India’s core sector output for the month of November 2016 came in lower at 4.9%, in what is seen as a direct impact of the demonetization process. This is sharply lower than the 6.6% core sector growth announced in the month of October. The big gainer was electricity generation which grew at over 10% in November, sharply higher than the 2.8% in October. The core sector has a 38% weightage on the IIP and also directly impacts the GDP. The full year GDP has already been downsized from 7.4% to 6.8% for the full year, putting the Indian economy at a slightly quicker pace than China.

The government is planning a special dedicated fund to finance the spread of Point of Sale (POS) machines and digital payments systems in rural and semi-urban areas. An announcement to this effect is likely in the Union Budget to be announced in February 2017. The fund will have the broad mandate to finance the spread of digital and in the process enabling large scale financial inclusion across India. The forthcoming Union Budget is likely to have digitization as its theme and there may be a plethora of measures woven around this theme. The government seems to be extremely serious about its focus on shifting India increasingly towards a cashless society.

Private Equity players have pulled out $10.3 billion worth of PE investments out of India during the calendar year 2016, nearly 10% higher than last year. Most of the PEs were invested in Unicorns and Fintech businesses which touched a valuation peak in 2015 and PEs have chosen not to pump fresh money into these investments post that. PE exits were managed either through strategic sale, IPOs or through secondary market deals.

Tata Motors reported a marginal 2% increase in sales for the month of December. The month was expected to be disappointing due to the impact of demonetization, but Tata Motors does not seem to have been hit too badly. In fact, the entry level cars segment of Maruti and the two wheeler business of Bajaj Auto have actually taken a hit as the entry level demand has been really impacted by the demonetization drive. Interestingly, the passenger car segment grew by 35% but that was an extremely small base and hence cannot be taken as conclusive. Commercial vehicles sales were down by 9% in December and the pressure on the semi urban and rural areas was evident.

Medium and Long-term gilt funds have been the big beneficiaries of the demonetization drive in the last 2 months. The yields on the 10-year benchmark fell sharply on the back of the excess liquidity in the system due to demonetization and this created capital gains for debt funds in India. In fact some of the medium and long term gilt funds returned almost 15% annualized. Falling rates have also favoured dynamic bond funds as they are more sensitive to interest rate shifts compared to other funds.

The pressure on 2 wheelers was the most evident in case of Hero Moto which saw a 34% fall in total sales taking a big hit on the back of demonetization. Despite this poor performance in December 2016, Hero Moto continued to put up its best performance for the full year 2016. During the calendar year 2016, the monthly sales of Hero Moto cross the 6 lakh mark 4 times giving total annual sales of nearly 7 million vehicles.

The Nikkei Manufacturing PMI index for the month of December came in at 49.6, sharply lower than the 52.3 recorded in November. The PMI falling below the 50 mark is a negative cue because it indicates that the manufacturing is contracting and there is a sense of pessimism in terms of fresh orders. In fact, 4 of the 5 components of PMI fell below the 50 mark. Additionally, cash shortages led to job losses across manufacturing. Cash flows were the major issue across industry.