.2 3.1 4.0
1.7 1.6
0.5 0.5

-0.4 -0.3 -1.1

-2.3 -2.7 -3.1 -3.3
May-23

Oct-23

Nov-23

Mar-24

May-24
Aug-23
July-23

Sep-23

Dec-23

Jan-24

Feb-24

Apr-24
June-23

Source – Motilal Oswal

Real GDP growth at 8.2% in FY24, beating all estimates
Real GDP growth came in much higher than expected at 7.8% in 4QFY24 vs. 8.6% (revised higher from 8.4%) in 3QFY24 and 6.2% in 4QFY23.
The number is much higher than the market consensus. Higher-than-expected GDP growth was led by higher government consumption and a
higher contribution of net exports. Private consumption witnessed some improvement in 4QFY24. In other words, robust growth in real net indirect
taxes and higher discrepancies explained higher-than-expected real GDP growth.
For FY24, real GDP growth stood at 8.2% vs. 7% in FY23, which is the highest since FY17, barring FY22. The annual growth number was also
significantly higher than the market consensus and our expectations (of 7.9% each). The major growth driver was real investment, which grew
9.4% in FY24 vs. 5.5% in FY23. On the other hand, private consumption remained weak, up 4% in FY24 vs. 6.8% in FY23.
Real GVA, the basis of GDP estimates, grew 6.3% YoY in 4QFY24 (vs. 6%/6.8% in 4QFY23/3QFY24), in line with the consensus estimates.
Notably, better growth was entirely led by the farm sector with an actual growth of 0.6%. On an annual basis, GVA grew 7.2% in FY24 vs. 6.7% in
FY23, mainly led by strong industrial sector growth. GVA, excluding the farm sector, grew 7.3% in 4QFY24 (vs. 5.7% in 4QFY23).
Importantly, nominal GDP growth was ~10% YoY for the third consecutive quarter in 4Q (better than forecast), implying 9.6% growth in FY24,
better than 9.1% estimated by us and the CSO in Jan'24.

Source: CEIC, Kotak Economics Research

Fiscal deficit at 5.6% of GDP in FY24 vs 5.8% in FY24RE, led by lower revenue spending and higher dividends
The Central government's total spending grew at a much lower pace of 5.9% YoY in FY24 (vs. 10.5% YoY in FY23), the lowest since FY06. This
was entirely led by an all-time slow growth in revenue spending (1.2% YoY in FY24 vs. 7.9% YoY in FY23). Conversely, capital spending
continued its robust growth momentum. It grew 28.3% YoY in FY24 vs. 24.8% in FY23.
Revenue spending stood at INR34.9tn in FY24 (INR462b lower than revised estimates) vs. INR34.5tn in FY23. Within revenue spending,
subsidies stood at INR4.1tn in FY24 (-22.1% YoY), INR270bn lower than the revised estimates (REs). Capital spending in FY24 was INR9.5tn, in
line with the REs (-17bn), compared to INR7.4tn in FY23. Therefore, total spending stood at INR44.4tn in FY24 (INR479b lower than REs) as
against INR41.9tn in FY23.
Central govt. receipts grew at a higher pace of 13.6% YoY to INR27.9tn in FY24 vs. INR24.6tn in FY23 and INR27.6tn in FY24RE. Gross receipts
in FY24 were INR332bn higher than the REs, primarily led by higher non-tax revenues mainly comprising dividends (+INR261bn) and non-debt
capital receipts (-INR45bn).
Gross tax revenue grew sharply by 13.4% YoY in FY24 to INR34.6tn vs. INR30.5tn in FY23 (12.7% YoY) and INR34.4tn in FY24 RE, mainly led
by a higher pace of growth in income taxes (25.1% YoY in FY24 vs. 20% in FY23) and robust indirect tax collections (8.6% in FY24 vs. 7.3% in
FY23). Gross taxes were INR276bn higher than REs, led by indirect taxes viz. GST (+INR55bn) and customs (+INR144bn), which were almost
entirely offset by lower direct tax collections viz. corporation (-INR116bn) and personal income (-INR114bn) taxes. Even though gross tax
revenues were higher than the REs, they were almost entirely offset by higher devolution to states (INR250bn higher than REs) due to which net
tax revenues were in line with the REs (+INR26bn).
Consequently, the government's fiscal deficit in FY24 stood at INR16.5tn (5.6% of GDP) vs. INR17.3tn (5.8% of GDP) in FY24 RE. The fiscal
deficit was only 95.3% of the revised estimates (lower by INR811bn), primarily led by lower revenue spending (-INR462bn) and higher dividends
(+INR261bn). For Apr'24, fiscal deficit stood at INR2.1tn vs. INR1.3tn in Apr'23. The sharp increase in Apr'24 fiscal deficit is mainly led a higher
growth in revenue spending.
Fiscal deficit (INRt) 18.2 17.4 17.3
15.8 16.5
5.9 6.5 9.3
5.2 4.9 5.0 5.1 5.3 5.4
FY19

FY20
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY21

FY22

FY23

FY24

FY24
RE

Source: Motilal Oswal

Past performance is not an indicator of future performance
KMUK_NFP004_2024 Page 2 of 3
 INDIA : Economic Resilience & Political Continuity
Amid Fiscal Volatility
Strictly confidential: Only for the use of investment professionals including accredited investors, qualified purchasers and financial institutions.
Not for the use of retail investors.

GST collections grew 10% YoY in May’24, led by robust growth in domestic activities
GST collections stood at INR1.7tn in May’24 vs. INR2.1tn in Apr’24 and INR1.6tn in May’23. It grew by 10% YoY in May’24 vs. a growth of 12.4%
YoY in Apr’24 and 11.5% in May’23, led by robust growth in domestic activities. GST collected on domestic activities grew at a higher pace of
15.2% in May’24 vs. 11.5% in May’23. At the same time, GST collected on imports contracted 4.5% YoY to INR409.6bn in May’24 vs. a growth of
11.5% YoY in May’23.
Overall, the government has collected GST of INR3.8tn in FY25YTD (vs. INR3.4tn during the same period last year). It means that GST
collections have averaged INR1.9tn per month in FY25YTD, compared to the budgeted estimate of INR1.88tn per month. With this run rate, we
believe that the budgeted GST target for FY25 (INR22.6t) would be easily achievable.

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KMUK_NFP004_2024 Page 3 of 3