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Kolkata, Outlook for bank <keyword id="6354680" type="General" weightage="20" keywordseo="credit" source="Orion">credit</keyword> offtake remains positive in 2024 while deposit growth is expected to improve, according to the latest research report of <keyword id="19974164" type="General" weightage="20" keywordseo="careedge-ratings" source="keywords">CareEdge Ratings</keyword>. The report said that credit offtake continued to grow, increasing 20.3 per cent year-on-year to reach Rs 159.7 lakh crore for the fortnight ending January 12, 2024. The rise was due to the impact of the merger of <keyword id="19896378" type="General" weightage="20" keywordseo="hdfc" source="keywords">HDFC</keyword> with <keyword id="19895995" type="General" weightage="20" keywordseo="hdfc-bank" source="keywords">HDFC Bank</keyword> along with growth in personal loans. If the impact of the merger is excluded, credit grew at a lower rate of 16.1 per cent year-on-year for the fortnight compared to last year's growth of 16.5 per cent, the report said. Deposits also grew 13.1 per cent year-on-year the fortnight (including the merged impact). The report said that deposit growth is expected to improve in 2024. The outlook for credit offtake continues to remain positive in 2024 supported by factors like economic expansion and continued push for retail credit supported by increasing digitalisation, according to the report. Unsecured personal loans and <keyword id="19938496" type="General" weightage="20" keywordseo="nbfc" source="keywords">NBFC</keyword> advances might witness a certain level of cooling off, the report said, adding that currently, capital levels are quite comfortable for banks and NBFCs. Higher interest rates, inflation and global uncertainties regarding geo-political issues are other key factors which could weigh on credit growth, the report said. The credit-deposit (CD) ratio has been generally hovering below 80 per cent since September 2023, the report said. The CD ratio saw an uptick of 44 basis points and stood at 79.9 per cent in the fortnight ending January 12, 2024, reaching a three-year high. Deposits have seen relatively steady performance since the COVID times, the report said. However, in recent years, credit growth has been significantly outperforming deposit growth, it said.

Outlook for bank credit offtake remains positive in 2024: CareEdge Ratings

Kolkata, <keyword id="3658" type="General" weightage="80" keywordseo="india" source="Orion">India</keyword> should be rated at least one or two grades higher than what it is at present by global rating agencies, <keyword id="1241350" type="General" weightage="50" keywordseo="sanjeev-sanyal" source="Orion">Sanjeev Sanyal</keyword>, Member of the <keyword id="109248" type="General" weightage="50" keywordseo="economic-advisory-council" source="Orion">Economic Advisory Council</keyword> to the Prime Minister, said. <keyword id="268371" type="General" weightage="100" keywordseo="sanyal" source="Orion">Sanyal</keyword> said India just about makes it past the investment grade in the ratings of the agencies, which is "utterly absurd". "In terms of sovereign ratings, if India was fairly rated, it should be at least one, if not two grades higher. There is no reason for India to be at the bottom of the investment grade," Sanyal said. He was speaking at the <keyword id="18313943" type="General" weightage="50" keywordseo="careedge-conversations" source="Orion">CareEdge Conversations</keyword> here on Monday on the theme 'India: Reversing the Gaze'. Sanyal said frameworks of the rating agencies should be questioned, and India should realise that those can be replaced with "ease". "Why should we have to abide by rules and norms of the West, which we had no role in framing....just like the several indices where we feature below 100," he added.

