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MOSL: ECOSCOPE-Macro data much better than expectations-Fiscal discipline could lead to a rate cut in February policy meeting

ECOSCOPE: Macro data much better than expectations; Fiscal discipline could lead to a rate cut in February policy meeting

 

• India's headline CPI inflation eased to a 17-month low of 2.3% in Nov'18 from 3.4% in Oct'18. The number is lower than our estimate/market consensus of 2.5%/2.6%. This is the sixth straight month of lower-than-expected inflation.
• Food prices fell 2.6% YoY in Nov' 2018 (our estimate: -2.3% YoY) on account of a 15.6% YoY decline in vegetable prices. Core inflation eased sharply to an 8-month low of 5.6% from 6.3% in Oct'18. Inflation in core services, however, remained elevated at 6.7% - the highest level in at least 46 months.
• Separately, IIP rose sharply by 8.1% YoY in Oct'18, much higher than our/market expectations of 6.3%/6%, supported by a favourable base (Oct'17: 1.8%). Capital goods and consumer durables output grew in double-digits.
• The RBI had cut its 2HFY19 inflation projection to 2.7-3.2% from 3.9-4.5% earlier. We, however, believe that inflation could move toward 4% by Mar'19 - higher than the RBI's projection. Besides, real GDP growth is expected to be ~6.5% in 2HFY19, below the RBI's projection of 7.2-7.3%. Overall, if inflation evolves in line with the RBI's projection and the government maintains fiscal discipline, it could set the stage for a rate cut.