Posts tagged WPI
September inflation edges upto 8.6%
The WPI for the month of September 2010 stood at 8.62% compared to 8.5% in the previous month. The figure was almost in line with the market expectations which were pegged at around 8.5%. The central bank is sure to take the cues from these high figures in its monetary policy meeting scheduled on 2nd November and is likely to take actions keeping inflation control as its primary agenda. RBI has already raised policy rates by 125 basis points in five equal hikes this calendar year and was expected to pause, but sticky inflation could force it to continue with monetary tightening.
- The sub-group of primary articles rose by 17.45% y-o-y against 10.63% in Sep’09 while it rose marginally by 1.5%% on m-o-m basis mainly due to lower prices of fruits, vegetables, condiments and spices. However, the prices of pulses, cereals and eggs declined putting a cap on further rise in the food prices
- In the same sub-group, the non-food articles increased by 18.2% y-o-y due to higher prices of raw silk, raw cotton, copra, flowers and fodder. However, in comparison to last month, prices of raw jute and certain varieties of oil-seeds declined. The index for minerals jumped by leaps and bounds to register a growth of 28.48% m-o-m due to increase in the prices of crude, barites, etc
- The second sub-group of fuel, power, lights and lubricants increased to 11.06% y-o-y from -8.09% in Sep’09, continuing the uptrend since past few months. Ironically, it registered a degrowth of 0.27% m-o-m due to lower prices of turbine fuel, bitumen and naphtha
- The third sub-group of manufactured products increased marginally to around 5% y-o-y compared to the last month’s growth. It registered a growth of 0.31% m-o-m mainly because of increase in the prices of textiles, rubber related products, rubber related products etc.
- Food products rose by 0.72% m-o-m due to higher prices of oil-seed, oil-cake, vanaspati, vegetable seeds and copra. Sugar prices declined by 2.30% together with a decrease in the prices of salt, ghee, and gur. Cotton textiles and man-made textiles showed a huge increase compared to the previous y-o-y figures, which can be accounted for an increase in the prices of their raw-materials.
Author:Rahul Sonthalia, Research Head, Kredent
New WPI pleases all, inflation eases to 8.5%
The WPI for the month of August 2010 stood at 8.5% compared to 9.78 in the previous month. The figure moved less compared to the market expectations which hovered around 9.5%. The above figure is based on the new WPI series in which the base year has been changed from 1993-94 to 2004-05 as the old base was not able to gauge the change in the market prices. The new series includes 676 items compared to the 435 items and boast of almost all the commodities being inclusive which are used by the middle-class families. The inflation figures as per the old base year came at around 9.5%. Less than-forecasted figures helped the market with an upward movement.
- The sub-group of primary articles rose by 15.76% y-o-y against 9.84% in Aug’09 while it declined by 0.28% on m-o-m basis mainly due to lower prices of fruits, vegetables, and pulses. But prices of cereals, tea, coffee, milk and fish rose, stopping a further decline in the food prices
- In the same sub-group, the non-food articles increased by 16.04% y-o-y due to higher prices of oil-seeds, flowers, raw silk, copra, coir fibre etc. But, compared to last month, prices of soybean, raw rubber and jute declined. The index for minerals rose to 0.98% m-o-m which was due to increase in the prices of crude petroleum, barites, etc
- The second sub-group of fuel, power, lights and lubricants increased to 12.55% y-o-y from -9.68% in Aug’09 which was in continuation of the previous month’s trend. It registered a growth of 0.14% m-o-m due to higher prices of aviation turbine fuel and furnace oil
- The third sub-group of manufactured products jumped to 4.78% y-o-y from -0.33% in Aug’09. It registered a growth of 0.16% m-o-m mainly because of decrease in the prices of sugar, food articles, textiles and paper products
- Food products rose by 0.58% m-o-m due to higher prices of oil, oil-seed, tea-leaf, mixed spices and wheat flour. Sugar prices declined by 0.19% while there was an increase of 1.46% in edible oils due to higher prices of oil-seeds. Cotton textiles and man-made textiles showed a slowdown, decreasing by 0.16% and 0.27% due to decrease in the prices of raw cotton, jute and fibre. Wood and wood products increased by 0.54% while movement in industrial equipments mainly remained unchanged
WPI August
Author:Rahul Sonthalia,Research Head,Kredent
RBI raises rates again
As predicted by our analyst Rahul Sonthalia (click here to read) and myself (click here to read) in our earlier articles, RBI has raised the policy rates almost a month before the scheduled 1st quarterly review of monetary policy due at the end of July.
