Upasna Bhardwaj On November CPI Hitting 3-Month High | NDTV Profit
India's #CPI #inflation rises to three-month high at 5.55% in November.
#KotakMahindraBank's Upasna Bhardwaj discusses the numbers, in conversation with Pallavi Nahata.
Read: https://bit.ly/3RfFgnH
#KotakMahindraBank's Upasna Bhardwaj discusses the numbers, in conversation with Pallavi Nahata.
Read: https://bit.ly/3RfFgnH
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TVTranscript
00:00 Hello and welcome to NDTV Profit.
00:02 Just a few minutes back, we've had two key economic data
00:07 that's come in.
00:07 First, CPI inflation.
00:10 It's come in at 5.55%.
00:13 That's compared with 4.87% in October.
00:17 So while figures for CPI for November
00:21 are at a three-month high, what's to be noted as well
00:25 is that it's also lower than expectations.
00:29 A panel of economists polled by Bloomberg
00:31 had estimated a reading of 5.8% for November.
00:35 So that's one good news.
00:37 On the other side, industrial output
00:40 is also presenting good news.
00:43 It's come in at a 16-month high of 11.7%.
00:49 To share her insights on both of these figures,
00:52 we have with us Upasana Bharadwaj,
00:54 Chief Economist at Kotak Mahindra Bank.
00:57 Ma'am, thank you so very much for taking time out.
01:01 Yes, hi.
01:02 So fair to say that both figures have surprised on the upside?
01:07 Absolutely.
01:08 I think it's a pleasant surprise because inflation
01:11 is softer than expectations.
01:13 And the industrial production data
01:14 has come in higher than expectations.
01:17 So it's a very good combination of data
01:18 prints that we've seen today.
01:20 Having said that, if we were to look
01:22 at the breakup of inflation, much of it is food price led.
01:27 I mean, it was expected to be largely.
01:29 But I think what is important to keep in mind
01:32 is that the softer than expected inflation
01:35 is something which we'll have to be watchful about because food
01:39 inflation is slightly softer than what
01:41 we thought it would be.
01:42 And I think there will be some spillover seen over the next one
01:45 or two months.
01:46 While vegetable prices do tend to see a reversal very quickly
01:50 once the supply side issues get resolved,
01:54 but it's more the cereals and the pulses wherein
01:57 there are structural problems.
01:58 There are supply side interventions
02:00 which the government is taking to ease some price pressures.
02:03 But despite that, we are seeing that weaker production,
02:08 reservoir levels being low, all of that
02:10 is likely to persistently keep pressure on food prices intact.
02:15 So we'll have to be watchful on the food price
02:17 trajectory going ahead.
02:18 But overall, for today's numbers,
02:20 I would say it's a pleasant surprise.
02:24 OK, so cereal prices have actually
02:26 risen 10.2% in November.
02:29 Pulses inflation is at 20.2%.
02:33 And vegetables, of course, have risen 17.7%.
02:37 But like Upasana has pointed out,
02:39 that might not be as much of a concern as maybe cereals
02:43 and pulses because that's also expected to ease a lot faster.
02:46 So to elaborate a little bit more on pulses and cereals,
02:50 like you said, we've been seeing steadily high figures.
02:54 And it's been quite some time.
02:56 And that's despite significant government intervention,
03:00 several supply side interventions and measures
03:03 we've seen over the last few months to rein in prices.
03:08 So what's it looking like?
03:10 Like even currently, Rabi is sowing for pulses.
03:14 And I believe even for cereals such as rice,
03:17 has been trending a little bit lower compared to a year ago.
03:20 Can we expect recovery through December?
03:24 My sense is it's going to continue.
03:25 So cereals and pulses, as you've mentioned,
03:28 and I also mentioned before, the production is down.
03:32 The Kharif sowing happened, which
03:34 also showed that cereals and pulses production
03:37 is likely to be lower.
03:38 Rabi is delayed and, again, seems
03:41 to be softer in terms of sowing patterns.
