📰More Inflation

Hello. Tomorrow, we will learn India’s October inflation print, and expectations range from not great to very bad. We’ll investigate, and then close with Gupshup, a round-up of the most important headlines.

Markets

Read here for an appendix on the above.

Analysis

India Announces CPI Print Tomorrow: What To Expect

After a high 5.49 percent CPI y-o-y change in September, the October CPI is expected to continue the rise. A Reuters poll of economists finds that the inflation print may be at a 14-month high of 5.81 percent, hardly within the Reserve Bank of India’s tolerance band of 2-6 percent. Most economists attribute the rise to food inflation.

Union Bank of India predicts a higher CPI of 6.15 percent, citing the combined effects of rising food pressures and an unfavorable base effect, which could push inflation beyond the RBI's target.

Food prices, which account for half of India's inflation basket, likely saw the sharpest month-on-month increase. Weather disruptions, particularly uneven rainfall, have driven up tomato prices over the past few months. Expectations for a stronger kharif yield (second harvest) post-December may alleviate some pressure.

Additionally, a 20 percent tax on edible oils, intended to benefit oilseed farmers, has pushed costs higher. While the tax aims to support domestic production, the higher prices may offset any potential gains from increased volumes. Imported inflation, particularly from sunflower oil, has further contributed to the rise in edible oil prices.

Economists are also concerned about the rupee's weakening and the growing geopolitical risks from ongoing conflicts in Eastern Europe and the Middle East. These factors could drive up oil and grain prices, both key components of the Indian economy.

These negative indicators come just days after Governor Das reiterated the RBI's reluctance to cut interest rates. Although rate cuts could stimulate the economy, they may also lead to stagnating or declining real GDP growth, as much of the perceived growth would stem from inflation rather than genuine economic expansion. The RBI has anticipated this higher CPI reading for weeks, so the upcoming MPC decision for December remains uncertain, though traders expect a more hawkish stance.

US CPI data, set to be released on Wednesday, will also influence India's decision-making, as the US is a major trade partner, and fluctuations in US inflation could lead to imported inflation. Additionally, the RBI will likely aim to keep rates aligned with the Federal Reserve to prevent rupee devaluation. A high CPI in both the US and India may prompt the RBI to maintain its stance in the December meeting to curb inflation.

The sustained high CPI has pushed Indian 10-year yields up to 6.78 percent as of Monday morning, reflecting growing expectations that the chances of a rate cut are fading. Higher inflation is also putting pressure on stocks, as companies have reported weaker earnings and sales growth in the last quarter. Continued restrictions from the RBI will make growth challenging for small and mid-cap stocks.

Macro

• India's net direct tax collections rose 15.4 percent year-over-year to $143 billion (₹12.1 trillion) from April 1 to Nov. 10, according to the income tax department. Gross direct taxes, covering corporate and personal taxes, grew over 21 percent to 15 trillion rupees, with tax refunds totaling 2.9 trillion rupees. (Reuters)

• India is advocating for a larger share of its trade with Russia to be conducted in rupees as bilateral trade surges 5x. Speaking at the India-Russia Business Forum, External Affairs Minister S. Jaishankar highlighted the significance of national currency settlements, noting that trade between the two nations has quintupled in three years, now reaching $66 billion, with a $100 billion target by 2030. (BBG)

Equities

• Hindalco Industries Ltd., a major Indian aluminum and copper producer, posted a 78 percent surge in second-quarter profit, driven by higher metal prices and increased income from non-core operations. The company's net income rose to 39 billion rupees ($463 million) for the quarter ending in September, surpassing analyst expectations, according to a statement released Monday. (BBG)

• Oil and Natural Gas Corp. (ONGC) reported a 17 percent rise in net income to 119.8 billion rupees ($1.4 billion) for the July-September quarter, surpassing analyst forecasts despite lower production and weak crude prices. The earnings boost was driven by a significant increase in non-core income and reduced expenses, though ONGC did not specify the details behind this additional revenue. (BBG)

