Helping You Build Wealth With Honest Research
Since 1996. Read On...

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Revealed
India's Third Giant Leap

This Could be One of the Biggest Opportunities for Investors




Important: We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
By submitting your email address, you also sign up for Profit Hunter, a daily newsletter from Equitymaster
covering exciting investing ideas and opportunities in India.

AD

Is India really close to deflation?
Wed, 9 Sep Pre-Open

There's a new twist to the inflation story in India. According to the government inflation, India's most feared challenge will be replaced by deflation. As an article in Livemint pointed out, chief economic adviser Arvind Subramanian has reportedly expressed his fear of India being in or close to deflation territory. This is unusual as India has been hobbled by high inflation for decades. Let's have a look on what has happened.

The main issue seems to be the sharp divergence in WPI and CPI indices. While the WPI indicates falling prices, the CPI indicates rising prices. The gap between these two measures of inflation has widened recently. Policy makers are not sure which one to follow. This has stirred up more questions rather than giving clear answers.

The Wholesale Price Index (WPI) decreased for the first time in November in 2014. It has been negative every month since then. By and large, the fall has been accelerating and the index in May 2015 was 4.1% below than a year earlier. One of the many reasons behind this is the sharp fall in the prices of crude oil which has 9% weightage in the index. The other factor is the slowdown in the Chinese economy. This has brought down import prices of various commodities.

On the other hand, the pace of the pass-through to retail inflation has been slow and the magnitude less than desired. The Consumer Price Index (CPI) still points to inflation rate of 3.8%. The Reserve Bank of India (RBI) has stated that the CPI could rise in the coming months.

It is clear that the CPI which is the more accurate measure of the two suggests that inflation in India is not dead. The difference in views between the RBI and the government can be explained by the fact that deflation would imply lower interest rates. The government would find this desirable. On the contrary, the RBI correctly continues to stick to its CPI inflation targets.

The government would like the economy to boom. Cheaper credit would certainly help speed up the process. It has been trying to influence the RBI to bring down interest rates more aggressively. However, the Reserve Bank has not given any impression to do so. We believe the RBI is right to focus on the CPI. It is not only the measure used by central banks all over the world it also reflects the level of inflation that the common man experiences.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Is India really close to deflation?". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited).

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.