India's sovereign ratings by global agencies utterly absurd: Sanjeev Sanyal

<ul><li>With an increase in <keyword id="6354680" type="General" weightage="20" keywordseo="credit" source="Orion">credit</keyword> offtake, the <keyword id="568129" type="General" weightage="20" keywordseo="credit-deposit-ratio" source="Orion">credit deposit ratio</keyword> reached almost 75.04% as of April 7, 2023. </li><li>In April, the banking system's liquidity changed from a deficit to a surplus due to government spending and the Reserve Bank of India's (RBI) foreign exchange intervention.</li><li>In the current environment of rising interest rates, the median 1-year MCLR for Scheduled Commercial Banks increased from 8.55% in March 2023 to 8.6% in April 2023.</li></ul>In March 2023, both lending and deposit rates rose, but the rate of increase was faster for the deposit rates than lending rates. Moreover, the rates for fresh business (new loan taken by a borrower) have increased at a faster clip when compared to rates for outstanding business (old loan that is yet to be repaid). March also witnessed a surge in <keyword id="632526" type="General" weightage="20" keywordseo="credit-demand" source="Orion">credit demand</keyword> due to growth seen in personal loans, working capital loans, and the participation of non-banking financial companies (NBFCs) resulting in double-digit growth, according to a BFSI Research report by credit rating agency CareEdge. <cmsannotation type="cmsannotation" annotationid="Credit deposit ratio reaches almost 75.04% on April 7" comment="subhead" text="Credit deposit ratio reaches almost 75.04% on April 7"><keyword id="5173780" type="General" weightage="20" keywordseo="credit-deposit" source="Orion">Credit deposit</keyword> ratio reaches almost 75.04% on April 7</cmsannotation> However, the mobilisation of deposits has been relatively low, and the credit offtake has increased, causing the credit deposit ratio to reach almost 75.04% as on April 7, 2023. At the beginning of FY23, the banking system had a surplus of ₹6.3 lakh crore in liquidity. However, it has reduced over time and eventually turned into a deficit towards the end of FY23. Hence liquidity had been injected into the system. In April, the banking system's liquidity changed from a deficit to a surplus due to government spending and the Reserve Bank of India's foreign exchange intervention. However, the liquidity infusion was somewhat offset by the redemption of long-term repo operation (LTRO) and targeted long-term repo operation (TLTRO). LTRO and TLTRO are monetary policy tools used by the RBI to inject liquidity into the banking system. <cmsannotation type="cmsannotation" annotationid="Weighted average call rate rises to 6.52% as on April 21" comment="subhead" text="Weighted average call rate rises to 6.52% as on April 21">Weighted average call rate rises to 6.52% as on April 21</cmsannotation> To maintain liquidity at a neutral level, the RBI may continue to conduct variable rate reverse repo (VRRR) auctions – a tool used by the RBI to manage liquidity in the banking system. There has been an increase in the short-term weighted average call rate (WACR) from 3.53% as of April 22, 2022, to 6.52% as of April 21, 2023. This rise in WACR can be attributed to a combination of higher policy rates and a reduction in liquidity within the system. The WACR is an indicator of the overall liquidity conditions in the banking system. <cmsannotation type="cmsannotation" annotationid="Lending rates on the rise" comment="subhead" text="Lending rates on the rise">Lending rates on the rise</cmsannotation> The weighted average lending rate (WALR) – which is the weighted average of all the interest rates that a bank charges on its outstanding loans – on fresh loans has continued to increase month-over-month (M-o-M). For public sector banks (PSBs) it’s up by 11 basis points (bps), for private sector banks (PVBs) by 21 bps, and for scheduled commercial banks (SCBs) by 8 bps. The lending rates on fresh loans for PSBs, PVBs, and SCBs have surpassed their levels in March 2020. In addition, the WALR on outstanding loans has also increased M-o-M across all segments – for PSBs by 7 bps, for PVBs by 4 bps, and for SCBs by 5 bps. Interestingly, foreign banks have experienced a decrease in their lending rates. The spread between the WALR on outstanding loans and WALR on fresh loans for PSBs and PVBs has continued to narrow M-o-M due to a higher increase in WALR on fresh loans than on outstanding loans. In the current environment of rising interest rates, the median 1-year MCLR (marginal cost of funds-based lending rate) for SCBs increased from 8.55% in March 2023 to 8.60% in April 2023. Despite the Monetary Policy Committee (MPC) taking a pause from rate increase at its last meeting, banks have continued to raise rates. This has had a faster impact on the lending rate of new loans, while older loans are re-priced based on specific repricing dates. As a result, the spread between the WALR for outstanding loans and the WALR for new loans is expected to narrow in the short term and stabilise in the medium term.

Deposit rates rise faster than lending rates in March 2023: CareEdge

<ul><li>The cumulative recovery rate has been on a downtrend, decreasing from 43% in Q1FY20 and 32.9% in Q4FY22. </li><li>The number of cases admitted for insolvency resolution has increased y-o-y in Q3FY23 by around 25%. </li><li>Of the total 6,199 cases admitted into CIRP at the end of December 2022, only 10% have ended in approval of resolution plans. </li></ul>The overall recovery rate in <keyword id="5289100" type="General" weightage="20" keywordseo="insolvency-cases" source="Orion">insolvency cases</keyword> till Q3FY23 was 30.4% implying that lenders took a haircut of approximately 70%, according to a report by CareEdge, a credit rating company. The cumulative recovery rate has been on a downtrend, decreasing from 43% in Q1FY20 and 32.9% in Q4FY22 as larger resolutions have already been executed. A significant number of liquidated cases were either Board for Industrial and Financial Reconstruction (BIFR) cases and/or defunct with high resolution time, coupled with lower recoverable values. The number of cases admitted for Corporate Insolvency Resolution Process (CIRPs) has increased y-o-y in Q3FY23 by around 25% after reducing in the last few quarters in FY21 and FY22 which saw a slowdown due to the pandemic. Despite the increase, the number of cases admitted to the insolvency process continues to be lower compared to earlier quarters in FY19/20. The number of cases admitted for CIRPs has increased each quarter since the launch of the Insolvency and Bankruptcy Code in 2016, highlighting the rising acceptance of IBC as an effective debt resolution mechanism. IBC has continued to gain in popularity, with close to 6,200 companies being admitted and a significant number of these cases on a cumulative basis till December 2022 being filed by the financial creditors (2,692 cases) and the operational creditors (3,133 cases). The share of corporate debtors has continued to remain the smallest over the same period. Of the 2,000 ongoing CIRPs, there has been a delay of more than 270 days for the completion of the process of 64% of ongoing CIRPs in December 2022 which is a decline of 9% as compared to 73% in December 2021. Further, the report observes that the ‘more than 180 days but less than 270 days’ segment is the second largest indicating that quite a few cases which had commenced in the earlier quarters have piled up, while the other two categories continue to have quite a few cases in them highlighting the significant delays in the process.

