E
CO
S
COPE
CPI inches up to 5.4%; WPI disinflation at -2%
Seasonal price rise nearing end; expect RBI rate cut in Feb-16
14 December 2015
The Economy Observer
Nov-15 Inflation
The Nov-15 CPI inflation at 5.4% was broadly in line with expectations.
The average CPI for the first five months of FY16 stands at 4.7%.
The seasonal price rise is nearing end, as evident from lower MoM
increase of 0.4%. Higher fuel group inflation had a larger role in it while
the acceleration in food and services inflation was pure base effect.
Rural CPI inflation stayed significantly above its urban counterpart.
Core CPI remained range-bound at 4.6%.
Nov-15 WPI at -2% displayed entrenched disinflation for 13 months.
However, the extent of disinflation dropped significantly from -3.8% in
Oct-15.
The divergence between CPI and WPI now stands at 7.4%, down
sharply from the peak of 9% in Sep-15.
Pulses added 56bp to WPI inflation and 107bp to CPI inflation. Ex-
pulses, CPI stood at 4.3% while WPI would be at -2.5%.
Nov-15 CPI stood at 5.4%, YTD at 4.7%
MoM restricted to 0.4%; acceleration
mainly due to fuel group
Food and services rise due to base effect
Rural inflation stands higher
Core CPI remains range-bound at 4.6%
Nov-15 WPI at -2% displayed entrenched
th
disinflation for 13 consecutive month
Price rise limited to non-core group
Core WPI at -1.9% near all-time low
Divergence between CPI and WPI at 7.4%,
much lower than its 9% peak of Sep-15
Pulses add 107bp to CPI inflation and 56bp
to WPI inflation
We expect RBI to cut rates in its Feb 2
policy event
We expect RBI to cut rates again in its February 2, 2016 policy meet when US FED hike-related newsflow will be behind
us and Dec-15 inflation data reflects moderation of seasonal price momentum and impact of lower global commodity
prices.
I. CPI inflation inches up to 5.4%, although MoM moderates
Nov-15 CPI at 5.4%:
The Nov-15 CPI-Rural Urban (CPI-RU) inflation was in line
with expectations (MOSL: 5.2%, Consensus: 5.4%).
Seasonal price rise nearing end:
The extent of seasonal increase in retail prices
moderated (MoM 0.4% in Nov-15 from 0.6% in Oct-15). Thus, the acceleration
reflected base effect to a large extent.
Rural inflation much higher:
Rural inflation at 6% remained much above 4.5% of
urban inflation although both accelerated. The MoM inflation was higher for
rural CPI too.
Core CPI remains range-bound at 4.6%; services uptick reflects base:
Core CPI
inflation at 4.6% remained well anchored below 5%. While the services inflation
inched up YoY, reflecting base effect, the MoM inflation moderated.
Higher inflation for food and fuel group:
Food inflation accelerated, primarily
reflecting the base effect. On the other hand, MoM fuel inflation increased but a
favorable base arrested the YoY inflation. Sharp drop in international oil price
would reverse this trend in Dec-15 again, thereby moderating inflation.
Dipankar Mitra
(Dipankar.Mitra@MotilalOswal.com); +91 22 3982 5405
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Exhibit 1: Seasonal uptick in consumer prices begins
moderating (Index)
130
125
120
115
110
105
CPI Index
Exhibit 2: MoM inflation shows a declining trend and was
the lowest in eight months (%)
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
CPI (YoY %) (RHS)
CPI (MoM %) (LHS)
Source: CSO, MOSL
Source: CSO, MOSL
Exhibit 3: Both Rural and urban inflation accelerate, though
rural higher (YoY%)
9
8
7
6
5
4
3
2
Urban
Rural
Exhibit 4: Core CPI inflation range-bound below 5% (YoY%)
CPI-Core
Source: CSO, MOSL
Source: CSO, MOSL
Exhibit 5: Higher YoY inflation for food and services group
(YoY%)
Oct-15
9.5
6.1
5.8
9.4
5.6
4.9
Nov-15
Exhibit 6: MoM inflation higher mainly for fuel group, which
too would unwind in Dec-15 (%)
Oct-15
Nov-15
5.0
5.3
5.3
3.8
3.5
Misc.