03:44 And at the same time, erratic rains
03:46 are also happening off and on.
03:48 So cereals and pulses inflation, I
03:50 think, is going to persist going ahead,
03:53 despite government intervention.
03:55 And this is something which we need to be watchful about.
03:57 I don't see too much of a spike happening right away,
04:00 because overall production definitely
04:02 is going to take a hit for the year round, around the year.
04:07 All right.
04:07 And moving to core inflation, it does
04:10 appear, glancing at the data, that much of the reprieve
04:14 that we have seen in inflation continues
04:17 to be from core inflation that essentially excludes
04:20 fuel and food.
04:23 Yeah, absolutely.
04:23 I think that's one--
04:25 the biggest, I would say, the good news
04:27 in the whole of this headprints that we're looking at.
04:30 Largely, the headline numbers are split between food
04:33 and core inflation.
04:34 Food inflation clearly was supposed
04:36 to be the key driver of inflation on the upside, which
04:40 has happened.
04:41 On the other side, we were expecting
04:42 softness of 15 to 20 basis on the core inflation side.
04:46 And that, too, again, has happened.
04:48 So I think that is one big trend that we are observing,
04:52 which will provide a lot of respite to the central bank,
04:56 largely, because one has to weigh how permanent
05:00 and how real the price pressures are.
05:03 And core inflation does give us the demand side price
05:06 pressures.
05:06 So somewhere, the pass-through of the monetary tightness
05:10 that has persisted is seemingly weighing through the economy.
05:15 And we are seeing the impact of that on continued deceleration
05:19 in core inflation trajectory.
05:21 OK, and before we can move on to the other figure that's
05:24 coming today, that's IIP, I'd like
05:26 to ask you what's the trajectory going forward?
05:29 So you've said that some of these food price
05:31 pressures are expected to persist.
05:34 Is that-- while that's definitely
05:36 going to be the case in December,
05:38 what's the way forward after that?
05:41 For the next two readings, we have numbers higher than 5%.
05:46 And after that, we see moderation
05:48 for the February and March reading to a tad below 5%.
05:52 So overall, RBI has given a projection of 5.4%
05:56 for the full year.
05:57 And I mean, that doesn't really seem too much of a risk.
05:59 We, too, are at 5.4%.
06:01 So broadly, I think the next two quarters which RBI has given,
06:05 there could be a slight softness to the numbers
06:07 depending on how much of correction
06:09 we see in the vegetable prices.
06:11 But barring that, I think broadly 5.4%
06:13 can be easily achieved.
06:15 So I don't see too much of a risk there.
06:17 It will be managed as per what has been directed for now.
06:22 OK, all right.
06:23 And now moving to industrial output, of course,
06:26 very strong figures coming in from there as well.
06:29 But to begin with, help us understand
06:31 if this is largely because of the base effect
06:34 and the festive season.
06:36 Is there reason to continue to feel optimistic?
06:40 I think, yes, you're absolutely right.
06:42 Base effect has played the biggest role
06:44 in driving these numbers.
06:46 We were at 10.2%.
06:48 The number is higher than our expectations.
06:50 So clearly, despite accounting for base effect,
06:53 the number is higher than what we thought.
06:55 So sequential pickup is also there.
06:57 Yes, a large part of this is festive linked.
07:00 And we don't expect such high numbers to persist.
07:03 But otherwise, if you look at overall activity,
07:06 the high frequency data, that continues
07:08 to point towards resilience.
07:11 And that is the reason, I think, why such high numbers may not
07:14 persist in high double digits because of base effect wearing
07:18 off over a period of time.
07:20 Maybe one more reading could be in double digits
07:22 and we start seeing moderation.
07:24 But overall, sequentially, I don't
07:26 see too much of a problem persisting
07:28 because growth will hold on.
07:30 As of now, we're not really seeing too much of a risk.
07:32 Of course, it is going to be slower than the H1
07:35 that we've seen.