Creditors take a haircut of 70% in insolvency cases: CareEdge report

Retail assets <keyword id="141555" type="General" weightage="20" keywordseo="securitisation" source="Orion">securitisation</keyword> volumes witnessed a sharp rise of 113% year-on-year to Rs 33,000 crore in first quarter of financial year 2022-23. This was on back of as usual business activities on account of low curbs on movement of people or goods allowed the economic activity to continue and aid the gradual improvement in credit uptake. Last year in the same period, securitisation volume was around Rs 15,500 crore. The retail market volume was again driven by direct assignment transactions, which had a lion's share of 61% of the overall size, while the remaining share was that of pass through certificate deals. Within direct assignment, the dominant asset class was mortgage-backed securitisation (MBS) with an aggregate size of around Rs 13,000 crore, followed by asset-backed securitisation (ABS) at around Rs 4,000 crore, which includes pools backed by all the asset classes. Meanwhile, pass through certificate's volume was mainly driven by ABS pools contributing around 73% of the total issuances. The leading asset class driving PTC issuances was vehicle loan financing at around Rs 7,600 crore accounting for around 59%. "There are signs of overall improvement in the level of economic activity and we expect strong growth in disbursements by NBFCs sector backed by rising credit uptake. This coupled with the focus on retail loan book expansion through inorganic channels and increased pressure to meet <keyword id="46657" type="General" weightage="80" keywordseo="psl" source="Orion">PSL</keyword> requirements for banks augurs well for the securitisation market as a whole," <keyword id="12745023" type="General" weightage="80" keywordseo="careedge" source="Orion">CareEdge</keyword> said in a report. CareEdge believes that this will lead to around 40% increase in overall retail volumes in FY23 as compared with FY22. SEE ALSO : <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/science/health/news/swine-flu-resurfaces-in-keralas-wayanad-first-time-in-kannur/articleshow/93267832.cms">Swine flu resurfaces in Kerala's Wayanad, first time in Kannur</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/tech/news/amazon-great-freedom-festival-date-announced-sale-starts-august-6-onwards/articleshow/93268050.cms">Amazon Great Freedom Festival date announced - sale starts August 6 onwards</a>

Securitisation of retail assets jumps 113% on higher credit offtake

New Delhi: While the <keyword id="20199673" type="General" weightage="20" keywordseo="moderation" source="keywords">moderation</keyword> in <keyword id="20468215" type="General" weightage="20" keywordseo="CPI" source="keywords">CPI</keyword> <keyword id="19895000" type="General" weightage="100" keywordseo="inflation" source="keywords">inflation</keyword> is a welcome development, experts caution that the road ahead could be bumpy. The sequential momentum in <keyword id="19960157" type="General" weightage="20" keywordseo="food-prices" source="keywords">food prices</keyword> remains strong, with a 2.5 per cent month-on-month increase in prices, higher than the average sequential growth, indicating that inflationary pressures may persist. The uneven distribution of monsoon rainfall and the potential for excess rainfall in the coming months pose additional risks to food prices. RajSinha, Chief Economist at CareEdge, noted, "Despite the moderation in the inflation of the food and beverage basket when compared to last year, the sequential momentum remains strong, with a 2.5 per cent M-o-M increase in prices, higher than an average sequential grow." Dharmakirti Joshi, Chief Economist at CRISIL, highlighted the impact of the high-base effect, stating, While the high-base effect -- along with sequential monthly movements -- was supportive of food inflation, it had an adverse bearing on core inflation. The big worry now is food prices continue to be elevated with the on-month rise slightly higher than usual for July. "The good part is monsoon and sowing have been progressing well and the expectation is that the arrival of fresh supplies in the market should over the next few months curb the food price rise. Overall, though, we expect inflation to ease and average 4.5 per cent this fiscal mostly due to softer food prices. This should allow the <keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword> to begin cutting earliest by October", Joshi added. Raghvendra Nath, Managing Director of Ladderup Wealth Management, expressed optimism regarding the CPI data, stating, "This decline is primarily attributed to a reduction in the Consumer Food Price Index, which fell from 9.36 per cent in June to 5.42 per cent in July. This improvement should offer reassurance to the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (RBI), which has indicated that <keyword id="19920341" type="General" weightage="20" keywordseo="rate-cuts" source="keywords">rate cuts</keyword> will occur only when inflation sustainably aligns with its 4 per cent target. He added, "Positive expectations for the monsoon and adequate buffer stocks support the continued downward trend of CPI. However, any substantial rise in crude oil prices due to the ongoing geopolitical crisis could adversely affect inflation and the broader economy." Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry, also commended the decline in CPI inflation, stating, "It is highly appreciable that the CPI inflation has exhibited a decline in the year-on-year inflation rate at 3.5 per cent for the month of July 2024 from 5.08 per cent in June 2024." He added, "The food and beverages inflation eased sharply from 8.4 per cent in June 2024 to 5.06 per cent in July 2024 and fuel and light inflation from -3.7 per cent in June 2024 to -5.4 per cent in July 2024, are the main drivers of the softening inflation trajectory." India's Consumer Price Index (CPI) inflation eased significantly to 3.54 per cent in July 2024, marking its lowest level in nearly five years and a sharp drop from 5.08 per cent in June. This decline, which brought inflation below the Reserve Bank of India's (RBI) medium-term target of 4 per cent for the first time since 2019, has been largely attributed to a favourable base effect and a dramatic reduction in <keyword id="20621131" type="General" weightage="20" keywordseo="vegetable-prices" source="keywords">vegetable prices</keyword>. The primary driver behind this sharp moderation was the steep fall in vegetable inflation, which plummeted from 29.3 per cent in June to 6.8 per cent in July. The Consumer Food Price Index (CFPI) also saw a significant reduction, falling from 9.36 per cent in June to 5.42 per cent in July, contributing to the overall easing of CPI inflation. (ANI)