Services
Food and
Pan, Clothing & Housing Fuel & light Misc.
beverages tobacco footwear
Services
etc.
Source: CSO, MOSL
5.3
Food and
Pan, Clothing & Housing
bev
tobacco footwear
etc.
Fuel &
light
Source: CSO, MOSL
14 December 2015
2

II. Nov-15
WPI at -2% shows moderation in disinflation
WPI disinflation at -2%:
Wholesale prices showed YoY decline for the 13
th
consecutive month. However, the extent of disinflation declined sharply to -2%
from -3.8% in Oct-15—both as a result of unfavorable base and sizable increase
in wholesale prices.
Price rise limited to non-core items:
Wholesale prices increased rather sharply
for food items (2.3% MoM) and fuel group (0.9% MoM). However,
manufacturing prices continued to decline (-0.2%).
Core-WPI remains low at -1.9%:
Core WPI at -1.9% remained closer to its all-
time low of -2.1% in Oct-15.
CPI-WPI divergence reduces from peak:
The divergence between CPI and WPI,
that touched its peak of 9% in Sep-15, is at 7.4% now.
Sharp jump in pulses inflation:
Pulses inflation remained very high both on WPI
as well as CPI measure. Pulses alone resulted in 56bp rise in WPI inflation; the
impact on CPI was even higher at 107bp. Without pulses, WPI inflation would
stand at -2.5% while CPI inflation would be much lower at 4.3%. However, latest
indications suggest that government measures to facilitate imports have already
resulted in softening of pulses prices.
Exhibit 8: Wholesale prices rise somewhat after four months
(MoM %)
Exhibit 7: Extent of WPI disinflation moderates (YoY %)
Source: CSO, MOSL
Source: CSO, MOSL
Exhibit 9: The gap between CPI and WPI down from its peak
(YoY%)
WPI Inflation
9
4
7.4%
-1
-6
CPI Inflation
Exhibit 10: However, runaway inflation in pulses yet to
moderate (YoY%)
WPI Pulses (YoY%)
60
40
20
0
-20
CPI Pulses & products (YoY%)
Source: CSO, MOSL
Source: CSO, MOSL
14 December 2015
3

Exhibit 11: Excluding pulses, WPI disinflation lower by 56bp
(YoY%)
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
WPI Inflation
WPI Inflation (ex-pulses)
Exhibit 12: CPI inflation would be lower by a full 1.1%
without pulses (YoY%)
6.0
5.5
5.0
4.5
4.0
3.5
3.0
4.3
CPI Inflation
CPI Inflation (ex-pulses)
5.4
-2.0
-2.5
Source: CSO, MOSL
Source: CSO, MOSL
III. Expect RBI to cut rates again in Feb-16
Expect FY16 CPI inflation at 4.5% and WPI at -1.3%:
Benign international and
domestic price situation and government action has prompted us to project
FY16 average CPI inflation at 4.5% and WPI at -1.3%. We also expect inflation to
remain below its Jan-16 target of 6%.
Expect RBI to cut rates in Feb-16:
Once the US FED hike-related news event is
behind us and inflationary momentum is seen softening in Dec-15, we expect
RBI to cut rates again in its February 2, 2016 policy meet.