In an after market hour announcement today, RBI raised the repo and reverse repo rate by 25 bps each to 5.50% and 4% respectively (click here to read about repo and reverse repo rates).
Inflation
Anticipation of a rate hike got all the more eminent after the decision to raise the fuel prices and freeing up the price of petrol last week. The move was expected to raise the WPI inflation by about 90 bps. For the month of May, WPI was at 10.16%, above the 10% mark. Though food inflation has been easing, other major indices, fuel index and manufactured products inflation has been rising. RBI in the release noted “There has been some moderation in food price inflation, but the price index of food articles continues to increase. More importantly, the prices of non-food manufactured goods and fuel items have accelerated in recent months”.
Money markets
As compared to earlier rate hikes, this rate hike assumes all the more importance as money markets are facing liquidity crunch. Volumes at repo window have been high during the week, averaging about Rs 60,000 cr for the week. Call rates are also high. This would increase the cost of borrowing of the banks. As for liquidity, RBI has extended the time limit for additional liquidity support and second LAF window till July 16 to ease the liquidity conditions.
Rates of banks
However, it is expected that it would still not lead to an immediate rate hike by the banks as base rate mechanism of pricing loans is being implemented from July 1. Impact of the same on corporate borrowing will be determined only after some time. Thus as of now, corporate borrowing may not get affected.
Market reaction
Since this announcement was done after the close of all the markets, there has been no reaction of the markets. However equity markets have been in negative for most part of the week and still indices are expected to open weak on Monday. Yields on bonds increased after the fuel price announcement last week but the same retraced back most of the gains during the current week. But for the next week again, yields are expected to open strong on Monday.
Author:Praveen Bajaj
Weekly G-Sec update:June 12, 2010
After trading in a range last week, yields on benchmark 10 year bond, 7.80% 2020 bond steadily rose 9 bps for the week to close at 7.61% for the week. Surge in yields was driven by tight liquidity conditions.
On all days of the week, we saw Repo window being active. Daily average of the combined amounts on 1st and 2nd window of Repo stood at Rs 60,311 cr for the week compared to Rs11,800 cr for last week. Tight liquidity conditions are driven by the advance tax payment by corporate.
Concerns of higher inflation have also kept the yields on a higher side. Some media reports cited a Govt official expecting inflation to cross 10% mark for the month of May. Good IIP numbers also added to the pressure.
Govt borrowing is progressing in a phased manner. After Friday’s auction, borrowing worth Rs 125,000 cr has been completed amounting to 27% of the total borrowing. Borrowings amid tight liquidity conditions have kept the yields at elevated levels.
For next week inflation (WPI) will be the most watched factor and a high inflation will lead to a surge in yields.
Author name:Praveen Bajaj
India Inflation : WPI March 2010
- The WPI for the month of January stood at 9.90% against 1.20% in the corresponding month of the last year. The same figure posted 9.89% in the previous month. The figure released was below market expectationswhich was pegged at around 10.37%
- The figure registered increased at the fastest pace in 17 months, driven by higher food and fuel prices. The market was hardly moved by the figure and continued falling instead of rising as the inflation figure posted was below expectation.
- Acc. to the Finance Minister Pranab Mukherjee, the numbers were on expected terms as they were expecting a double-digit figure. The RBI had already raised the interest-rates to curb the inflation and is expected to do so once again in the monetary policy in April’10.
Inflation Internals
- The sub-group of primary articles rose by 14.10% y-o-y against 5.21% in Mar’09.It surged high due to jump in the food articles inflation by 16.65% on a yoy basis but it declined by 0.5% on a mom basis due to lower prices of cereals, fish-inland fruits & vegetables and tea. However, prices of stuffs like poultry chicken, pork, milk, jowar, barley and coffee moved up.