Experts welcome moderation of inflation in July, by warns of continued inflationary pressure ahead

<ul><li>Exports of cut and polished diamonds fell sharply by 32% in July, indicating a reversal of the boom seen in FY22 and stable demand in FY23.</li><li>The US accounts for 50% of demand for polished diamonds. During the pandemic, demand was driven by stimulus and lack of other spending avenues.</li><li>High inflationary pressures in consuming nations and shift in preference to lab grown diamonds is hurting India’s <keyword id="1411712" type="General" weightage="20" keywordseo="diamond-polishing" source="Orion">diamond polishing</keyword> markets.</li><li>Exports of polished diamonds are expected to decline 10-15% on an annual basis to $19-20 billion, predicts a report by CareEdge. </li></ul>Diamonds are forever, they say, but the love for bling is waning in different ways. Not only is demand from consuming nations like the US coming down, and preferences too are shifting towards lab grown diamonds. This will hit India which is the world’s largest cut and polished diamond (CPD) center. Its exports will decline 10-15% in FY24 to $19-20 billion, predicts CareEdge. In July, CPD exports, in value terms, declined by 32% on a year-on-year basis, the report adds, highlighting the pain points in the sector. Demand for diamonds has remained largely stable in FY23, after growing robustly during the pandemic years of FY22. However, the pandemic boom in diamonds was driven by the financial stimulus provided by the US government and lack of experience based spending avenues. But things have gone downhill since. Linked to US spending patterns While diamonds polished in India are exported to jewellery manufacturing and trading centres in the US, UAE, Hong Kong, and Belgium, the US is a key for diamond consumption. It accounts for 50% of polished diamond consumption and Indian CPD markets fortunes are heavily linked to US consumption patterns. “Recent headwinds such as high inflationary pressures across major diamond-consuming nations continue to weigh on CPD processors in India as is evident from the sharp decline in month wise CPD export data. Anticipating the trajectory ahead, we envision this moderated demand for polished diamonds to recover in the forthcoming holiday season,” said CareEdge. The US market will remain tight in the coming months, expect most experts in the bullion industry. “With savings from the pandemic era dwindling, credit card debt rising and interest rates staying high, risk of a hard landing for the US economy remains,” said Ghazal Jain, fund manager of alternative investments at Quantum Mutual Fund in her September outlook on gold. Diamonds from labs India also has a vibrant law grown diamonds (LGD) industry which is on a growth path as it is in nascent stages. LGD exports from India surpassed $1 billion in FY22 and have continued to remain strong in FY23 with exports at $1.65 billion. This segment is seeing greenshoots even as <keyword id="2361401" type="General" weightage="20" keywordseo="natural-diamonds" source="Orion">natural diamonds</keyword> are going through a temporary disruptive phase, says CareEdge. They are ethical, conflict-free and environmentally friendly and are also much more affordable than natural diamonds. “While the natural diamond is going through a temporary disruptive phase, green shoots appear in the LGD segment. With the same physical properties and chemical properties as natural diamonds, it has developed as a separate, more affordable diamond jewellery category and not merely a substitute for natural diamonds,” says CareEdge. Unlike in the CPD industry, India does not have a dominant position in the LGD market. China accounts for 40-45% of the production, with hubs in Russia as well. The overall exports of LGD from India showed some moderation in the last two quarters ending Q1FY24 in value terms. This, however, is due to a sharp decline in LGD prices, but in volume terms it has remained strong. Over FY20 to FY23, the export of polished LGDs from India surged by approximately 41%. In line with the growth, substantial capacity expansions are being undertaken in India, and with growing acceptance of LGDs, the value of polished LGD exports from India is expected to exceed $3 billion by FY26, predicts CareEdge — indicating that all is not lost as the world changes its preferences. (This is the second article in the Boom to Bust series which discusses the post-pandemic trends.) SEE ALSO <a href="https://www.businessinsider.in/business/news/how-pizza-hut-kfc-dominos-lose-their-post-pandemic-boom-effect/articleshow/103438807.cms">The Quick and the Dead: How fast food players lost their pandemic boom effect</a>

