Despite slow growth, households expect inflation to remain in double digits for the sixteenth consecutive quarter due to rising food prices, says Nomura in its research note on inflation
Households’ inflation expectations have risen sharply in Q3 2013. The Reserve Bank of India's (RBI's) latest survey shows that households expect the mean inflation expectation to rise from 11.8% in Q3 2013 to 12.8% in three months and to 13.5% in a year. This is according to a research note on inflation by Nomura.
The rise in expectations is mainly influenced by the persistently high price of food products. However, on a 3-month-ahead period, households expect price pressures to continue across the board, with prices likely to rise for non-food products, household durables, housing and the cost of services, says Nomura’s forecast.
The significant spike in vegetable prices during Q3 2013 may have played a key role in boosting inflation expectations, implying that expectations may partly be adaptive in India, points out Nomura.
With data from RBI, CEIC and Nomura Global Economics the following chart shows the inflation expectation trend in the country. The Inflation Expectations Survey of Households captures the inflation expectations of 4,765 urban households across 16 cities.
Nomura recommends companies in the IT services sector that provide revenue upside possibility with margin comfort and are available at reasonable valuations in its research note
The second quarter results for FY14 for the IT services sector satisfied investors and analysts alike in their expectations with positive demand outlook improved discretionary segment performance and higher margin benefits due to rupee depreciation. These observations are from a Nomura research note on the IT services sector. The key positives in the 2Q results were:
(a) stronger traction in Europe;
(b) ROW (markets other than US and Europe – rest of world) coming back to life;
(c) IMS (integrated marketing solutions) traction continuing and engineering services showing an improvement;
(d) operating metrics improvement; and
(e) healthy cash generation and steady receivable trends.
The key negatives were:
(a) the absence of a seasonal acceleration in the US;
(b) weak performance in retail despite being a seasonally strong quarter;
(c) the absence of positive surprise in revenue, with Infosys’ guidance disappointing and HCL Technologies not seeing an uptick in core software.
Nomura recommends for investors companies in the IT services sector that provide revenue upside possibility with margin comfort and are available at reasonable valuations. The research note concludes, “We prefer those companies that are more likely to benefit from a demand upturn scenario and for which valuation support is higher. Of our tier-1 (large-cap) names, our order of preference remains unchanged post results – HCL Technologies and Cognizant remain our top picks, followed by Infosys and TCS.”
The Nomura stock recommendation in the IT services sector is summarised in the following table: