No prize for guessing; but retail inflation continues to trend lower. CPI inflation for the month of January 2019 comes in sharply lower at 2.05% as against 2.19% in December 2018. The CPI rate of 2.05% represented the lowest rate of inflation since June 2017. The lower inflation number was largely driven by weak food prices and tempering of fuel prices. However, the core inflation (excluding food and fuel) continued to remain high at 5.4%. However, the last RBI policy had clearly shifted the inflation benchmark to headline inflation from core inflation.
Manufacturing appears to be feeling the pain as the base effect appears to be wearing out. IIP growth for December 2018 remains subdued at 2.4%, sharply lower than the 7.3% growth that was seen last year. There was contraction in the mining sector output on regulatory uncertainties and also the manufacturing sector, which grew at just 2.7%. With a 78% weightage in the overall IIP, manufacturing has an oversized impact on the overall IIP. Primary and intermediate goods showed a decline. The impact of IIP is immediately felt on the GDP numbers due to its alpha impact.
The downtrend in the stock markets continued on Tuesday as the Sensex gave up over 800 points in 3 trading sessions. The Nifty inched closer to the 10,830 mark even as the Sensex lost over 800 points. The correction was much sharper in the mid cap and the small cap space. The markets came under pressure on domestic liquidity concerns and the fear of pledged shares spilling over. Globally, there was the overhang of a global slowdown with China again expected to report slowdown in trade. Overall, the 11,000 level continues to be a very strong resistance for the Nifty.
There may be some good news for airlines. Indian aviation sector could slash losses with rising ticket prices as per a report prepared by CAPA. In fact, aviation consultancy CAPA has projected that higher ticket prices could help aviation companies cut their losses by nearly 2/3rd. Indian aviation companies have been caught for a long time between competition beating down fares and rising ATF prices. With stable ATF prices and higher ticket realizations, Reuters reports this could the golden opportunity for airline companies as most of them have continued to bleed quarter after quarter.
If the pressure of weak credit rating and low liquidity is really showing, it is in the corporate bond markets. In fact, corporate bond sales dipped by 13% on NBFC overhang at Rs.4 trillion in the first 9 months to December 2018. Most NBFCs witnessed higher cost of borrowing after the IL&FS fiasco in August 2018. The NBFC segment accounts for nearly 70% of the corporate bond market. Only AAA rated NBFCs were able to raise funds at competitive rates. In fact, most of the NBFCs used to borrow from the mutual funds and this has now become very selective. Most mutual funds are unwilling to lend against shares to NBFCs after the disastrous performance of stocks like IL&FS, Dewan Housing and Indiabulls Housing Finance. Bond markets could remain subdued till the NBFCs full recover.
The NCLAT has extended the deadline for Essar Steel resolution to February 19th. The Essar promoters had put in a bid of Rs.54,389 crore for Essar Steel after the COC had approved Arcelor bid for Rs.42,000 crore. However, operational creditors have preferred the Ruias offer as it would be a better deal for them. While the COC had originally rejected the bid on the grounds that it was not as per the letter of the law, they have been asked to reconsider it in the light of the substantially higher bid put in by the promoters of Essar. Of course, this case could actually set a precedent for future cases.