Diamond demand heads for a hard landing with ‘temporary disruption’ at play

<ul><li>High vegetable inflation, driven by hardening onion prices, has kept food inflation at 8.66% in February.</li><li>With low reservoir levels in many states, food inflation in FY25 is expected to be driven by monsoons, say experts.</li><li>The RBI is focused on bringing inflation below 4% and might continue the status quo for a longer time now, believe experts. </li></ul>In February, retail inflation came in on expected lines at 5.09%. However, high vegetable inflation, driven by hardening onion prices has kept food inflation up at 8.66%. Experts now believe that the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (RBI) which has been focussed on bringing inflation to 4%, will maintain the status quo in the upcoming credit policy. “We expect inflation to average 4.8% in FY25. Given that the RBI Governor has been highlighting the aim of getting inflation to 4% on a durable basis, the policy rates are likely to be kept on hold in the upcoming policy meeting, with no change in stance,” said <keyword id="20938330" type="General" weightage="20" keywordseo="rajni-sinha" source="keywords">Rajni Sinha</keyword>, chief economist, CareEdge Ratings. Regulator to continue cautious stance Despite expectations from the market, the RBI has maintained its ‘withdrawal of accommodation’ stance in the last policy meeting in February. This policy, aiming to curtail inflation further, entails a reduction of easy money supply in the system, which started during the initial COVID-19 phase. RBI governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword> had also earlier spoken about the risk of food inflation spilling into broader inflation. “We retain our view that RBI will remain cautious on volatile food inflation trajectory and hence prefer to remain in pause mode on rates till August policy. However, with RBI already having continuously fine-tuning liquidity and easing overnight rates closer to the repo rate, we see room for a shift in stance in the June policy,” said <keyword id="20169699" type="General" weightage="20" keywordseo="upasna-bhardwaj" source="keywords">Upasna Bhardwaj</keyword>, chief economist at <keyword id="19938495" type="General" weightage="20" keywordseo="kotak-mahindra-bank" source="keywords">Kotak Mahindra Bank</keyword>. Agrees Akhil Mittal, Senior Fund Manager-Fixed Income, <keyword id="20929846" type="General" weightage="20" keywordseo="tata-asset-management" source="keywords">Tata Asset Management</keyword>, “We anticipate the regulator to maintain a cautious stance. We think RBI would rather continue with stability priority and continue maintaining the 4% inflation target as sacrosanct, and hence we do not see a premature easing from RBI.” Vegetable inflation zooms, pulses in a tough zone Vegetable inflation came in high at 30.3% in February, and experts believe that pricey onions will keep food inflation elevated. Inflation in pulses, spices and eggs also saw double-digit inflation. Edible oils and fats have brought down inflation to an extent with negative growth. The food basket has nearly 50% weightage in the consumer price inflation (CPI) data. “Inflation is purely a food inflation-driven phenomenon which will continue to pressurise inflation in the coming months. Besides, horticulture output this year is expected to be lower than last year. Cereals, eggs, sugar, spices and pulses are the other pain points here,” comments <keyword id="20102121" type="General" weightage="20" keywordseo="madan-sabnavis" source="keywords">Madan Sabnavis</keyword>, chief economist at Bank of Baroda. The outlook for food prices is also bleak with lower reservoir levels and their impact on agricultural output. “The ongoing high inflation in specific food categories, including cereals, pulses, spices, and vegetables pose a risk of potentially broadening price pressures and de-anchoring inflationary expectations. Reservoir levels, particularly in eastern and southern India, persist at lower levels. Consequently, the forthcoming monsoon in FY25 holds significant importance for the trajectory of food inflation,” said Sinha. Core inflation has however remained soft, staying below the 4% threshold for three consecutive months. Rural inflation came in higher at 5.3%, while urban inflation is at 4.8% — mostly due to higher weightage of food products in the former index. Twelve of India’s 22 states saw inflation of above 5.1%. Odisha had the highest at 7.6%, while Delhi saw the lowest at 5.3%.

