India’s GDP and Monetary Policy, ITC Profits
Every Monday, Mint’s Simple Facts section features top data releases you need to watch out for during the week. Two big announcements are expected this week: data on gross domestic product (GDP) from India and bimonthly monetary policy from the Reserve Bank of India (RBI). Both will provide clues as to the state of the economy and the way forward. In the corporate world, ITC is about to announce its results. Here are the five big numbers to follow:
1. India’s GDP
The Ministry of Statistics and Program Implementation will release GDP estimates for the March quarter on Monday. It will also revise its GDP estimate for the full year 2020-2021, which it indexed to (-) 8% in February.
Production recorded a marginal rebound (0.4%) in October-December after two quarters of contraction during the first wave of covid. Analysts expect him to stay on that path despite the second wave of covid-19, which has accelerated since late February. State Bank of India’s nowcasting model predicts 1.3% year-on-year growth.
Most high-frequency indicators show that the economy was largely on track during the quarter, with the start of the second wave being limited to a few states. Corporate earnings have also remained largely resilient over the period, as shown by financial results released so far. The area of concern has been growth since March, as the second wave turned fierce. However, estimates for the current quarter are still at three months.
2. CTI earnings
ITC, a key component of the Sensex benchmark, will report its March quarter results on Tuesday. The trend of sequential revenue recovery since last year’s freeze is expected to continue. The consumer goods segment (FMCG), which accounts for two-thirds of ITC’s business, had benefited from pent-up demand for discretionary products until the second wave broke. Analysts believe cigarette sales volumes will rebound strongly, in part due to the base effect.
The hotel segment, a small contributor, is expected to remain depressed, as the second wave was already hitting travel plans at the end of February. The weak base should boost overall sales growth, but higher raw material costs could affect margins, analysts said. Markets will await the company’s outlook for the June quarter, which has seen widespread lockdowns. The stock has fallen 3% since mid-February, more than the Sensex (down 2.8%) and even its peers in the FMCG index (up 4.5%).
3. RBI monetary policy
The RBI’s Monetary Policy Committee (MPC) will meet this week to review benchmark interest rates. A decision is due Friday. The repo rate is the main political tool available to the MPC to inject money in times of crisis. It was reduced from 5.15% before the pandemic to 4% in May 2020 and has been there since then. The second wave reduced the odds of a pullback, placing greater emphasis on other projections the RBI will make on Friday, such as GDP and inflation outlook. The policy statement will be important to reassure markets and anchor inflation expectations at a time when inflationary pressures are building despite a still weak economy. Headline retail inflation has been benign in recent months, but core CPI inflation remains high. In addition, the increase in wholesale prices could have repercussions on retail prices.
4. India’s PMI
Monthly data for the purchasing managers index (PMI), a major indicator of economic activity in India, will be released this week, both for the manufacturing sector on Tuesday and for services on Thursday. In April, the manufacturing PMI was almost flat and the services PMI fell to a three-month low, but both showed healthy expansion. Activity rose despite the second wave, in part due to robust export orders from manufacturers, even as high input costs held back in both sectors. PMI data is based on surveys of business leaders on five indicators: new orders, production, employment, supplier delivery times and purchasing stocks. The coming numbers will be an early indicator of trade activity in May, when most states were stranded. But, the impact will hardly be a fraction of that seen during the lockdown in 2020, when the composite PMI slipped to 7.2. This is due to better adaptability of companies and fewer obstacles to industries.
5. Eurozone inflation
Europe has faced repeated waves of covid-19 but is gradually emerging from a deep recession. The easy monetary treatment of the central bank has played its part in the recovery, and inflation is gradually increasing as a side effect. In April, retail prices rose 1.6% in the euro area to 19 countries, the fastest in two years. The first estimates for May are due on Tuesday.
In addition to the economic recovery and rising input prices, supply shortages have also contributed to the inflationary surge. With no central bank card tightening yet, inflation should only continue to rise towards the 2% target.
The European Central Bank, like most others, is cautious about withdrawing stimulus prematurely and insists the push is temporary. Inflation data for May may not yet influence interest rates, but will influence decisions involving other aspects of the monetary toolbox such as asset purchases.
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