The two Is ?-Infosys and IIP ? have both disappointed the Street and it?s possible the third I, namely inflation, will also scare us on Thursday.

No one was really asking for too much from Infosys but the missed sales forecast for the three months to June was a bit of a let down as was the fact that the tech major hopes to post a top line of between $7.1 billion and $7.3 billion in the year to March 2012, whereas analysts are looking for a better $7.5 billion. Earnings season has been dull so far. While HDFC?s numbers showed that there are takers for home loans ? disbursements were up 5% sequentially ? the higher cost of money hit the firm?s spreads marginally.

IndusInd Bank had a good quarter ? its margins weren?t pressured as much and the 15% sequential rise in NPLs came in from its new credit card portfolio.

Essar Oil?s numbers were mixed ? it posted a gross refining margin of just $7.38 per barrel lower than the $8.15 per barrel in the March 2011 quarter. If the factory output number for May, which came in at a much lower- than- expected 5.6% compared with 5.8% in April, is an indication that corporate earnings will be muted. On a seasonally adjusted basis, the IIP is lower by 1.7% on a month-on-month basis when it should have seen a bounce. However, the fall is lower than the 2.7% m-o-m decline seen in the previous month. As economists point out, the data has been volatile and hard to analyse. This has been true for the crucial capital goods segment ? the segment saw a rise of 5.6% in May but the trend, on a three- month moving average basis indicates a sharp deceleration averaging 6.7% during the last few months compared with the 22% levels seen earlier. Again, manufacturing remains weak although the PMI for May at 57.5 didn?t quite reflect the weakness as did the June manufacturing PMI which fell to 55. Demand for credit does seem to be moderating ? banks have lent a smaller amount of R 49,817 crore between April and June 17 this year compared with the R61,148 crore lent in the same period last year.

Bankers do concede that all the lending that?s happening currently relates to sanctions of the past and that not too many new loans are being sought.

On the brighter side, while manufacturing may be slowing, the bigger piece of GDP ? services ? seems to be maintaining the momentum as seen in the services PMI for June.

Exports were up 46% y-o-y in June. Also, consumption demand is not really slowing meaningfully and so inflation for June could be fairly high at 9.7%, prompting the Reserve Bank of India (RBI) to continue to raise policy rates.

Money is already much costlier than it was a year back ? the State Bank of India?s base rate last year at this time was 7.5% and now it?s 9.5%. So, the environment will remain difficult for another six to eight months.

Also, while it?s a good news that the government is readying one bill after the another to be tabled in Parliament, not all the legislation is welcome. Still, it?s good to see the government?s back in business.