Indian Indices Trade Marginally Higher; Markets Track Revised IIP and WPI Numbers

Mon, 15 May 01:30 pm

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After opening the day on a positive note, Indian share markets witnessed slight losses and are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the metal sector, realty sector and healthcare sector leading the gains. Telecom stocks are trading in the red.

The BSE Sensex is trading up 97 points (up 0.3%) and the NSE Nifty is trading up 31 points (up 0.3%). The BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 0.8%.

In the news from currency markets... The rupee is witnessing buying interest against the dollar today after tracking the gains in Asian currency markets. Presently, it is trading at 64.12 to the US$.

One must note that the rupee is witnessing buying interest of late. It presently is hovering near its 20-month high.

The above appreciation in the rupee comes as a welcome breather for importers in India. A softer rupee helps importers to buy goods and services at a cheaper rate that earlier. This is vital for a developing economy that relies heavily on imports. This bodes well for the Indian economy as higher imports normally mean increased economic activity.

But on the other hand, the rise in rupee can spell trouble for exporters. The exporters are at a disadvantage owing to the currency appreciation as this renders their produce expensive in the international markets as compared to other competing nations whose currencies haven't appreciated on a similar scale. This tends to take away a part of the advantage from Indian companies, which they enjoy due to their cost competitiveness.

Nonetheless, a stronger rupee will pull down commodity prices. This will help in keeping a tab on the rising inflation.

While there are advantages as well as disadvantages of a rising rupee, one needs to understand whether the rise in the rupee is sustainable to derive any reasonable conclusion at this stage.

For one, the weakness of the US dollar is largely due to the relative unattractiveness of US assets. This is in part due to a very low interest rate regime prevalent in the US economy. Already there are indications that this low interest rate regime may not be sustainable for long. This means that US interest rates may go up and this may likely strengthen the US dollar.

To keep a tab on the movements in rupee-dollar and other currencies, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

Apart from the above developments, market participants are tracking the release of revised factory output data and CPI based inflation figures.

The Index of Industrial Production (IIP) date based on the revised base year of 2011-12 (the earlier reported figures was devised by fiscal year 2005 as a base) showed industrial output growth slipped to 2.7% in March. The growth in the index of industrial production (IIP) was 5.5% in March 2016.

The underperformance was seen chiefly on the back of poor performance of the manufacturing sector.

Regarding inflation, with a new 2011-12 base year, the inflation in the country on wholesale level softened to a four-month low in the month of April on the back of cooling food and manufactured items prices. According to the latest data released by the government, the wholesale price inflation (WPI) stood at 3.85% in April as against 5.29% in the previous month and (-) 1.09% during the corresponding month of the previous year.

Build up inflation rate in the financial year so far was (-) 0.18% compared to a buildup rate of 1.21% in the corresponding period of the previous year. Component wise, primary articles index, having revised weight of 22.62%, witnessed a rise of 0.4% to 128.4 (provisional) from 127.9 (provisional) for the previous month.

Among the primary articles, the index for 'Food Articles' group rose by 0.6% to 139.4 (provisional) from 138.5 (provisional) for the previous month and the index for 'Non-Food Articles' group declined by 0.3% to 121.2 (provisional) from 121.6 (provisional) for the previous month.

Fuel & Power index having revised weight of 13.15% decreased by 1.9% to 92.8 (provisional) from 94.6 (provisional) for the previous month owing to lower prices of petrol & high speed diesel.

Around two years ago, the Government came up with a new methodology to calculate GDP. This exercise did little to change things on ground level. However, it did help the Government's report card look good. The GDP growth numbers as per new calculation were higher than as reflected by earlier method. Even RBI had trouble digesting this artificially inflated performance.

Under the new series of WPI, the government has made changes in weights, number of items and quotations between WPI 2004-05 & WPI 2011-12 to get a more accurate picture of output and price trend. Now, the index basket has a total of 697 items, including 117 for primary articles, 16 for fuel and power and 564 for manufactured products, with increase in number of quotations from 5482 to 8331.

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