There is a wave of optimism in India at present. Stock markets are rising on the hope that Mr Modi-led NDA Government will revive the sagging Indian economic growth. However, as S&P BSE Sensex has hit the silver jubilee mark of 25,000 points, valuations have started ringing the warning bell. There is doubt afloat on whether this rally sustain will sustain for too long. While there is undoubtedly a hope for better tomorrow, policy announcements from the Government are awaited. And if everything goes on expected lines, economy improves and corporate earnings grow; the rally may sustain.
After a satisfying Current Account Deficit (CAD) and fiscal deficit data, there is good news from industrial activity.
The Index of Industrial Production (IIP) rose 3.4% in April 2014, recording its highest reading in last 13 months. Manufacturing activity seems to have picked up as it grew at 2.6% in April. Likewise, electricity sector recorded an impressive growth of 11.9%. But mining activity grew by a moderate pace of 1.2%. Within manufacturing, cyclical sectors such as basic goods saw robust activity. But, consumer goods were a drag which witnessed a negative growth of 5.1%.
In the meanwhile, the retail inflation (which was also released on June 12, 2014) measured by Consumer Price Index (CPI) has also eased to 8.28% in May 2014 (from 8.59% in the month prior), placing it at a 3-month low as prices of food article eased.
It is believed that, while these are encouraging data points, it would be important to see the sustainability. This is because, in case of IIP while it has depicted such spikes in the past (see chart above) it has failed to maintain those levels and depicted a see-saw movement. Likewise, while retail inflation for May 2014 has mellowed, with delayed and sub-normal monsoon (due to 60-70% chances of an El-Nino phenomenon), the risk to food inflation yet remains. Also the successive increase in price of diesel, which is an essential transport and industrial fuel, adds to the risk of stoking inflation going forward. So, these are early days to term it as signs of turnaround.
As an investor you need to cautious in your approach going forward. After the announcement of the aforesaid data points, Indian equity indices have descended on profit booking, seemingly being conscious about valuations. This suggests that markets would adopt cautious approach and keep a close eye on further development.
It is believed that, , the first budget of the NDA Government (to be presented in the 2nd week of July 2014) would set the tone for markets while monetary policies of RBI may guide about future interest rate movement in the economy. Keeping in mind forecast of a weak monsoon this season, upward risks to inflation still remain. It is unlikely that RBI may cut rates soon.
- source Personalfn
After a satisfying Current Account Deficit (CAD) and fiscal deficit data, there is good news from industrial activity.
The Index of Industrial Production (IIP) rose 3.4% in April 2014, recording its highest reading in last 13 months. Manufacturing activity seems to have picked up as it grew at 2.6% in April. Likewise, electricity sector recorded an impressive growth of 11.9%. But mining activity grew by a moderate pace of 1.2%. Within manufacturing, cyclical sectors such as basic goods saw robust activity. But, consumer goods were a drag which witnessed a negative growth of 5.1%.
IIP: Finally breaks the shackles
Data for April 2014, as released on June 12, 2014
(Source: CSO,)
In the meanwhile, the retail inflation (which was also released on June 12, 2014) measured by Consumer Price Index (CPI) has also eased to 8.28% in May 2014 (from 8.59% in the month prior), placing it at a 3-month low as prices of food article eased.
It is believed that, while these are encouraging data points, it would be important to see the sustainability. This is because, in case of IIP while it has depicted such spikes in the past (see chart above) it has failed to maintain those levels and depicted a see-saw movement. Likewise, while retail inflation for May 2014 has mellowed, with delayed and sub-normal monsoon (due to 60-70% chances of an El-Nino phenomenon), the risk to food inflation yet remains. Also the successive increase in price of diesel, which is an essential transport and industrial fuel, adds to the risk of stoking inflation going forward. So, these are early days to term it as signs of turnaround.
As an investor you need to cautious in your approach going forward. After the announcement of the aforesaid data points, Indian equity indices have descended on profit booking, seemingly being conscious about valuations. This suggests that markets would adopt cautious approach and keep a close eye on further development.
It is believed that, , the first budget of the NDA Government (to be presented in the 2nd week of July 2014) would set the tone for markets while monetary policies of RBI may guide about future interest rate movement in the economy. Keeping in mind forecast of a weak monsoon this season, upward risks to inflation still remain. It is unlikely that RBI may cut rates soon.
- source Personalfn
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