Economy
CPI inflation down but RBI may not cut interest rates

According to Nomura, the significant undershooting on inflation in 2015 is opening up some room for policy easing, but this room is very limited and the RBI may remain on prolonged pause during its policy meeting next month

 

India's inflation based on consumer price index (CPI) eased to 5.5% in October from 6.5% in September mainly on favourable base effect in food inflation. Nomura feels beyond November, the CPI inflation would bounce back to 6.0% to 6.7% in first quarter of 2015 and the Reserve Bank of India (RBI) is likely to remain on a prolonged pause in its next policy meeting on 2nd December.

 

"Although the lagged impact of the growth slowdown, lower rural wages, low minimum support price increases and higher real rates should result in continued disinflation into 2015 with CPI inflation falling below the RBI's 6% target set for January 2016 by the central bank, in mid-2015," it said in a note.

 

Nomura says, "The recent moderation in CPI inflation and our expectation of continued disinflation in 2015 does not change our view on monetary policy. In our view, the RBI is focused on ensuring that inflation remains low even as the growth cycle starts to pick up in 2015-16. As we highlighted last month, the significant undershooting on inflation in 2015 was opening up some room for policy easing, but this room is very limited. For now, we expect the RBI to remain on a prolonged pause, including at its next policy meeting on 2nd December."

 

Recent reports suggest that delayed harvesting is resulting in an increase in vegetable prices in November. However, base effects are very positive, which should result in an under-5% CPI inflation reading.

 

A gradual industrial recovery is under way

 

Industrial production (IP) growth rose to 2.5% in September from 0.5% in August. On a seasonally adjusted basis, IP rose 1.5% m-o-m after contracting in the previous three months. Nomura says, "In our view, part of the rebound in IP reflects increased production ahead of the festive season in October. Much of the rebound was due to the volatile capital goods segment. Except capital goods, IP growth moderated as a result of still weak consumer durables output growth, partly because of the shutdown of a mobile handset plant and also muted consumer non-durable goods output growth, lower agriculture-related production."

 

Industrial output growth is likely to weaken in October owing to there being fewer working days in October 2014 (19 working days) than in October 2013 (24).

 

"However," Nomura said, "We remain optimistic that a gradual recovery in industrial growth is under way. Other high frequency indicators such as auto production, visitor arrivals and non-oil non-gold imports indicate that domestic demand is picking up. Leading indicators such as the OECD's composite leading index for India also continue to suggest that industrial production growth should pick up in the coming quarters."

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Stock Manipulation: Real Realty Management

Real Realty Management has risen 281% in a little over a year and a half on poor financial performance even as Sebi sleeps

 

Incorporated in 1993 as Hillock Agro Foods, Real Realty Management acquired its present name in 2013. Earlier, the company’s main objective was manufacturing and trading of agro-foods. It underwent a restructuring in 2013 after which this company de-merged its agro division and amalgamated Real Realty Management Company Pvt Ltd with itself. Now, its main business is real estate development. By 2013, when this transformation took place, the net worth of the company had eroded and the management was talking of ‘reviving’ the company. However, even after restructuring, nothing worthwhile has happened in terms of its financial performance. Over the past six quarters ending June 2014, net revenue from operation was Rs5.39 crore. This led to a net loss of Rs90.38 lakh; the company made losses in four of the six quarters. But this does not mean that the share price cannot be on steroids. From 2 May 2013 to 31 October 2014, the stock had run up from Re1.75 to Rs6.66—as much 281%. Of the 372 trading sessions ending 31 October 2014, the stock has traded for only 150 days on the BSE. This stock is under periodic call auction (PCA) as it has been identified as an illiquid stock by the BSE. And  PCA was designed to control manipulation! 

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R Systems International: High Dividends, Strong performance

A small, well-performing software company, not yet on the radar of fund managers

 

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