14 December 2015
4

Macro Economic Indicators
Annual
I. National Income (Growth %)
Nomi na l GDP (USDb)
Gros s Domes ti c Product
Agri cul ture
Foodgra i ns (M Ton)
Ra i nfa l l (% of l ong peri od a vera ge)
Indus try
Servi ces
II. Inflation (Y-o-Y %)
WPI (Annua l Avera ges )
Al l commodi ti es
Pri ma ry a rti cl es
Fuel & power
Ma nufa ctured products
CPI-IW/CPI-RU (from FY12)
III. Fiscal Situtaion (as % of GDP)
Tota l recei pts
Di rect ta x
Indi rect ta x
Net ta x
Tota l expendi ture
Pl a n
Non-pl a n
of whi ch s ubs i di es
Fi s ca l defi ci t
Revenue defi ci t
Combi ned fi s ca l defi ci t (centre + s ta tes )
Publ i c debt
IV. Money and Banking (Y-o-Y%)
Res erve money
Money Suppl y (M3)
Depos i ts
Ba nk credi t
V. External Sector
(i n USDb)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Net ca pi ta l fl ows
Forex Res erves
(As % of GDP)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Externa l debt
VI. Financial Markets (Avg %)
Ca l l ra te
1-yr AAA corpora te bond
Yi el d on 10-yr G-s ec (%)
Excha nge Ra te (INR/USD)
BSE Sens ex return
P/E ra ti o (Tra l l i ng)
Ma rket ca pi ta l i s a ti on (a s % of GDP)
Oi l pri ce (Indi a n Ba s ket, USD/bbl )
Fi gures i n red a re es ti ma tes
FY07
930
9.6
4.2
217
-5.2
12.2
10.1
6.5
9.6
6.5
5.6
6.7
13.6
5.4
5.7
8.2
13.6
4.0
9.6
1.3
3.3
1.9
5.4
75
23.7
21.3
23.8
28.1
129
191
-62
52
-10
45
199
13.6
20.1
-6.5
5.5
-1.0
18.2
7.2
8.5
7.8
45.3
15.9
18.2
82.5
62.4
FY08
1,215
9.3
5.8
231
-0.8
9.7
10.3
4.8
8.3
0.0
4.9
6.2
14.3
6.3
5.6
8.8
14.3
4.1
10.2
1.4
2.5
1.1
4.1
71.4
31.0
21.4
22.4
22.3
166
258
-91
76
-16
107
310
13.4
20.8
-7.4
6.1
-1.3
18.1
6.1
9.3
7.9
40.2
19.7
18.8
103.0
79.5
FY09
1,202
6.7
0.1
234
-10.0
4.4
10.0
8.0
11.1
11.6
6.1
9.1
15.8
6.0
4.9
7.9
15.8
4.9
10.9
2.3
6.0
4.5
8.5
72.2
6.4
19.3
19.9
17.5
189
309
-120
92
-28
7
252
15.5
25.4
-9.8
7.5
-2.3
20.5
7.1
9.8
7.6
45.9
-37.9
11.8
54.8
82.7
FY10
1,339
8.6
0.8
218
-18.6
9.2
10.5
3.6
12.7
-2.1
1.8
12.4
15.9
5.8
3.8
7.1
15.9
4.7
11.2
2.2
6.5
5.2
9.6
70.8
17.0
16.9
17.2
16.9
182
301
-118
80
-38
53
279
13.2
21.8
-8.6
5.8
-2.8
18.9
3.2
5.9
7.2
47.4
80.5
21.0
95.2
69.6
FY11
1,674
8.9
8.6
245
1.8
7.6
9.7
9.6
17.8
12.3
5.7
10.5
15.6
5.8
4.5
7.4
15.6
4.9
10.7
2.3
4.9
3.3
7.4
66.0
19.1
15.9
15.8
21.4
251
381
-130
86
-44
57
305
14.5
22.1
-7.6
5.0
-2.6
