Food inflation appears to be back in play as retail Inflation (CPI) inched up to 2.92% for the month of April. The retail inflation was slightly higher than 2.86% reported in March, although it is much lower than the figure estimated by many economists. The food basket inflation was up from 0.3% to 1.1% and that really contributed to the bulk of the increase in inflation in the month of April. Core inflation eased to 4.55% in April even as headline inflation remains the key input for RBI rate policy. The inflation inching closer to the 4% mark may be a good reason for the RBI for one more rate hike.
The US-Iran war now appears to be degenerating into a geopolitical crisis in the Middle East. On Monday, Saudi Arabia confirmed that its vessels were attacked off the coast of UAE and the confirmation came from the UAE government that the four vessels had been attacked off the coast of Al Fujairah, which is near to the Strait of Hormuz. This assumes significance because the Strait of Hormuz is controlled by Iran and moves 30% of the world’s crude. Saudi has not named Iran as the aggressor. Geopolitical risk took Brent crude higher but later retreated to $70/bbl on trade war fears.
The trade war may be well and truly on as China has decided to go ahead with retaliatory tariffs despite Trump warning. In fact, China has decided to go ahead and impose punitive tariffs on over 5,100 US products amounting to $60 billion effective from June 01st. This is despite Trump warning China to refrain from retaliatory tariffs. Over the weekend, the trade talks had broken down and Trump had gone ahead and imposed 25% tariffs on Chinese imports worth $200 billion. Markets cracked across the board as China promised to expand the scale and methodology of retaliation.
The big casualty in the bourses was the pharma index which fell 4.4% on Monday on a US lawsuit against Teva Pharmaceuticals for inflating product prices and price fixing. The lawsuit has named Lupin, Glenmark, Reddy Labs, Aurobindo and Taro (a subsidiary of Sun Pharma) among the Indian pharma companies. The 500-page lawsuit has accused the generic drug manufacturers of cartelizing to hold generic drug prices higher in the US. While the US reaction is not known, the US has generally been touchy on generic pricing and that was one of the major agendas of Hilary Clinton.
Nifty and Sensex fell for the 9th successive day as the Sensex has now lost over 2000 points since the trade war erupted. There was selling across autos, banks, pharma, metals, and autos. The A/D ratio was extremely unfavorable at 10:40. Since the beginning of May, FIIs have also been consistent sellers in the Indian markets VIX was elevated at 27.15 ahead of the election counting on 23rd May. Meanwhile, the Indian rupee touched a 2-month low of 70.54/$ as FPI outflows aided rupee bearishness. FPIs have been consistently selling over Rs.1000 crore on an average each day which spooked the rupee. The higher oil prices and the geopolitical risk have also added to the rupee weakness. The trade war has raised fears of China devaluing its currency and Indian exports seeing weak growth.
The Indian smartphone market has grown at 7% in the March quarter. According to an IDC report, Indian smartphone shipments grew by 7% to 3.21 crore units, which is appreciable considering that the global market for smartphones saw shipments fall by 6%. Xiaomi leads the smartphone market in India with a 31% market share while Samsung followed with 22.3%. Vivo and Oppo were the other material players in the Indian smartphone market. Despite the pressure in the telecom services space, smartphones have been in demand and that number has been consistently growing.
