In economic parlance negative inflation means deflation. That in simple terms is that people are deferring their purchases because they feel prices will fall further. Result is industrials are saddled with high inventory. Consequently the economic growth decelerates. However in our case the situation is different. The negative data is more out of statistics rather than any real reason. The ground realty is that prices are still rising but probably the data measured by WPI has gone up at a lower pace as compared to the same period last year. Better way to capture this data would be CPI (Consumer Price Index) which impact common man more than WPI.
Out Take: We believe given the liquidity conditions & data from IIP etc the RBI is not likely to make any changes in policy rates. In our view there is a little room for any cut in CRR or repo rates etc. Thus we do not expect any action from RBI on this count. We expect to see negative inflation till around August –September of current year.
Concerns on Delayed Monsoon may increase if we do not hear any positive news from Met department today. Impact: negative on FMCG companies & everything related to rural growth.
Though as of now one week delay in monsoon may not sound alarming bells but this is likely to take larger proportions if the delay continues any further. The delay in rains may result in decline in pulses & other crops. Paddy sowing may be delayed. The net result is if the delay continues the FMCG sector will be impacted most negatively. However as of now we do not think this delay is alarming & would like to wait for some more time.
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