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The key takeaway from the latest inflation data is that the increase in prices may not be transitory. Wholesale prices rose at their fastest pace in five months in October. Retail inflation data, released earlier, stood above the Reserve Bank of India’s (RBI) comfort zone.
Importantly, consumer price inflation increased in October despite a favourable base effect. Now that the favourable base effect is waning, the inflation print is likely to increase in the coming months as well.
The bigger challenge, as Manas Chakravarty points out in today’s edition, is inflation management amid a recovery. This month’s RBI Bulletin discusses the Phillips curve, which suggests that higher economic output can be achieved only at the cost of higher inflation. India faces this risk and that may trigger monetary policy action by the central bank.
“Indeed, the article (RBI paper) points out that ‘core inflation, which is perceived to be demand-driven and amenable to monetary policy action, is high and persistent.’ That’s a hint that the current inflation is not just about supply disruptions,” he writes. Do read.
Elsewhere, the rise in inflation has triggered buying in gold. The precious metal, long seen to be a preserve of value, is seen to be a natural hedge. The fear is that rising prices may hit corporate profits which in turn may weigh on economic growth. But RBI sees no such risks for India yet. In fact, its latest report indicates an acceleration in the economic recovery. Read our analysis here.
Our latest edition of the Economic Recovery Tracker supports the RBI’s view. Weekly indicators are showing an uptick in power consumption, consumer sentiment and vehicle sales. Separately, the Nomura India Business Resumption index rose to a record high in the week ended November 14.
“So far, festive demand has been strong in Q4, with retail sales up by ~74 percent year-on-year over the Diwali week, which presents an optimistic outlook for the ongoing wedding season and year-end festivities,” Nomura said in a note.
On the climate front, we analyse the implications of the planned emission cuts on Coal India, the largest producer of coal in India. The climate plan involves reduction of coal and fossil fuel usage by ramping up renewable and green energy technologies. However, achievement of these climate goals is contingent on breakthroughs in green energy technologies and costs, argues Prosenjit Datta in today’s piece.
Investing insights from our research team:
Is the worst over for Bandhan Bank?
Ashok Leyland: Demand momentum, product launches to augur well
Which gold financing company to bet on?
Thermax: Business improves, but valuation tempers excitement
What else are we reading?
Has SEBI jumped the gun in clearing a blockchain fund?
Crypto Conversations: How investors can identify fake cryptocurrencies and safeguard investments
China’s nuclear build-up: ‘one of the largest shifts in geostrategic power ever’ (republished from the FT)
Picks from our technical analysts: Max Health, ZEEL, Fortis Healthcare and Titan (These are published every trading day before markets open)
R Sree Ram
Moneycontrol Pro
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