SOME REASON FOR CHEER?

about 7 months ago
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By Ruma Dubey

The market today closed with the biggest gain in 19 months, soaring over 700 points. The India rupee too gained 53 paise to Rs.73.59 and all the gloom and doom of yesterday did not seem to exist. Everything looked almost hunky dory.

Then there was good news first on the CPI data for September.

CPI came in at 3.77% v/s 3.69% in August. And though we may not be experiencing it, there is actually a scene of food disinflation! 

Not a single food product is over 3% with vegetables index actually in the negative at -4.15% and fruits at 1%. Somehow, we do not experience this when we go to buy fruits and vegetables? Inflation is steady but why are we not experiencing this on the ground? Why disinflation only in the data?

But then, if there is this kind of disinflation in food, doesn’t it mean that the rural economy is suffering big time? It clearly means that the cash crops, which essentially make up the food inflation basket are selling much below the MSP. Thus the crisis at the farm level, which we have been seeing through various agitations, is reflected in these numbers.

The only silver lining here is that if inflation is so low, chances of RBI hiking rates in Dec look dim. The impact of MSP hike will come in from November but the a actual effect will start showing in inflation only from February. Thus till then, inflation is expected to remain benign and if RBI’s prime objective is to keep a tight vigil on prices, then we might have no cause for worry.

Internals of the food inflation:

  • Food price inflation 1.08% v/s 0.29%
  • Fruits 1.12% v/s 3.57%
  • Vegetables -4.15% v/s -7%
  • Pulses – 8.58%v/s -7.76%
  • Cereals 3.12 v/s 2.98%
  • Sugar & confectionary -6.42% v/s -5.45%

And then came the August IIP numbers at 4.3% v/s 6.5% (MoM). YoY, it is down from 4.8%. It’s not great but the analysts were expecting it to be much lower; so in that sense because it is better than expected, this August IIP will be viewed positively. But in actuality, it is indeed a slowdown.

In terms of industries, sixteen out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of August 2018 as compared to the corresponding month of the previous year . The industry group ‘Manufacture of furniture’ has shown the highest positive growth of 29.2 percent followed by 18.9 percent in ‘Manufacture of wearing apparel’ and 12.7 percent in ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’. On the other hand, the industry group ‘Printing and reproduction of recorded media’ have shown the highest negative growth of (-) 19.2 percent followed by (-) 17.0 percent in ‘Manufacture of tobacco products’ and (-) 7.3 percent in ‘Manufacture of computer, electronic and optical products’.

The highest positive contributors to IIP growth were Digestive enzymes and antacids (incl. PPI drugs), electricity, cement (all types), Commercial vehicles and Auto components/ spares and accessories. On the other hand, those which pulled down growth the most were Anti-pyretic, analgesic/anti-inflammatory API & formulations, Copper bars, rods & wire rods, pig iron, Separators including decanter centrifuge and copper electrodes.

Well, we had a terrible week but it ended on a very high note. The market has discounted a lot of negative news and the sentiments remain jittery. Thus volatility will remain the markets soul mate for some more time. Earnings will gain center stage but with an eye on the falling rupee and rising crude prices.

For now, till Monday, let’s remain cautiously optimistic.

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