DISMAL ECONOMIC NUMBERS BUT FOCUS COULD BE INFOSYS

about 11 months ago
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By Ruma Dubey

The macro economic data which came in today evening was dismal. Inflation, as expected, was up and growth was down – a combination of up and down which is not much liked by the marketmen. And this economic data comes amidst a record high close of the stock markets despite trade wars gathering momentum.  So are we missing a point here? The markets today are probably looking much ahead; they have already discounted this data; is that how punters and analyst will explain this mismatch between Sensex and common sense?

First the retail prices of Consumer Price Index (CPI). It rose but the only solace is that it rose slower than expected. CPI for June came in at 5% v/s 4.87% in May. Last June, CPI was at a low of 1.46%; thus the impact of the lower base effect will continue.

The silver lining here – this ‘slower than expected pace’ is in tune with what RBI had estimated in its MPC meet where it expects CPI to be in the range of 4.8 to 4.9 in H1FY19 and at 4.7% in H2FY19.

But the red line here – this number obviously does not take into account the recently announced Minimum Support Price (MSP). The sharp hike in MSP is sure to add at least 50 bps to the CPI, assuming procurement by the Govt does happen and MSP does not remain merely on paper. The hike in MSP could once put RBI into a corner and we should brace ourselves for some further tightening – there is a MPC meet scheduled on 1st August and we will know what the RBI thinks – dovish or hawkish.

Coming to the IIP for May, it came in at 3.2% v/s 4.9% in April. Once again, all the blame lay fair and square on the manufacturing sector which showed a steep fall at 2.8% v/s 5.2% (MoM). Consumer non-durables was also responsible for the fall in IIP – it fell to -2.6% v/s 7% in April. Mining, electricity and consumer durables remained good and it is these which kept the IIP from falling further.

In terms of industries, thirteen out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of May 2018 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of computer, electronic and optical products’ has shown the highest positive growth of 27.0 percent followed by 21.1 percent in ‘Manufacture of motor vehicles, trailers and semi-trailers’ and 13.2 percent in ‘Manufacture of furniture’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest negative growth of (-) 31.9 percent followed by (-) 15.6 percent in ‘Manufacture of tobacco products’ and (-) 12.8 percent in ‘Manufacture of wearing apparel’.

Logically, the markets might not like these macro economic numbers but one never knows; with domestic institutions on a buying spree, it would be interesting to know the day pans out. Tomorrow is Infosys results day and that, will be the focus, which could decide the market movement.

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