RBI likely to maintain status quo after food inflation keeps Feb print high, say experts

<ul><li>Food inflation was the major driver of June CPI which hit a three-month high.</li><li>Tomato price inflation was at 64%, onions at 8.1%, and potato at 10.5% on a sequential basis.</li><li>Retail prices of pulses reported double-digit growth for the third consecutive month.</li><li>On a sequential basis, wheat and rice inflation also picked pace in June. </li></ul>India’s <keyword id="513422" type="General" weightage="20" keywordseo="retail-inflation" source="Orion">retail inflation</keyword> is at a three-month high in June at 4.8%, but it may not have reached its peak yet. Many climate related factors have been playing havoc with food inflation, and with most of North India under floods and this will only add to the pinch on the pocket, economists have warned. “Nine states had inflation above the average while six had above 5% — UP, Uttarakhand, Rajasthan, Kerala, Bihar and Haryana. The recent floods and landslides in the North will tend to push up inflation further in these states on the food side — especially vegetables and fruits which can add another 0.2% to headline inflation,” said Madan Sabnavis, chief economist at Bank of Baroda. Food inflation is a heavyweight in consumer price inflation (CPI), and drove it up in June, even as core inflation cooled as compared to the last month. “Food inflation was the major driver for higher headline inflation print; up by 218 basis points month-on-month versus 67 basis points in the last month due to a 12% hike in vegetables prices,” said a report by Phillip Capital. Price shock: Grains join tomatoes Vegetable prices however are on top of everyone’s minds, and it could get worse as prices of tomatoes refuse to inch down. In June, its prices went up by 64%. But other key vegetables like onion were high too at 8.1%, and potato at 10.5% – on a sequential basis. A report by SBI Ecowrap says that the past 10 years data shows that tomato price increase alone did not influence the overall CPI inflation much — except when it is accompanied by substantial increase in price of potato and onion. “We believe if tomato price increase without any substantial change in potato and onion then average inflation in Q2 FY24 will come near 5.8% yoy but if the TOP (tomato, onion, potato) inflation increases, then CPI might come around 6% yoy in Q2 FY24. Accordingly, average CPI for FY24 will vary between 5.2-5.4%,” says SBI Ecowrap. Grains are not too far behind either. Cereal and pulses inflation remained elevated in June at 12.7% y-o-y and 10.5% y-o-y, respectively. Retail prices of pulses, especially that of tur dal, have risen 24% y-o-y in June, reporting double-digit growth for the third consecutive month. Moreover, the<a href="https://www.businessinsider.in/india/news/india-sows-more-millets-and-less-rice-this-kharif-season/articleshow/101642365.cms"> sowing in rice and pulses is lower this Kharif season</a> due to delayed monsoons, and that doesn’t bode well for their prices which too are seeing upward pressure. “On a sequential basis, wheat and rice inflation also picked pace in June. Looking ahead, the sale of wheat and rice from the government’s buffer stock via Open Market Sale Scheme (OMSS) auctions could help cool retail prices of rice, wheat and atta. However, with regards to rice prices, deficient monsoons in West Bengal, a key rice-producing state, could impact sowing, putting upward pressure on prices,” said a report by CareEdge. Milk inflation moderated in June to 8.6% as compared to 8.9%. But it continues to remain sticky above 8%, reeling from the impact of a continued demand-supply mismatch and high fodder costs. “Milk prices could remain higher in the coming months, if unabating cereal inflation keeps cattle feed expensive,” CareEdge says. WPI is comforting, say experts RBI insisted in the last two monetary policy committee meeting updates that its decision to hold key interest rates is a pause not a pivot. Most experts had been hoping that it would go for rate cuts in the second half of the year, but the inflation picture is <a href="https://www.businessinsider.in/finance/news/with-inflation-cooling-rbi-may-slash-interest-rates-by-50-bps-this-financial-year/articleshow/100531780.cms">putting cold water on their hopes</a>. “While food prices will create inflationary pressures in the upcoming months due to uneven distribution of monsoon and lower kharif sowing, RBI stance would not be solely contingent on seasonal food inflation,” said Phillip Capital. Even at 4.8%, inflation is within the tolerance band of RBI, which is 4-6%. “The RBI will keep a keen eye here and it is almost given that nothing will change in the policy next month. More caution will be expressed on the inflation front,” said Sabnavis. CareEdge however says that wholesale price inflation (WPI) has been contracting and that is offering some comfort. India’s WPI has been in a deflationary zone for the second month in a row in May, as prices contracted by 3.48%. “Deflation in WPI will have a lagged impact on CPI inflation going forward. Having said that, RBI would remain cautious and adopt a wait and watch mode. We reaffirm our view that RBI would maintain an extended pause in 2023,” said CareEdge.