17.3
4.5
8.1
7.9
45.6
10.9
19.0
87.9
85.1
FY12
1,842
6.7
5.0
259
-7.2
7.8
6.6
8.9
9.9
13.6
7.3
10.5
14.8
5.6
4.5
7.2
14.8
4.8
10.0
2.4
5.9
4.4
8.0
65.6
9.2
13.0
13.4
17.0
310
500
-190
112
-78
68
294
16.8
27.0
-10.3
6.0
-4.2
18.7
8.0
9.6
8.4
47.9
-10.5
15.5
70.4
111.9
FY13
1,835
4.9
1.2
2.4
-9.5
2.3
8.0
7.4
9.8
10.6
5.4
10.2
13.9
5.5
4.7
7.3
13.9
4.1
9.9
2.5
4.9
3.6
7.1
64.0
8.4
13.6
14.3
14.1
307
502
-196
107
-88
89
293
16.5
27.0
-10.5
5.8
-4.7
21.4
8.0
8.2
9.3
54.4
8.2
16.0
63.7
108.3
FY14
1,876
6.6
3.7
4.5
6.4
4.4
9.1
6.0
9.8
10.1
3.0
9.5
13.7
5.6
4.4
7.2
13.7
4.0
9.7
2.2
4.4
3.1
6.9
65.0
9.5
13.5
14.3
14.6
319
466
-148
115
-32
49
304
17.0
24.8
-7.9
6.1
-1.7
23.2
8.1
9.4
8.3
60.5
18.8
16.8
65.5
105.5
FY15
2,074
7.2
0.2
-4.7
-8.9
5.9
10.6
2.0
3.1
-0.6
2.4
6.0
13.3
5.9
4.8
7.2
13.3
3.7
9.6
2.1
4.1
2.9
6.6
10.2
12.0
11.7
12.5
317
461
-144
116
-28
90
341
15.3
22.2
-7.0
5.6
-1.3
22.4
7.7
8.9
8.3
61.1
24.9
20.6
79.9
84.2
FY16E
2,276
7.5
2.0
2.0
-14.0
5.9
9.0
-1.3
0.7
-7.5
-0.7
4.5
12.6
5.7
4.9
6.5
12.6
3.3
9.3
1.7
3.9
2.8
6.1
11.0
12.0
13.0
14.0
301
447
-146
121
-25
80
380
13.2
19.6
-6.4
5.3
-1.1
21.3
7.2
8.3
7.6
65.0
18.6
69.8
60.0
14 December 2015
5

Macro Economic Indicators
Quarterly
I. National Income (Growth %)
Gros s Domes ti c Product
Agri cul ture
Indus try
Servi ces
II. External Sector (USDb)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Net ca pi ta l fl ow
Forex Res erves
Dec-12 Mar-13
4.4
0.8
2.2
7.9
74
133
-58
27
-32
32
297
4.2
1.4
1.8
6.9
85
130
-46
28
-18
20
293
Jun-13 Sep-13 Dec-13 Mar-14
7.2
2.7
4.8
10.2
74
124
-50
29
-22
21
285
7.5
3.6
4.0
10.6
81
115
-33
28
-5
-5
276
6.6
3.8
5.0
9.1
80
113
-33
29
-4
24
296
5.3
4.4
4.3
6.4
84
114
-31
29
-1
9
304
Jun-14 Sep-14 Dec-14 Mar-15
7.4
2.6
7.7
8.7
82
116
-35
27
-8
19
316
8.4
2.1
7.6
10.4
85
124
-39
28
-10
17
314
6.8
-1.1
3.6
12.6
86
116
-31
29
-2
13
310
6.2
-1.4
5.6
9.2
87
115
-29
29
1
12
312
Jun-15
7.1
1.9
6.5
8.9
68
102
-34
28
-6
18
355
Macro Economic Indicators
Monthly
Dec '14 Jan '15 Feb '15 Mar '15 Apr '15 May '15 Jun '15
I. Growth and inflation (Y-o-Y %)
IIP
3.6
2.8
4.8
2.5
3.0
2.5
4.2
WPI - Al l commodi ti es
-0.5
-1.0
-2.2
-2.3
-2.4
-2.2
-2.1
Pri ma ry a rti cl es
0.3
1.4
1.0
-0.2
0.5
-1.1
-0.5
Fuel & power
-7.8
-11.0
-14.8
-12.2
-13.0
-9.4
-8.9
Ma nufa ctured products
1.4
1.1
0.3
