A stagflation-type scenario still persists in India, says Nomura

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.


Sensex, Nifty bulls struggle: Wednesday closing report

Even a half-hourly close below 6070 on the Nifty may pull the index down

In line with the positive performance by the US indices and the other Asian indices, the indices back home too opened with optimism. However, while the indices closed positive, bulls looked tired. The upbeat trade data from China and an optimistic economic outlook from Federal Reserve Chair Janet Yellen played positively on investor sentiment.
The Sensex opened at 20,450 while the Nifty opened at 6,085. Both the indices hit their respective highs in the morning session and soon started moving down. However they managed to close in the green. The Sensex hit a high of 20,517, highest since 31 January 2014 while the Nifty hit a high of 6,107, highest since 29 January 2014. The indices hit a low in the last hour of the session and closed almost near the day’s low. The Sensex hit a low of 20,427 and closed at 20,448 (up 85 points or 0.42%) while the Nifty hit a low of 6,077 and closed at 6,084 (up 21 points or 0.35%). The NSE recorded a volume of 48.78 crore shares.
Among the other indices on the NSE, the top five gainers were Finance (1.12%); Bank Nifty (1.01%); Energy (0.97%); Infra (0.76%) and P S E (0.69%) while the top five losers were Metal (1.28%); F M C G (0.84%); Realty (0.52%); Commodities (0.49%) and Nifty Midcap 50 (0.25%).
Of the 50 stocks on the Nifty, 24 ended in the green. The top five gainers were ICICI Bank (2.98%); Gail (2.79%); ONGC (2.41%); L T (2.15%) and Bhel (1.61%). The top five losers were Tata Steel (4.09%); Cairn (2.90%); Maruti (1.98%); ITC (1.63%) and Dr Reddy (1.53%).
Of the 1,494 companies on the NSE, 625 closed in the green, 763 companies closed in the red while 106 companies closed flat.
Railway Minister Mallikarjun Kharge kept passenger fares and freight rates unchanged and said that investment in railways is being stepped up by partnership with the private sector and that a proposal is under consideration of the government to enable Foreign Direct Investment (FDI) to foster creation of world class rail infrastructure. He also announced that an independent Rail Tariff Authority is being set-up to advise the Government on fixing of fares and freight.
The full-fledged Railway Budget for 2014/15 will be presented by the new government which comes to power after the Lok Sabha polls in April-May 2014.
After the market hours the government unveiled the data on inflation based on the combined consumer price index (CPI) for urban and rural India for January 2014 and the industrial production for December 2013. The annual consumer price inflation eased more than expected to a 24-month low of 8.79% in January, helped by moderating food prices. India's industrial production shrunk for the third straight month in December, dragged down by weak investment and consumer demand. Industrial output fell 0.6% in December from a year earlier, after contracting a revised 1.3% in November.
US indices closed in the green on Tuesday. Janet Yellen, in her first public comments since taking over for Ben Bernanke at the Fed last week, told Congress that she expects a "great deal of continuity" with her predecessor. Yellen said she supports Bernanke's view that the economy is strengthening enough to withstand a pullback in the Fed's stimulus, but that interest rates should stay low to encourage more growth.
The House of Representatives voted on Tuesday, 12 February 2014, to suspend the US debt limit until March 2015, giving a win to President Barack Obama and Democrats in Congress who insisted that the ceiling be lifted without conditions.
All the Asian indices closed in the green. Hang Seng was the top gainer which rose 1.47%. Chinese exports jumped 10.6% in January from a year earlier, beating the estimate for a 0.1% gain, while imports rose 10% and the country's trade surplus widened to $31.86 billion.
European indices were trading in the green while US Futures were trading marginally lower.
In the UK, the Bank of England (BoE) publishes its quarterly economic outlook, with new forecasts for growth and inflation today, 12 February 2014.


Aditya Birla Chemicals hits 52-week high on strong Q3 results

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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