Inflation to inch higher still? Incessant rains will add to woes, warn economists

<ul><li>There is a consensus amongst analysts that FY24 would ring in high single-digit growth for the Indian automobile as well as auto component sectors despite export headwinds. </li><li>CareEdge expects two-wheeler and three-wheeler sales volumes to cross pre-pandemic levels in the next financial year. </li><li>Price hikes due to BS6 Phase 2 norms and inflationary pressures, El Niño and its impact on the rural sentiments will be amongst the key factors to watch out for in FY24. </li></ul>The Indian auto industry is expected to register sales volume growth of 7-9% in FY24, building on the robust momentum of FY23, according to a report by CareEdge. Passenger vehicle (PV) and commercial vehicle (CV) segments are both expected to drive growth in the next financial year, with the latter especially benefiting from the government’s thrust on capital expenditure. Despite a challenging global environment in FY23, Indian auto companies made the most of the first disruption-free year after the Covid-19 pandemic. Overall, domestic sales rose 21% year-on-year in the 11 months of FY23 when compared to the same period in FY22. Urban demand, festive sales and pre-buying due to the BS6 Phase 2 transition helped boost the overall volumes – once again driven by passenger vehicles and commercial vehicles – despite supply chain challenges and a semiconductor chip shortage, according to the research firm. Exports, however, registered a decline of 14% in the 11 months of FY23, largely on account of weakness in foreign markets. <cmsannotation type="cmsannotation" annotationid="Analysts expect high single-digit growth in FY24" comment="subhead" text="Analysts expect high single-digit growth in FY24">Analysts expect high single-digit growth in FY24</cmsannotation> There is a consensus amongst analysts that FY24 would ring in high single-digit growth for the Indian automobile as well as auto component sectors despite export headwinds. “The growth momentum is expected to continue after the robust demand seen in FY23, supported by favourable demand sentiments and various government initiatives for rural and urban development,” said Tanvi Shah, director, CareEdge. According to a report by ratings agency ICRA, the auto components industry is also expected to witness 5% to 8% growth in revenue in FY24, primarily due to strong demand from the domestic market. “Over the long term, opportunities in the electric vehicle market, premiumisation of vehicles, a focus on localisation, improved export potential, and changes in regulatory norms will result in healthy growth for auto component suppliers,” ICRA said. The ratings agency underlined that the rise in mobility due to the reopening of schools and offices, improved freight movement and purchases being pushed back due to elevated inflation should boost sales in FY24. “We believe, in the coming months, with a favourable base for both PVs and 2-wheelers till H1 FY24, maintaining current retail volume levels would help both the segments deliver 10%+ growth in FY24E,” said a report by ICICI Securities. <cmsannotation type="cmsannotation" annotationid="2W and 3W sales expected to rise to pre-pandemic levels" comment="subhead" text="2W and 3W sales expected to rise to pre-pandemic levels">2W and 3W sales expected to rise to pre-pandemic levels</cmsannotation> Sales in the two-wheeler (2W) segment have stagnated in the past three months due to factors like continued price hikes, hot inflation and weakness in rural demand. <keyword id="6359783" type="General" weightage="80" keywordseo="bajaj-auto" source="Orion">Bajaj Auto</keyword>, which depends heavily on exports, also bore the brunt of weakness in key foreign markets like Nigeria. Its exports declined to 45% of its total sales in February 2023, from 52% in January 2022. While the threat of El Niño still looms large and could play spoilsport for two-wheeler sales by affecting crop output and hence incomes in rural areas –traditionally a large market for 2Ws, analysts at CareEdge remain optimistic about not just 2Ws but also three-wheeler sales going into FY24. The ratings agency expects sales volumes in these two segments to cross pre-pandemic levels in the next financial year. <cmsannotation type="cmsannotation" annotationid="What to watch for in FY24 – steep price hikes, El Niño and rural sentiments" comment="subhead" text="What to watch for in FY24 – steep price hikes, El Niño and rural sentiments">What to watch for in FY24 – steep price hikes, El Niño and rural sentiments</cmsannotation> Analysts also underlined factors which could have a significant impact on the auto industry’s performance in the upcoming financial year, ranging from price hikes to weather. The implementation of BS6 Phase 2 norms from April 1, 2023 is expected to drive steep price hikes – leading automakers like <keyword id="42747" type="General" weightage="50" keywordseo="tata-motors" source="Orion">Tata Motors</keyword>, Hero MotoCorp,<a href="https://www.businessinsider.in/business/auto/news/maruti-suzuki-announces-price-hike-cars-to-get-costlier-by-1-1-from-today/articleshow/97022345.cms"> Maruti Suzuki</a> and Honda have already<a href="https://www.businessinsider.in/business/news/time-to-buy-your-new-hot-wheels-automakers-set-to-increase-prices-of-vehicles-to-meet-stricter-emission-norms/articleshow/98940916.cms"> announced</a> price hikes. The adherence to new emission norms, in addition to inflationary pressures, could lead to more price hikes down the road and “potentially affect demand”, according to CareEdge. El Niño could lead to a drier year and further dampen rural sentiments, which could delay the much-anticipated recovery in the two-wheeler segment and derail tractor sales. However, overall, the Indian auto industry looks well placed heading into FY24 – the passenger and commercial vehicle segments are expected to retain their momentum, while the two- and three-wheeler sales are expected to inch back to pre-pandemic levels. SEE ALSO: <a href="https://www.businessinsider.in/business/corporates/news/adani-group-stocks-stage-a-rebound-led-by-adani-enterprises-group-market-capitalisation-rises-by-22011-crore/articleshow/99084630.cms">Adani group stocks stage a rebound led by Adani Enterprises: Group market capitalisation rises by ₹22,011 crore</a> <a href="https://www.businessinsider.in/finance/news/npci-introduces-interchange-fees-on-upi-transactions-done-via-prepaid-payment-instruments/articleshow/99080455.cms">Will UPI payments now attract charges? Decoding NPCI’s interchange fee on UPI transactions via prepaid payment instruments</a> <a href="https://www.businessinsider.in/business/telecom/news/increased-competition-delayed-tariff-hikes-could-effectively-lead-to-a-jio-airtel-duopoly/articleshow/99065537.cms">Increased competition, delayed tariff hikes could effectively lead to a Jio-Airtel duopoly</a>