-0.2
-0.5
-0.5
-0.8
CPI-RU
4.3
5.2
5.4
5.3
4.9
5.0
5.4
II. Fiscal situation (as % of budgeted)
5.1
Tota l recei pts
55.7
60.9
73.3
97.8
2.2
4.4
11.8
of whi ch ta x revenue
55.8
60.9
71.7
99.3
-0.3
2.2
11.1
Tota l expendi ture
68.9
74.6
86.8
97.8
8.7
14.8
24.2
Non-pl a n
72.4
79.4
87.2
98.2
9.1
15.3
24.1
Pl a n
61.3
64.3
85.8
96.9
7.6
13.4
24.7
Fi s ca l defi ci t
100.2 107.0 117.5
97.9
23.0
37.5
51.6
Revenue defi ci t
106.2 116.7 133.3
98.8
26.1
43.8
58.6
III. Money and Banking (Y-o-Y%)
Res erve money
9.4
10.4
10.8
11.3
11.9
11.3
10.2
Money Suppl y (M3)
10.7
10.8
11.1
10.8
10.8
10.7
10.5
Ba nk Credi t (Y-o-Y %)
10.5
10.7
10.4
12.6
10.5
10.2
9.3
Depos i ts (Y-o-Y %)
11.5
11.6
11.9
12.8
12.3
11.9
11.4
IV. External Sector
Exports (USD b)
26
24
22
24
22
22
22
Exports (Y-o-Y %)
-1.4
-11.6
-13.9
-21.3
-14.8
-20.5
-15.4
Imports (USD b)
35
32
28
36
33
33
33
Imports (Y-o-Y %)
-5.1
-11.5
-16.2
-13.5
-7.9
-16.7
-13.1
Tra de Defi ci t (USD b)
-9
-8
-6
-12
11
10
11
Forex Res erves (USD b)
320
328
338
341
345
352
355
Rea l effecti ve excha nge ra te
106.6 109.1 110.3 111.8 111.5
108.4 109.7
RBI's net forex i nterventi on
6.7
12.1
7.9
7.7
5.4
2.6
0.6
V. Financial Markets (Avg %)
Ca l l ra te
7.8
7.3
7.5
7.4
7.2
7.1
6.9
Govt borrowi ng (% compl eted)
84.4
95.7 100.0 100.0
8.0
21.3
31.5
91-da y T-bi l l
8.3
8.3
8.3
8.3
7.9
7.9
7.7
Yi el d on 10-yr G-s ec (%)
7.9
7.8
7.7
7.8
7.8
7.9
8.0
SBI Ba s e ra te
10.0
10.0
10.0
9.9
9.9
9.9
9.7
CP - 3 month
8.7
8.8
9.2
8.9
8.6
8.2
7.9
CD - 1yr
8.7
8.6
8.7
8.4
8.3
8.3
8.0
AAA corpora te - 1yr
8.6
8.5
8.6
8.5
8.4
8.4
8.3
Excha nge Ra te (INR/USD)
62.8
62.2
62.0
62.5
62.8
63.8
63.9
BSE Sens ex return
-4.2
6.1
0.6
-4.8
-3.4
3.0
-0.2
P/E ra ti o (1 Yea r Forwa rd)
19.4
20.5
20.5
19.5
18.5
18.8
18.4
Mkt ca pi ta l i za ti on (a s % of GDP) 77.5
81.5
82.3
79.9
70.0
72.4
71.1
Oi l (Indi a n ba s ket, USD/bbl )
61.2
46.6
56.4
55.2
59.1
63.8
61.7
Jul '15 Aug '15 Sep '15 Oct '15
4.1
-4.0
-4.0
-11.6
-1.5
3.7
17.7
16.7
33.8
33.8
33.9
69.3
77.6
9.7
11.0
9.4
11.8
23
-16.2
36
-10.7
13
353
111.3
0.2
6.8
43.7
7.5
8.0
9.7
8.2
8.1
8.2
63.6
1.2
18.4
73.6
56.3
6.3
-5.1
-4.2
-16.2
-2.0
3.7
30.3
22.8
41.2
41.6
40.1
66.5
74.7
9.2
11.5
9.6
11.6
21
-20.0
34
-10.3
12
352
109.9
-1.6
6.9
53.0
7.4
7.8
9.7
7.8
7.8
8.2
65.1
-6.5
16.9
68.8
47.3
3.6
-4.5
-2.1
-17.7