- In the same sub-group, the non-food articles decreased by 0.82% m-o-m but increased 12.77% on a yoy basis. The monthly decline was because of lower prices of vegetable seeds, soybean, copra, raw silk and tobacco. The index for minerals rose by 9.79% y-o-y which was due to higher prices of barites, steatite, chromite iron-ore and asbestos
- The second sub-group of fuel, power, lights and lubricants increased by 6.9% y-o-y from -6.0% in Mar’10. It registered a growth of 0.28% m-o-m due to higher prices of petrol, light diesel oil, aviation turbine fuel and furnace oil
- The third sub-group of manufactured products registered an increase of 7.13% y-o-y from 2.29% in Mar’10. It registered a growth of 0.28% m-o-m mainly because of huge increase in the prices of food-products, sugar and rubber & plastic products. Prices of commodities like cotton textiles, man-made textiles and chemical products too moved in upward direction while wood products, paper products declined.
- Food products declined by 1.15% m-o-m due to decline in the prices of edible food products. Sugar declined by 3.73% while there was a decrease of 0.96% in edible oils. Man-made textiles surged by 0.4% due to increase in the yarn and fibre prices Iron & steel decelerated by 0.31% m-o-m
I believe that the current WPI levels are way beyond the comfort zone of the Reserve Bank of India and a hike in the key rates (repo rate, reverse repo rate) in the April 20 monetary policy review is almost certain. This is also because of the fact that the growth in IIP and the profitability of India Inc. is also back on track, thus leaves ample room for RBI to hike the key rates by at least 50 bps without hindering the growth process.
Author name:Rahul Sonthalia, Research Head, Kredent
Indian equity markets:Overvalued Zone…?
Well some say that the Indian equity markets are all set to become mother of all the bull markets and from here there is no looking back. While others say that we are currently in a kind of over bought zone and a correction of at least 200-300 points in the Nifty index is definitely warranted.
While, what i see this is as the events holds the key to this. In the month of April there are three very important news flow that will shape the directions for markets:
- The Q4FY10 earnings of India Inc.
- Indian WPI for the month of March
- RBI’s Q4 credit policy release on 20th April
While inflation is a cause of concern, given the way the food price and other key individual indices are behaving, this will also have a major impact on RBI’s Q4 policy guideline. I believe that there is a strong possibility of at least a 50 bps hike in the key policy rates. This I believe could be a problem story for the ever singing markets of ours.
On the other hand the corporate India is expected to show decent Q4 numbers, however much of this growth I believe is already factored into the stock prices and hence there is nothing much left on the table that should excite the investors. Infosys Q4 results tomorrow morning will set the stage for the rest of India Inc.
Hence, I strongly believe that instead of chasing the markets at a broader level, it makes sense to invest in good stocks with reasonable valuations.
As Mr. Lynch Says
“Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.” – Peter Lynch
Author name: Rahul Sonthalia, Research Head, Kredent
Eleven Basis Points to Go…!!
You must be wondering what this 11 basis points refer to. Its actually the number of basis points India’s Wholesale price index needs to cross the RBI’s threshold mark of 10%.
The wholesale price index (WPI) jumped 9.89 % in February 2010. compared to a rise of 8.56% in January 2010. Meanwhile, the WPI for December 2009 revised upwards to 8.1% from a provisional rise of 7.31%. It could be that the WPI for Feb may also be revised upwards in the month of April and the government is just choosing to keep it below the 10% mark for the sake of comfort of capital markets.
At its January policy review, the Reserve Bank had raised its WPI inflation projection for end-March 2010 to 8.5% and it is already much above that in the month of February. Thus, I believe that it would in all probability lead to a hike in the key rates by RBI of a minimum 50bps in the April policy review of its monetary policy.
Hence, I believe the way the markets are cherishing the higher advance tax figures is not justified. One has to keep in mind that the figures with which Q4 advance tax numbers are being compared are Q4 FY09 numbers which is a period of peak recession, hence the numbers will certainly look good. So, nothing to get overwhelmed. Some of the markets experts believe that the India Inc. is set to come up with a fresh round of QIP placements and in order to make sure that the positive euphoria remains so that the issues can be done through easily, they are paying higher advance taxes.
So, idea is to remain over cautious and only invest in non rate sensitive sectors like FMCG, Agriculture, Pharma and Media.
Happy Investing…!!!
Author: Rahul Sonthalia, Analyst, Kredent Group
Inflation After Effects
India’s WPI inflation rose by 4.78% y-o-y in November compared to1.34% in October. 4.20%. It was more than the Bloomberg consensus street expectations of around 4.2%. This was mainly on account of higher manufactured product prices which has a weight of around 63% on the index. This I believe is a clear signal of More >