India auto sales seen rising 7-9% in FY24: Passenger & commercial vehicles to drive demand

<ul><li>The <keyword id="6369693" type="General" weightage="20" keywordseo="mpc" source="Orion">MPC</keyword> has unanimously decided to keep the rates unchanged.</li><li>The central bank paused its rate hike cycle in February this year.</li><li>Economists expected MPC to stay with the ‘pause’ on interest rates, with fresh risks to inflation. GDP growth projection retained at 6.5%. </li></ul>The Reserve Bank of India’s (<keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>) rate setting panel kept the policy <keyword id="43352" type="General" weightage="20" keywordseo="repo-rate" source="Orion">repo rate</keyword> unchanged at 6.5% on Friday. The <keyword id="6357126" type="General" weightage="20" keywordseo="monetary-policy" source="Orion">Monetary Policy</keyword> Committee (MPC) has unanimously decided to keep the rates unchanged in the October meeting. There is no change in its stance either - it is retained at withdrawal of accommodation. The central bank also announced that it was withdrawing its incremental cash reserve ratio (ICRR), which was introduced in August to withdraw surplus liquidity from the system. “It’s a status quo policy but there are many aspects that I will spell out which will reveal our approach to the global headwinds,” said Shaktikanta Das, governor of RBI. This is the fifth time that the MPC has kept policy rates unchanged since February. The MPC has remained focussed on withdrawal of accommodation. “India is poised to be the growth engine of the world. Need of the hour is to remain vigilant. High inflation is a major risk and MPC is focussed on aligning it to the 4% target,” Das added. The RBI projects India’s GDP to grow at 6.5% in FY24. CPI inflation is projected to be at 5.4% for the financial year, which remains unchanged. The Reserve Bank of India’s rate setting panel was expected to stay with the ‘pause’ on interest rates, as fresh risks have emerged to inflation. The central bank has paused its rate hike cycle in February this year. In August, India's retail inflation moderated to 6.8% from a high of 7.4% in July. The lower inflation print was due to a fall in the prices of vegetables after they went through the roof in July on patchy rains in some parts of the country. Just as it seemed that inflation was cooling in August, 30% higher crude oil prices and a stronger dollar will have worsened the outlook for inflation in the future. Higher crude prices have a cascading effect on goods that need to be transported. Economists expect September’s inflation data to remain above the RBI’s upper tolerance band. CareEdge Ratings expects the RBI to miss its Q2 inflation projections by nearly 60 basis points and will consequently revise its whole-year projection to 5.6% from an earlier projection of 5.4%. Even though the risks to inflation remain elevated, the MPC was expected to hike rates as many other central banks have done in the last few months. However, in the face of rising global bond yields, ever strengthening dollar index and higher crude oil prices, debt market experts expect RBI to continue with 'withdrawal of accommodation'”policy stance. Systemic liquidity will be tightened further in the second half. The market did not, therefore, expect RBI to take any permanent liquidity withdrawal measures. Systemic liquidity, which had been in surplus at ₹2.1 trillion during the August MPC meeting, transitioned into a deficit of ₹1.5 trillion by 27 September. This shift has increased money market rates, with the overnight call money rate rising from 6.4% to 6.8%. The RBI announced that it would implement an incremental cash reserve ratio (I-CRR) in its August MPC meeting, which sucked out liquidity to the tune of ₹1.1 trillion from the banking system. Despite the gradual withdrawal of the I-CRR, systemic liquidity continued to stay in the deficit since mid-September due to quarterly tax outflows. The central bank’s interventions in the foreign exchange market have marginally contributed to some absorption of rupee liquidity. The RBI was also expected to retain the GDP forecast for the full financial year at 6.5% as headwinds have not yet settled. The central bank will wait to see data emerging after the festive season and output from the kharif season before changing forecast again.

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