After the two Is ? Infosys and IIP ? disappointed the Street, the third I or inflation for June has come in at a better than expected 9.44% y-o-y. However, if the number is revised as has happened for April ? which was upped by 110 basis points to 9.74% ? we may already have hit double-digit inflation.
In fact, we would possibly do so in July when the full impact of the fuel price hikes on June 26, when diesel prices were raised by 9% and those of kerosene by about 20%, kick in. As Rohini Malkani of Citigroup points out, although prices of commodities may have eased, relatively they remain higher than they were last year and since there have been upward revisions in the minimum support prices of agri crops, prices in general are going to remain elevated with inflation in the range of 9-9.5% for some more time before tapering off to 8% by March.
It?s unlikely therefore that the central bank will hold back from tightening money when it meets on July 26 and a 25 basis points hike in the repo rate to 7.75% is on the cards.
It?s true global growth is now forecast to come in at a slower 3.4% in 2011, after rebounding by 4.1% in 2010, so much so that?s there?s now renewed speculation of a QEIII. However, these concerns would probably be overshadowed by the worries on inflation, especially since we?re yet to see the full impact of the fairly steep fuel price hikes.
Moreover, although it may be too early to get alarmed, the monsoon has been below normal by 19% in the week to July 13.
So far, there hasn?t been any material damage to corporate earnings and companies have demonstrated some pricing power passing on higher input costs, albeit not entirely.
Amidst all the gloom of a weak global environment and macroeconomic headwinds at home, it?s good to hear Rajiv Bajaj, managing director of Bajaj Auto, sound confident about hitting a revenue growth target of 20% this year. Bajaj is partly betting on the overseas markets where he sees good momentum and of course the home market. HDFC numbers announced last week told us that there are enough people buying homes ? the company grew its loan book by 22% yoy. Indeed, the India consumer story is as strong as ever.
The NSS finds that rising incomes are gradually pushing up the share of discretionary non-food spending. BofAML?s Indranil Sen Gupta believes this trend would strengthen with non-food spends for urban households likely to climb to 75% of consumer expenditure by 2020 from 59.3% currently and from 46.4% now to 60% for rural homes. He now expects India?s consumption basket to double to China?s current $2 trillion levels, in real terms, by 2020.
What is also reassuring is the ability to Indian companies to do well in an uncertain environment; tech major TCS which posted dollar revenues that were up nearly 8% sequentially in the three months to June, has put up a good show and the accompanying commentary suggests there is enough of an opportunity out there even in bad times.
It?s also good news that China?s gross domestic product (GDP) grew at a faster than expected 9.5% y-o-y in the three months to June, just a tad slower than the 9.7% y-o-y in the March 2011 quarter. Looks like there?s no hard landing there.