Inflation to hit 13-14% by Oct-Dec: Kotak Sec

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Mridul Sagar , Chief Economist, Kotak Securities said that inflation is headed towards the 13-14% band between October and December.

He estimates the quarterly GDP growth rate to be around 8%. He views a slowdown in growth in the first quarter. He said, "Our own estimate is that the quarterly GDP growth could be around 8% with significant slowdown coming in manufacturing, electricity as well as construction activity in particular."

Excerpts from CNBC-TV18's exclusive interview with Mridul Sagar:

Q: What's your own expectation this week and where do you see the trajectory of inflation going?

A: The trajectory seems very much the same. Around two months back, we saw inflation heading towards the 13-14% band between October and December. What is very significant is that over the past five weeks, the increase in ticks or the percentage increase in Wholesale Price Index (WPI) each month has come down significantly. It is now closer to 1.8% vis-à-vis 0.51%, which we had seen if you take the preceding seven weeks.

The inflation trajectory still remains in the 13-14% band. 

Q: What is your expectation for this week?

A: This week, I see it basically around 12.77%, which is very much the consensus. So, there could be a slightly larger number as well. We can't rule that out depending upon what is factored into some of the commodity prices like sugar, that has risen. But we still need to watch the numbers.

Q: Tomorrow the GDP numbers would be out as well. Any guesses on what kind of number you are expecting and what is the year in GDP as well according to you?

A: I am afraid that the first quarter might mark the beginning of the slowdown in terms of the numbers. Our own estimate is that the quarterly GDP growth could be around 8% with a significant slowdown coming in manufacturing, electricity as well as construction activity in particular.

So, that should pull the growth down and could basically set a trajectory, which could see India growing at slightly below the potential level of around 7.8% growth. If one uses the normal techniques to arrive at what the potential growth rate is for the Indian economy, we would see a slack coming into the real activity after a long time.