-1.7
4.4
43.5
40.2
51.2
50.0
54.6
68.1
68.2
12.0
11.1
9.6
11.2
22
-24.4
32
-24.8
10
350
108.4
-0.1
7.1
60.0
7.4
7.7
9.7
7.5
7.4
8.2
66.2
-0.5
16.6
68.5
46.1
11.2
10.9
9.4
11.0
-3.8
-0.4
-16.3
-1.7
5.0
354
110.2
6.6
7.1
7.6
9.3
7.7
7.6
7.9
65.1
1.9
16.7
69.8
46.7
14 December 2015
6

E
CO
S
COPE Data Monitor
9.3
6.7
Annual
Exhibit 1: GDP growth (%) - recovering steadily
8.6
8.9
6.7
4.9
6.6
7.2
7.5
Quarterly/Monthly
Exhibit 2: GDP growth (%) - clearly past the bottom
7.2
4.2
7.5
8.4
6.6
5.3
7.4
6.8
7.1
6.2
Exhibit 3: Inflation - falling rapidly
WPI
CPI-IW / CPI-RU
Exhibit 4: Inflation - CPI ~5%; WPI ~-4%
WPI
CPI-RU
Exhibit 5: Ongoing consolidation process
Centre
Centre + states
Exhibit 6: Fiscal situation has turned for better
135
115
95
75
55
35
15
-5
Receipts
Expenditure
Exhibit 7: Credit growth constrained by slowdown and tight
money
Money Supply (M3)
Deposits
Bank credit
Exhibit 8: Credit growth remains muted despite some
recovery in money supply
M3
17
14
12
9
Bank Credit
Deposits
14 December 2015
7

E
CO
S
COPE Data Monitor
Annual
Exhibit 9: External sector - stability in trade and current A/c
deficit
FY11
FY12
FY13
FY14
FY15
FY16E
Quarterly/Monthly
Exhibit 10: External sector - total trade decline, deficit
contained
Exports
30
10
-10
-30
-50
Imports
Trade deficit (USD b)
Trade Deficit
Current A/c deficit
Exhibit 11: Financial markets – rates stable now while yield
curve is flat
Call rate
10
8
6
4
2
Yield on 10-yr G-sec (%)
Exhibit 12: Financial markets – interest rates show signs of
easing
12
11
10
9
8
7
CP - 3 month
AAA corporate - 1yr
Exhibit 13: Market ended with good return in FY14
120
80
40
0
-40
-80
Market capitalization (as % of GDP) (RHS)
BSE Sensex return (LHS)
110
90
70
50
30
10
Exhibit 14: Markets are fairly valued now
12
8
4
0
-4
-8
Market capitalization (as % of GDP) (RHS)
BSE Sensex return (LHS)
96
80
64
48
32
16
0
Exhibit 15: INR depreciated; forex reserves static
65
60
55
50
45
40
35
30
Forex reserves (USD b, RHS)
Exchange rate (INR/USD, LHS)
400
350
300
250
200
150
100
50
0
Exhibit 16: RBI intervened to stabilize INR
RBI's net forex intervention (USDm) (LHS)
Exchange Rate (INR/USD) (RHS)
14
12
10
8
6
4
2
0
-2
69
67
65
63
61
59
57
55
14 December 2015
8

REPORT GALLERY
ECOSCOPE

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