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MOSL: ECOSCOPE-Lower inflation defies further rate hikes in FY19; Inflation expected to move towards 3% by Dec’18

ECOSCOPE: Lower inflation defies further rate hikes in FY19; Inflation expected to move towards 3% by Dec’18

 

• India's headline CPI inflation came in lower-than-expected for the fifth consecutive month at a 13-month low of 3.3% in Oct'18, well below our estimate/market consensus of 3.5%/3.6%. The deviation was primarily because of food prices, which fell by 0.1% YoY in Oct'18 as against our expectation of 0.7% growth.
• Core inflation, however, rose to 6.1% from 5.7% in the previous month, which was higher than our estimate of 5.8%. Inflation in core services surged to 6.6% from 6% in Sept'18.
• Separately, IIP grew 4.5% YoY in Sept'18, better than market consensus of 4.2%, but lower than our expectation of 5%. Capital goods - a proxy for investment activity- grew ~6% YoY in 2QFY19, slower than the 8.6% growth seen in 1Q.
• Overall, we maintain that the RBI will resist rate hikes in Dec'18 and Feb'19, as inflation is expected to remain at ~3% in Nov-Dec'18. Real GDP growth is also seen weakening from 8.2% in 1Q to 7-7.2% in 2Q and further to 6.5% in 2HFY19.