Motilal Oswal Institutional Equities believes headline CPI has peaked out. "If so, it is likely to provide some relief to market participants, especially in the bond market - as this is a sign that the RBI may stay on the current course for longer than was feared."The broking firm expects IIP to remain broadly unchanged in YoY terms in Jun’21, before reporting marginal growth of 1-2% YoY over Jul-Aug’21. "Overall, we do not see RBI hiking rates in FY22."
"CPI-based retail inflation came in unchanged at 6.3% YoY in Jun'21. The number was marginally above our expectation of 6.1%, but below the Bloomberg consensus of 6.6% YoY in Jun’21. More importantly, price data for Jun'21 was collected from ~80% of the markets, compared with ~68% in May’21, implying better reporting as lockdown rules eased in several states last month.
While food inflation came in at 5.2% YoY in Jun’21 (vis-à-vis 5% inflation in May’21), fuel and light inflation rose to 12.7% YoY (v/s 11.9% YoY in May’21) and inflation in clothing and footwear to 6.2% YoY (from 5.3% YoY in May’21). On the other hand, inflation in miscellaneous items came in flat at 7.3% YoY in Jun’21. Within miscellaneous items, education and household goods and services were the only sub-components to have reported higher YoY inflation in Jun'21. Core inflation inched up to 6.3% YoY in Jun'21 (from 6.2% YoY in May’21).
Separately, IIP grew 29.3% YoY in May'21 (against growth of 134.6% YoY in Apr’21 and decline of 33.4% YoY in May'20) - above our expectation of 15.6% YoY, but marginally below the Bloomberg consensus of 32% YoY. Notably, IIP numbers for Feb'21/Apr'21 were revised up to -3.2%/134.6% YoY (from -3.4%/134.4%).
Manufacturing activity (IIP weight: ~78%) grew 34.5% YoY, mining activity (IIP weight: ~14.4%) grew 23.3% YoY, and power generation (IIP weight: ~8%) grew 7.5% YoY in May’21. All three were led by very low bases of -37.8%, -20.4%, and -14.9% YoY, respectively, in May’20. Similarly, all use-based categories grew sharply in May’21 on a low base."
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