- The domestic gold price decreased by 4.4% m-o-m but ended the month 31.1% higher y-t-d1
- 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 sidelines following a sharp correction in the domestic gold price amid rising COVID-19 cases
- 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
- 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 indictors sent mixed signs in August
As lockdown restrictions have gradually eased, some indicators have started to show a recovery in economic activity:
- India’s manufacturing purchasing managers’ index (PMI) rose to a six-month high of 52 in August from 46 in July
- Retail sales of tractors improved in August – 27.8% higher y-o-y
- 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:
- India’s power demand continued to be marginally negative in August (0.9% lower y-o-y)
- Average daily e-way bills stagnated at 1.6mn in August2
- 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 (Chart 1).