Strong IIP data and higher inflation makes a strong case for rate hike
Come 16th September, Reserve Bank of India (RBI) chairman Subbarao will be under severe pressure to announce a rate hike. While the feelers from the Finance ministry clearly indicates that hike is imminent, the extent of the hike is unknown.
Market sources are undecided while we expect a 25 basis rate hike and anything above that will be a big negative. We do not see a case for more than 25 basis point rate cut though.
Global positives
US Markets closed the last 2 trading sessions in green on better than expected economic data. But overall the situation is very sketchy as far as global markets are concerned. On the other hand china's economy is showing flamboyance but inflation concerns still remain.
Asian markets are trading strong on Monday morning with Japan's Nikkei inching up 1 pct and South Korea's Kospi, up half percent.
Strong IIP data
India’s industrial output surged 13.76% in July from a year ago, a good 6 percentage points above the median analyst forecast and far higher than the June figure, downwardly revised to 5.76%. Capital goods stocks might be in the limelight today.
Economists expect IIP to come down to single digits in the next two to three months, also because of a “strong base effect”.
Inflation
Inflation data is due on September 14 might set another case for RBI. Inflation numbers above 10 pct might propel the central bank to go for a rate hike. Food inflation rose to 11.47 per cent during the last week of August.
According to Mr.Montek Singh, Deputy Chairman of Planning Commission the inflation numbers will come down drastically to the range of 5-6 percent. We believe this is tough to achieve given the macro economic conditions.
Markets ahead
We expect markets to trade positively today but as we approach the 16th deadline we remain extremely cautious as market might not take the news to heart. If correction gives this week a miss then we are in for a feast for the rest of the month