07:36 We've already seen the GDP data that came out.
07:39 And we have overall seen RBI also
07:42 revising upward their GDP numbers
07:44 to 7% for the full year.
07:47 But second half of the year is expected
07:49 to be relatively softer than the first part of the year.
07:52 And that is something which we will also see in IIP numbers.
07:56 Post the festive season, there will be moderation.
07:59 And it will be growing in single digits
08:01 and not really persisting in double digits.
08:05 OK, so while that's on IIP, like Upasana said, there is scope.
08:11 There's a high chance that we will see some moderation going
08:14 forward.
08:15 Upasana, so far, like you also touched upon,
08:18 other high frequency indicators being fairly strong,
08:22 even post-October and for the ongoing quarter.
08:26 Can we expect some upward revisions
08:29 to forecast for the ongoing quarter as well?
08:34 In terms of GDP?
08:35 That's right.
08:37 This current quarter looks to be closer to 6.5%, 6.6%.
08:42 That's the run rate that we see.
08:44 And I think there's not going to be too much upside to that.
08:48 But we do see--
08:50 I mean, what I can see is that the fourth quarter,
08:53 how the momentum sustains is going
08:56 to determine whether there's upside to our own numbers
08:59 of GDP for the fourth quarter.
09:01 Our fourth quarter estimate is currently at a little below 6%.
09:06 And I think there could be some upside coming
09:09 if the resilience and activity continues.
09:12 So not to my third quarter estimates,
09:14 but I think the fourth quarter estimates
09:16 do have some upside if the current run rate on high
09:21 frequency data was to continue.
09:24 OK, so while the overall picture for the economy
09:28 does look fairly robust at this juncture,
09:32 what's your reading of the rural economy that's
09:35 been presenting a fairly mixed picture for quite some time
09:39 now?
09:40 What's it looking like at this juncture?
09:42 And do you think that you're seeing
09:45 sort of shoots of revival there?
09:48 Again, I think you correctly pointed out
09:50 the rural demand side looks a little mixed to me.
09:55 Most of the data is mixed.
09:57 Like, if you look at the rural wages, that's holding up well.
10:00 But the other aspects, which we've just
10:02 discussed from the food inflation side,
10:04 that that also works on the flip side
10:06 adversely for the farmers as well.
10:09 So there could be some downside coming
10:12 if the ravi production is not at par.
10:15 And we'll have to see if some kind of support
10:17 does come from the government to the farmers.
10:20 But at this point, I think the high frequency data
10:23 is fairly mixed.
10:24 And it's difficult to say whether there's
10:27 too much downside to the demand.
10:29 But I would say it's mixed.
10:30 That's what I can say at this point.
10:34 All right.
10:35 Thanks a lot, Upasana.
10:36 But before we let you go, what's your expectation
10:40 after looking at these prints for inflation
10:42 as well as for IAP for the next month?
10:46 Like I said, for IAP, we will not
10:48 be expecting a double digit number.
10:51 I mean, right now, we have tentative numbers.
10:53 It should be closer to 6% or so.
10:55 That's because the base effect is wearing off.
10:57 So it has not anything to do with the sequential momentum.
11:00 It's more about base effect wearing off.
11:03 So I think it will be in single digits,
11:05 but a little to the north of 5%.
11:08 We'll have to concretize these numbers later
11:11 once we get more data.
11:13 For inflation, it will be high.
11:15 I think it's going to be higher than 5.55 that we've seen today.
11:19 So the next reading should be higher
11:21 before we start seeing moderation.
11:22 We still have some more vegetable-led inflation,
11:27 which has to seep into the current month's reading.
11:30 And then after that, we start seeing moderation.
11:32 So we're expecting a little higher number than 5.55%.
11:36 All right.
11:37 Thanks a lot for that, Upasana.
11:39 So CPI and IAP, both better than expectations.
11:43 Stay tuned.
11:44 We'll continue our coverage on NDTV Profit.
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