According to Nomura rural wage growth and elevated fuel prices have kept costs high, and unless cost of production moderates a steep and sustained correction in CPI inflation is unlikely
A stagflation-type scenario still persists in India, according to a Nomura research note on the Indian economy. Nomura expects the Reserve Bank of India (RBI) to stay on hold at the April policy meeting, as CPI (consumer price index) inflation is evolving slightly better than the RBI’s projection.
CPI inflation eased to 8.8% y-o-y (year-on-year) in January 2014 from 9.9% in December 2013, lower than market expectations. Lower vegetable prices explain much of this moderation: vegetable prices fell 13.3% m-o-m (month-on-month), after declining 18.5% in December. Core CPI inflation (CPI ex-food, fuel) rose marginally to 7.97% y-o-y in January from 7.94% in December, reflecting higher medical and transportation costs. Vegetable prices have moderated further in February, which should lower CPI inflation next month as well. These figures are based on government data and are as per the Nomura research note.
In Nomura’s view, this is because of high rural wage growth and elevated fuel prices, which have kept costs high, and unless cost of production moderates, which will take time, a steep and sustained correction in CPI inflation is unlikely. The hike in milk prices last month, despite weak growth, is a case in point.
According to the Nomura research note, industrial production (IP) growth contracted for a third straight month, at -0.6% y-o-y in December, from a revised -1.3% y-o-y in November, better than expected. Output growth contracted in the capital goods and consumer durables segments, highlighting continued weakness in investment and consumer discretionary demand.
In Nomura’s view, the slowdown in infrastructure sector output growth in the last three months indicates that industrial activity is likely to languish in the next few months as well. With today’s data, Q4 2013 GDP growth (data due for release on 28 February) is now tracking around 4.6% y-o-y, lower than 4.8% in Q3.
Nomura expects CPI inflation to start surprising on the upside vis à vis RBI’s expectations after April 2014, which will lead to another 25bp hike in the repo rate to 8.25% by mid-2014. With both fiscal and monetary policy likely to tighten amid slightly better exports, Nomura expects growth to continue to consolidate in the 4.5-5.0% range for the most part of 2014.
Even a half-hourly close below 6070 on the Nifty may pull the index down
Aditya Birla Chemicals shares hit its 52-week high on BSE due to strong December quarter results achieved on robust sales growth and new acquisitions
Aditya Birla Chemicals (India) Ltd, Wednesday hit its 52-week high at Rs122 on the BSE following the company’s good third quarter results. Aditya Birla Chemicals said its December quarter net profit increased mainly on higher sales and contributions from its new acquisitions.
For the quarter to end-December the chemical producer said its net profit stood at Rs16.36 crore while its total revenues, including sales, grew to Rs286.88 crore. However, the company clarified that its third quarter results are not comparable with previous year due to new acquisitions.
“The results of the company for the quarter and nine months ended 31 December 2013 includes results of the said acquisition during quarter and hence current period and year-to-date numbers are not fully comparable with earlier period,” Aditya Birla Chemicals said in a regulatory filing.
Aditya Birla Chemicals has acquired the business comprising of Chlor Alkali & Phosphoric Acid plant at Karnataka and salt works at Gujarat from Solaris Chemtech Industries for Rs153 crore on 1 September 2013, which contributed to sales growth during December quarter.
Aditya Birla Chemicals closed Wednesday 4.9% higher at Rs116.35 on the BSE, while the 30-share Sensex ended the day flat at 20,448.
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