• Vistara, an airline operated by Tata Group, will operate its final flight on today, officially merging with Air India tomorrow. Tata Group acquired Air India from the Indian government in early 2022 after the company faced massive operational and financial issues. IndiGo, a competitor, as announced plans to introduce business-class cabins, entering the premium market to distinguish itself from Tata's expanding airline portfolio. (BBG)

• India's BEML, a major heavy machinery manufacturer, reported a 1.5 percent drop in second-quarter profit, impacted by weakened demand for its machinery amid a slowdown in manufacturing activity. The state-owned firm's clients include Rail Vikas Nigam, Adani Power, and Chennai Metro Rail. (Reuters)

• Ramco Cements reported a nearly 75 percent decline in second-quarter profit due to weak monsoon-season demand and falling prices, with net profit dropping to 255.8 million rupees and revenue down 12.5 percent. Cement prices hit a five-year low last quarter as increased industry production led to oversupply, though early signs of price recovery have been noted. (Reuters)

Alts

• India's bond issuance is expected to increase in the next fiscal year due to elevated debt repayments, particularly from bonds issued during the Covid period, a government official reported anonymously. Meanwhile, Prime Minister Narendra Modi's government plans to maintain the current borrowing level of 14.01 trillion rupees ($168 billion) through March 2025. (BBG)

• Indian supply chain startup Zetwerk Pvt Ltd. is exploring fundraising options, including a potential IPO that could raise up to $1 billion, sources say. Backed by investors like Peak XV Partners and Lightspeed India, the Bangalore-based company has reportedly consulted with investment banks to prepare for a possible Mumbai listing next year, which could value it in the billions. (BBG)

• Swiggy Ltd.'s $1.3 billion IPO saw over three times subscriptions on Friday, fueled by a surge in demand from major investors. This rare billion-dollar-plus listing for India attracted six times the shares reserved for foreign and domestic funds, fully covering the retail portion as well. Many viewed the IPO as a test of investor appetite for large initial offerings, especially after Hyundai Motor India Ltd.'s lukewarm debut. (BBG)

• Citadel Securities' India unit reported a sharp rise in trading revenue and profit in its first full year, reflecting the strong appeal of India’s $4.6 trillion stock market for global trading firms. With total revenue reaching 29 billion rupees ($344 million) and net income at 14.68 billion rupees as of March, Citadel’s performance aligns with a boom that has drawn in other high-speed traders, although new regulatory measures could soon impact growth. (BBG)

• Mitsubishi UFJ Financial Group is keen to expand in India through acquisitions, aiming to grow its investments and achieve 20 percent annual returns over the next decade, according to global commercial banking head Yasushi Itagaki. With India’s focus on manufacturing and renewable energy, MUFG sees strong opportunities amid favorable economic and political conditions, while competing with other global lenders to strengthen its foothold in the fast-growing economy. (BBG)

Policy

• India’s central bank is prepared to allow the rupee to weaken alongside the Chinese yuan following fears of higher U.S. tariffs after Donald Trump's election win, which could worsen India’s trade deficit with China. Analysts are revising their rupee forecasts, with IDFC First Bank expecting it to hit 84.50 sooner than anticipated, while the Reserve Bank of India is using its large foreign exchange reserves to manage the decline. (BBG)

• Top Indian companies saw their weakest quarterly performance since early 2020 in the July-September period, with over half of the Nifty 50 firms missing or just meeting earnings expectations. Analysts attribute this to reduced government spending during the election period and above-average rainfall affecting earnings. (Reuters)

• India's financial crime agency will summon Amazon and Flipkart executives as it intensifies an investigation into alleged foreign investment law violations, following recent raids on their sellers. This move underscores increasing regulatory scrutiny of the e-commerce giants amid rapid growth in India's $70 billion market. Regulators argue the companies showed unlawful favoritism to sellers and exerted control over the inventory of goods. Indian regulators do not allow e-commerce companies to operate their own inventory, allowing them only to be a marketplace of sellers. (Reuters)

See you Wednesday.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 84.4 Indian Rupee