Moody's Economic Growth Forecast, Rising Retail Inflation, and Top Cues in Focus Today

Fri, 15 Nov Pre-Open

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Indian share markets ended their day on a positive note yesterday.

At the closing bell yesterday, the BSE Sensex stood higher by 170 points (up 0.4%) and the NSE Nifty closed higher by 30 points (up 0.3%).

The BSE Mid Cap index ended the day up by 0.1%, while the BSE Small Cap index ended down by 0.1%.

Gains were largely seen in the IT sector and banking sector, while telecom stocks witnessed selling pressure.

September Quarter Results

Muthoot Finance reported a 41% year-on-year (YoY) growth in profit before tax (PBT) at Rs 10.5 billion for September quarter (Q2FY20), on the back of strong operational income.

Net profit rose 77% to Rs 8.6 billion from Rs 4.8 billion in the year-ago quarter.

The company's net interest income (NII) jumped 32% YoY to Rs 14.7 billion against Rs 11.1 billion in the corresponding quarter of the previous fiscal.

The company's management said the demand for gold loans remained strong and the company has tapped various funding avenues.

Suven Life Sciences also reported healthy earnings growth in Q2FY20.

The pharma company reported consolidated profit at Rs 633 million during the July-September period against Rs 39 million in the same period last year, driven by higher revenue and operating income.

Consolidated revenue grew by 206% YoY to Rs 2,743 million in Q2FY20.

Earnings before interest, tax, depreciation and amortization (EBITDA) shot up 10 times to Rs 1.1 billion and margin expanded 2,570 bps YoY to 37.2% in the quarter ended September 2019.

Moody's Cuts India's GDP Growth Forecast

In news from the macroeconomic space, Moody's Investors Service cut India's economic growth forecast to 5.6% for 2019, saying government measures do not address the widespread weakness in consumption demand.

It said that, "we have revised down our growth forecast for India. We now forecast slower real GDP growth of 5.6% in 2019, from 7.4% in 2018. India's economic slowdown is lasting longer than previously expected."

Last week, Moody's had downgraded India's outlook to negative from stable.

Also, on October 10, Moody's slashed India's economic growth forecast for 2019-20 fiscal to 5.8% from an earlier estimate of 6.2%. It had attributed the deceleration to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.

In its Global Macro Outlook 2020-21, Moody's said economic activity in India will pick up in 2020 and 2021 to 6.6% and 6.7%, respectively, but the pace to remain lower than in the recent past.

Moody's said the Reserve Bank of India (RBI) has aggressively cut rates this year, and more rate cuts are likely.

Note that the government has undertaken several measures in order to revive economic slowdown.

In September, it announced a cut in the corporate tax rate to 22% from 30%. It also lowered the tax rate for new manufacturing companies to 15% to attract new foreign direct investments.

Other measures include merger of banks, plans for infrastructure spending, tax benefits for startups and the recent real estate bailout package of Rs 250 billion.

Speaking of rating agencies, as per co-head of research at Equitymaster Tanushree Banerjee, investors who take Moody's downgrade of India too seriously will either suffer losses or miss the bus on the upside.

Here's what she wrote about this in a recent edition of The 5 Minute WrapUp...

• Every time, Moody's has slashed India's rating below the 'stable' category, the economy has bottomed out. And a stock market boom followed.
  
  So, smart investors who bought stocks after Moody's rating downgrade in 1992 and 2002, created life-changing wealth for themselves.
  
  Take advantage of the negativity in the stock market and buy the best stocks that are poised to ride India's economic recovery.

So, don't be in a hurry to see markets soar.

Stay assured that the Moody's rating downgrade is a final indicator of an inflection in India's economic and stock market potential.

Retail Inflation Touches 16-Month High

Retail inflation touched a 16-month high of 4.62% in October due to higher food prices.

Notably, this is the first month since August 2018 that retail inflation has breached the 4% medium-term target set by the Reserve Bank of India. Meanwhile, inflation in food basked rose to 7.9% in October.

Retail inflation, calculated on the basis of Consumer Price Index (CPI), skyrocketed on the back of high vegetable prices. Last month saw exorbitant onion and tomato prices due to unseasonal rains, disruption in supply chain and acquisition restrictions on traders.

Vegetables saw the highest inflation rate of 26.1% in October, followed by pulses and products at 11.7%. Meat and fish showed an inflation rate of 9.8%, whereas eggs got costlier by 6.3%. Remaining items in the food basket reported inflation rates in the range of 1.3% to 4.1%.

The Reserve Bank of India (RBI) mainly factors in the retail inflation while deciding the bi-monthly monetary policy. The central bank has reduced policy rates five times in a row by 135 basis points to 5.15%.

Higher inflation rate might keep the RBI from going ahead with another policy rate cut in its next monetary policy meeting.

Industrial output in September fell by 4.3% due to poor show across all sectors, data released earlier this month showed. The indices of industrial production for the mining, manufacturing and electricity sectors showed de-growth of 8.5%, 3.9% and 2.6%, respectively in the month of September 2019.

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