Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    
Market Commentary

| More

Economy: Inflation stays benign - Kotak

Posted On: 2017-10-15 08:48:57

Inflation stays benign. The September CPI inflation print at 3.28% has ensured that inflation stays in a range of 3.3%-4.4% for 2HFY18, lower than RBI's estimate of 4.2%-4.6%. However, with inflation trending up directionally and RBI's insistence on 4% target on a durable basis, a convincing case for a rate cut appears less plausible. But we will be watchful of any incoming data surprises and evolution of the fiscal stance for any meaningful shift in RBI's reaction function.

CPI inflation surprises at 3.28%

CPI inflation surprised on the downside at 3.28% in September (Kotak: 3.37%, consensus: 3.53%) after a downwardly revised 3.28% in August. Sharp contraction in food inflation ((-)1.4% mom) countered the unfavorable base effect and sequential increase in housing and fuel prices. Food inflation eased to 1.2% from 1.5% in August with sequential contraction in vegetables ((-)7.1%) and fruits ((-)1.6%) prices. High frequency mandi data indicates marginal seasonal uptick in cereals and vegetables prices ahead. Core inflation inched up to 4.4% from downwardly revised 4.3% in August with 'miscellaneous' items inflation remaining stable at 3.8%. Within 'miscellaneous' segment, 'personal care and effects' category increased substantially to 2.9%, partly reflecting the changes in the GST rates. 'Transport and communication' category increased 0.9% mom due to higher petrol and diesel prices. Housing inflation was at 6.1% reflecting consistent sequential increase due to 7CPC HRA impact.

Inflation set to trend up, but likely to still stay lower than RBI's estimates

Despite food inflation looking mostly comfortable, the unfavorable base effect and 7CPC HRA increases will pressurize headline inflation to inch up from November onwards. We see headline CPI inflation accelerating to 4%+ by December and remain around 4.3% average in 4QFY18. Core inflation is also likely to trend up to 4.5% in 2HFY18, as against 4.1% in 1HFY18. However, the overall average still looks benign at 3.3% and 4.3% for headline and core inflation respectively. This excludes states' 7CPC HRA implementation, which, when implemented, will push up headline inflation by around 85 bps on an average.

IIP growth rebounds in August

IIP growth accelerated sharply to 4.3% in August after 0.9% in July (Kotak: 3.37%), partly reflecting some payback in production as manufacturers begin adjusting to GST. Among the top positive contributors were 'meters', 'separators', 'digestive enzymes and antacids', etc. while top negative contributors were 'anti-malarial drug', 'gold jewelry', etc. Manufacturing sector increased 3.1%, owing to strong rebound in capital goods (5.4%) and consumer non-durables (6.9%). Mining growth was at 9.4% on the back of 15.3% coal production growth.

Rate-cut cycle seems to be over for now, but incoming data surprises remain key

Even as we see (1) CPI inflation averaging around 3.3% in FY2018 (including central 7CPC HRA) and (2) March 2018 inflation slightly below the upper end of RBI's 2HFY18 range of 4.2-4.6%, we reckon that directionally inflation will be trending higher. Core inflation, too, will likely stay sticky around 4.5% mark. With RBI fixated on the 4% target on a durable basis, and with plausible case of fiscal slippage, it looks less convincing for a policy easing in the near term, unless data surprises on the downside significantly. In this context, we will continue to monitor the evolution of (1) crop production, (2) downward surprise of core inflation owing to weaker-than-expected growth, (3) second-round impact of lower excise duty on petrol and diesel and (4) status of government's accounts.

Source: Equity Bulls

Click here to send ur comments or to

Other Headlines:

Fed and its rate hike agenda sets positive tone in oil: Angel Commodities Broking
Fed's mildly hawkish stance underwhelms markets
10132 - A level to watch out for: Angel Broking
Traders to look for global cues for direction next week
Crucial support of 10141 in jeopardy: Angel Broking
IT sector may do well, showing strong overall momentum - Epic Research
India's political economy of minimum support prices
HDFC Bank and PSBs can be crucial movers: Angel Broking
PSBs once again became the show stealers: Angel Broking
Economy: WPI inflation drops lower - Kotak
WPI also falls, in sync with the CPI inflation: Angel Broking
PSU banks rebounded from multi-year trend line supports: Angel Broking
Temporary respite for Indian bonds
IIP for Jan 2018 flatters 7.5%: Angel Broking
Inflation trends lower to 4.44% for Feb 2018: Angel Broking
CPI numbers to be positive catalyst for markets - Ms. Radhika Rao, India Economist, DBS Bank
Banking contributed heavily in the relief rally: Angel Broking
Views and outlook on markets - Sanjeev Zarbade, Vice-president-PCG Research at Kotak Securities
Manufacturing Output and CPI data to add some more action in market : Epic Research
200 SMA playing a sheet anchor role; but expect breakdown soon: Angel Broking
Nifty gearing up for sub-10000 levels: Angel Broking
Short-term intermediate supports bulls placed at 10040 - 10100
A breach of 10300 confirms a breakdown: Angel Broking
Bank Nifty successfully defended 200-day SMA: Angel Broking
Review and Outlook on Markets - Astha Jain, Senior Research Analyst - Hem Securities Ltd
Ms. Radhika Rao, India Economist, DBS Bank on GDP numbers
Improving GDP growth: Angel Broking
Views and Outlook on Markets - Teena Virmani, Vice President - Research at Kotak Securities
Bank Nifty nearing make or break level: Angel Broking
Nifty ends flattish for third consecutive week
Nifty PSU bank index hastening towards crucial support: Angel Broking
Powell to set the tone for a more optimistic US outlook
Outlook on Markets - Sanjeev Zarbade, VP - PCG Research at Kotak Securities
Crucial data which will be eyed by investors in the coming week : Epic Research
Some respite in banking and midcap baskets: Angel Broking
Short rollovers from FIIs desk; avoid bottom fishing: Angel Broking
10300 - 10500 becomes a crucial range: Angel Broking
Fed minutes push up yields and the dollar Rates
IT basket soars after weakening of rupee, 10500 remains a strong hurdle: Angel Broking
India: Asset markets feel the jitters
Domestic cues pulled down investors sentiments despite a flair run of bulls in global markets: Epic Research
PNB fiasco ruins trading environment, index continues to remain choppy: Angel Broking
PSU banks became the party spoiler: Angel Broking
Markets remains volatile, Quarterly results to be watch out for : Epic Research
Unchanged Rates by RBI fails to cheer up Realty
Post Monetary Policy Comments - Ms. Radhika Rao, India Economist, DBS Bank
Monetary Policy maintains status quo on rates: Angel Broking
Status quo from RBI, market remains under pressure: Angel Broking
Strong Rollovers for the rate sensitive index: Angel Broking
Breather continues as we head to an extended week: Angel Broking

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2018