Retail inflation in India shot up to 6.95% in March 2022 on the back of a sharp surge in rural inflation. This is the third successive month that CPI inflation has been above the RBI outer tolerance limit of 6%. Food inflation spiked from 5.85% in Feb-22 to 7.68% in Mar-22. This was also aided by rising fuel prices as well as steep core inflation. In fact, with diesel prices being hiked, the impact on transport and logistics cost will be felt in the Apr-22 inflation numbers. There was steep rise in inflation across most basket categories.
The MOSPI also reported India’s index of industrial production (IIP) for Feb-22, with a lag of one month. IIP came in at 1.7% for Feb-22 compared to 1.3% in Jan-22. However, the higher IIP growth in Feb-22 was largely driven by the base effect with IIP growth at -3.43% in Feb-21. Otherwise, the MOM IIP growth was negative across all the 3 IIP baskets of mining, manufacturing and electricity. In Feb-22 while mining growth surged from 2.8% to 4.5%, manufacturing IIP growth tapered from 1.1% to 0.8% in same period.
The real soaring inflation was visible in the US with US consumer inflation for Mar-22 coming in at a 41 year high of 8.5%. This is 60 bps higher than the Feb-22 US consumer inflation at 7.9%. The price spike was on account of supply chain constraints, robust consumer demand and disruptions to global food and energy markets. The MOM rise in inflation was at 1.2%, higher than the 0.8% inflation reported in Feb-22. Average gasoline prices in the US are up 43% yoy. This almost confirms a 50 bps rate hike in May FOMC.
Even as FPIs were selling aggressively in the equity markets in March 2022, domestic mutual funds were busy infusing Rs.22,200 crore into Indian stocks in the month of Mar-22. Some of the preferred large cap names among mutual funds were Kotak Bank, HDFC, ONGC and Maruti Suzuki. Among mid-cap stocks, mutual funds preferred stocks like Coforge, Indian Hotels, MCX and V-Guard. ITC topped the sell list for mutual funds after the recent rally of 22% in 2022 YTD. Fund managers also cut their stake in Hindalco.
The first projections of the monsoon have come in from private weather forecasting agency, Skymet. It expects the southwest monsoon in 2022 to be normal at 98% of the Long Period Average (LPA). Normally, rainfall of 96% to 104% of the LPA is considered as normal rainfall. According to Skymet, the southwest is expected to fare better in the first half of the monsoon between June and July as compared to August and September. It is not just the quantum of rainfall, but also the timely arrival and spread that really matters.
Shipbuilding stocks are suddenly hit, rallying by around 14% on Tuesday 12th April. This rally is on the back of strong earnings expectations for these stocks for FY22. While Garden Reach Shipbuilders was up 14% during the day, Mazagon Dock Shipbuilders surged 8%. Both stocks hit their all-time highs in the stock market. Apparently, the political and economic uncertainties in Sri Lanka and the resultant congestion at the Colombo port are forcing more ships to turn to Indian ports. Strong defence orders are also a trigger.
According to Fitch, the merger between HDFC Bank and HDFC Ltd would have long-term implications for India’s banking and NBFC sector. It is most likely to trigger a spate of mergers and acquisitions among Indian banks; in the PSU and private banking space. According to Fitch, the merger of HDFC twins must be seen in sync with Axis Bank buying the consumer finance business of Citi. Fitch sees large NBFCs as acquisition targets due to higher-margin products, priority-sector customer pools and cross selling scope.
Nomura expects IPOs in India to regain momentum in the second half of 2022. It is not just in India, but even the global IPO activity had slowed down in recent weeks due to the Russian invasion of Ukraine and rising interest rates. In the first 100 days of 2022, companies have raised around $1.1 billion in India via IPOs compared to $2.6 billion in the first 100 days of 2021. Nomura expects the LIC issue in May-22 to set the tone for the IPO markets to revive. Nomura expects action on ESG theme and the renewable theme.