Exports, auto sector performance and continued raw material unavailability for the gems and jewellery sector along with slowdown in cement and steel are likely to keep a pressure on IIP numbers and indicate a subdued economic activity in the ongoing quarter.
RBI policy monitorable now being CPI, the expectation is of 9.49 percent compared to the 3-month low last reading of 9.87 percent. However, the issue which RBI has also taken into consideration is that the core CPI (largely comprising housing, clothing, bedding, footwear and miscellaneous items or rather CPI excluding food and fuel) has not only remained sticky in recent months, but momentum indicators also indicate an upward pressure.
The last reading for WPI at 6.16 percent, a 5-month low, the forecast for January reading is 5.70 percent. Rupee has exhibited resilience in the current EM currency turmoil and gained 0.6 percent in the week, snapping two weeks of losses, to post its biggest gain since December 6. The trend is expected to continue. FII inflows have slowed down considerably especially in Equities where, as of last Thursday, the net outflow has been USD 141 million year-to-date. We believe that FII flows will remain languid till the verdict on the parliamentary elections is out in May ’14 and, even after that, will depend on the type and structure of the new government.
In US, Janet Yellen will testify on the semi-annual monetary policy report in front of the House Financial Services Committee, her first, on Tuesday. This event assumes importance because it will not only contain hints about the future direction of the Fed under her leadership.. Last July her Bernanke predecessor made his announcement about tapering on this platform.
ECB President Mario Draghi’s will be addressing a conference on Wednesday and it is expected that he may provide more insight into the kinds of tools and when they would be deployed, should inflation fall further and the threat of deflation become very real. He was hazy on this during the last press conference.
China will release the trade balance data on Wednesday. Exports would be keenly watched as the economy is trying to make a transition from an export driven to domestic consumption.