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Monday, November 14, 2011

Stock_for_YOU A Government On It's Knees!



Inflation in India continues to be highly sticky, with no signs of any price correction. Despite a bumper kharif crop hitting the markets in Oct '11, food inflation remains in double digits. Fuel inflation has reached a three-year high. It is the high base of last year that prevents inflation from rising to double digits. We expect inflation to marginally soften in Nov '11 and to fall sharply to ~8% in Dec-Jan '11, due to a strong favorable base.
n       Inflation stays near double digits. WPI inflation in Oct '11 rose to 9.7% yoy, the same as in Sep '11 and marginally higher than market and our expectations (9.6%). Notably, Aug '11 inflation was kept unchanged at 9.8%.
n       Broad-based price rise continues. Price indices for primary articles and fuel rose 1% (m-o-m) each, while that for manufactured products increased 0.4% in Oct '11. The index for primary food articles rose 2.2% m-o-m, due to higher prices of fish-inland (12%), gram (10%), condiments & spices (6%), fruits & vegetables (5 %) and egg (3%).
n       Manufactured products price hike continues. Of the 12 sub-categories of manufactured products, nine saw m-o-m rise in Oct '11 vs. six indices in Sep '11. Manufacturers continue to partially pass on the high input cost to the final consumers.
n       Fuel inflation at three-year high. Fuel inflation rose to 14.8% in Oct '11, the highest since Nov '08. The recent price hike of `1.82 a litre in retail petrol in India should have ~3.3 bp direct impact on WPI inflation. Unlike a diesel price hike, a petrol price hike does not have any significant second-round, or indirect, impact on inflation.
n       Assessment and inflation outlook. Inflation in India continues to be highly sticky, with no signs of any price corrections, despite a bumper kharif crop hitting the markets in Oct '11. Lack of any meaningful fiscal policy to tame inflation seems to have diluted the impact of aggressive monetary tightening. Rather, the latter has led to a slowdown in industrial activities that may be pro-inflationary in nature. Moreover, the imported inflation also remains high due to the weaker rupee. It's the high base of last year that is preventing inflation from rising to double digits. We expect inflation to marginally soften in Nov '11 and to fall sharply to ~8% in Dec-Jan '11, due to a strong favorable base. Our Mar '12 inflation target is ~7.5%.
n       Policy outlook. The latest data prints - industrial production, core sector, auto sales etc. - suggest considerable softening in domestic economic activities. RBI has already hinted of a pause in the key policy rate in the last monetary policy review. Despite high inflation, we do not expect a rate hike in the remaining months of FY12. Moreover, if the debt crisis deepens in the Eurozone, the RBI may have to take liquidity enhancing measures, such as a cut in the cash reserve ratio, within the next six months. 
 
 
Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
 
Nothing in this article is, or should be construed as, investment advice.
 
 
 

 
 

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Regards,
Prasanth KS
http://www.stockforyouindia.com/
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