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India Strategy
Inflation surprises again
March' s headline WPI of 9.0% was above market expectations of 8.4% as core
manufacturing inflation again surprised to the upside. Yoy core manufacturing
product inflation was 7.0%, the highest since October 2008.
March headline yoy WPI of 9.0% vs. Bloomberg consensus of 8.4%
! Yoy WPI inflation accelerated from the 8.3% recorded in February 2011, and was significantly
higher than the Bloomberg consensus expectation of 8.4%. Total food inflation (primary and
manufactured) increased to 6.8% from 6.5% in February driven by the increase in
manufactured food inflation to 2.4% from negative 0.4%.
January inflation numbers revised upward
! January yoy WPI inflation was revised up to 9.3% from 8.2%. Total food (primary and
manufactured) inflation was revised to 10.3% from 9.3% with core manufactured products
inflation revised to 6.3% from 4.8%.
Yoy core manufacturing inflation at its highest since October 2008
! Yoy core manufacturing inflation (excluding food products) reached 7.0% in March, up from
6.1% in February. On a seasonally adjusted basis, the core manufacturing price index
increased 1.5% from February. On a non-seasonally adjusted basis, the index increased
1.6% mom, with broad based price increases across different groups, with textiles up 4.6%,
chemicals up 1.6%, and basic metals, alloys and metal products up 1.5%.
Yoy headline inflation could stay above 8% through September
! Assuming retail price hikes in diesel (12%), kerosene (25%), and LPG (14%) post the
conclusion of May assembly elections as discussed in "Ignore oil at your own peril" dated 8
April 2011, we think yoy headline WPI inflation could stay above 8% through September.
! Separately, according to weekly inflation data for the week of 2 April 2011 released today,
primary food articles WPI increased 1.9% week on week. If this level is sustained, yoy food
inflation may decline less than expected.
Stay cautious on the markets/financials
! The core manufacturing inflation data suggest that inflation pressures are getting more
entrenched in the economy. As such, we think the RBI will continue raising policy rates.
Sanjay Mathur, our chief economist, expects another 75 bp of policy rate hikes from the RBI.
! With inflation proving to be stickier than expected, and the current high level of crude oil
prices potentially pressuring the current account and fiscal deficits, we recommend a cautious
stance on the market and the financials (especially given the 9.4% up move in MSCI India in
March).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Strategy
Inflation surprises again
March' s headline WPI of 9.0% was above market expectations of 8.4% as core
manufacturing inflation again surprised to the upside. Yoy core manufacturing
product inflation was 7.0%, the highest since October 2008.
March headline yoy WPI of 9.0% vs. Bloomberg consensus of 8.4%
! Yoy WPI inflation accelerated from the 8.3% recorded in February 2011, and was significantly
higher than the Bloomberg consensus expectation of 8.4%. Total food inflation (primary and
manufactured) increased to 6.8% from 6.5% in February driven by the increase in
manufactured food inflation to 2.4% from negative 0.4%.
January inflation numbers revised upward
! January yoy WPI inflation was revised up to 9.3% from 8.2%. Total food (primary and
manufactured) inflation was revised to 10.3% from 9.3% with core manufactured products
inflation revised to 6.3% from 4.8%.
Yoy core manufacturing inflation at its highest since October 2008
! Yoy core manufacturing inflation (excluding food products) reached 7.0% in March, up from
6.1% in February. On a seasonally adjusted basis, the core manufacturing price index
increased 1.5% from February. On a non-seasonally adjusted basis, the index increased
1.6% mom, with broad based price increases across different groups, with textiles up 4.6%,
chemicals up 1.6%, and basic metals, alloys and metal products up 1.5%.
Yoy headline inflation could stay above 8% through September
! Assuming retail price hikes in diesel (12%), kerosene (25%), and LPG (14%) post the
conclusion of May assembly elections as discussed in "Ignore oil at your own peril" dated 8
April 2011, we think yoy headline WPI inflation could stay above 8% through September.
! Separately, according to weekly inflation data for the week of 2 April 2011 released today,
primary food articles WPI increased 1.9% week on week. If this level is sustained, yoy food
inflation may decline less than expected.
Stay cautious on the markets/financials
! The core manufacturing inflation data suggest that inflation pressures are getting more
entrenched in the economy. As such, we think the RBI will continue raising policy rates.
Sanjay Mathur, our chief economist, expects another 75 bp of policy rate hikes from the RBI.
! With inflation proving to be stickier than expected, and the current high level of crude oil
prices potentially pressuring the current account and fiscal deficits, we recommend a cautious
stance on the market and the financials (especially given the 9.4% up move in MSCI India in
March).
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