Midnight News Update – Jul 13th 2017
The CPI inflation came in sharply lower at 1.54% for the month of June 2017 largely on the back of tepid food inflation. In fact, food inflation dipped to a low of -2.12% and was driven deeper into negative territory by pulses and vegetables. In fact, both these items continued to record negative rates of inflation for more than 7 months in succession. CPI inflation has been on the way down since the Kharif harvest last year. With a normal monsoon predicted and record Kharif sowing this year, the food inflation is likely to stay tepid. However, the RBI is unlikely to cut rates despite low inflation.
The Index of Industrial Production came in weaker at 1.7% for the month of May with manufacturing growing at just 1.3%. Since manufacturing constitutes 77% of the IIP compositions it has a direct correlation with the overall IIP trend. Surprisingly, two wheelers showed positive output trend for the month of May as did HR coils. However, commercial vehicles and most pharmaceutical APIs and formulations showed negative growth. The IIP growth has been on a consistent downtrend and is likely to put pressure on the overall GDP numbers as well as the corporate results for the coming quarters.
In the much awaited testimony before the Congress, Janet Yellen has tactfully switched away from referring to low inflation as transitory. What it means is that Janet Yellen genuinely believes that inflation is likely to stay low for a prolonged period of time. By avoiding the word transitory, Yellen has underscored the possibility that the Fed may go still slower on rate hikes to ensure that the market is not forced to become more volatile. The US markets and other global markets received the hint with some glee. US economy has been expanding jobs consistently without triggering inflation.
Having become the fastest growing oil market in the world, India is now looking at oil investments of $300 billion to meet this increasing oil appetite over the next 10 years. India needs investments to boost the production of oil and natural gas as well as to refine, transport and distribute oil to customers. India’s per capita energy consumption is 1/4th of world benchmarks and that is a harbinger of a sharp spurt in demand. The bigger macro challenge for India will be to reduce the dependence on imported oil and that remains a challenge as India currently depends on imports to meet 85% of its oil demand.
With the proposed merger of HDFC Life and Max running into regulatory hurdles, the promoters may look to tweak their original merger plan. Under the modified plan, HDFC Life may look to list itself in the bourses before actually formalizing the merger with Max. The insurance regulator IRDA had objected to the idea of merging an insurance company with an NBFC. The listing proposal could actually delay the actual merger deal towards the end of 2018. HDFC Life may have to move fast because rival ICICI Prudential Life has already listed itself and its market capitalization has already crossed the $8 billion mark. SBI Life also plans to list itself during the current financial year. HDFC Life’s foreign partner, Standard Life, itself is in the midst of a merger with Aberdeen Asset Management of UK.
With the passage of the RERA, the onus of real estate broking is likely to shift more in favour of the institutionalized players. HDFC Realty, the real estate broking arm of HDFC, plans to grow its business to a top-line of Rs.250 crore over the next 5 years. Its revenues have already grown 3-fold in the last 4 years, albeit on a much smaller base. Currently commercial space contributes 35% of its total revenues but HDFC Realty expects that to grow to 60% share in the next few years. The passage of the RERA has meant that the traditional mom-n-pop real estate brokers will either have to shut shop or sell out.
