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MOSL: Morning India (13/April/17)-1. EcoScope-2. 4QFY17 Financial Preview-3. Results Expectation: 1. Infosys; 2. DCB Bank

​MOrning India (13/April/17): 1. EcoScope; 2. 4QFY17 Financial Preview; 3. Results Expectation: 1. Infosys; 2. DCB Bank

Today’s top research theme

EcoScope: IIP shrinks unexpectedly, inflation better than consensus; Food items play role in both higher CPI and lower IIP

CPI moved up to a five-month high of 3.8% YoY in March 2017, better than consensus of 3.95%, but worse than our expectation of 3.4%. Separately, IIP declined unexpectedly by 1.2% YoY in February 2017, in sharp contrast to our expectation (and market consensus) of growth of 2% YoY.

Although inflation was much higher than our expectation, the uptick was entirely driven by higher-than-expected inflation in fuel items. Core inflation excluding gasoline items (the so-called core core inflation) was unchanged at 4.4%, the lowest since the series is available from January 2015.

In IIP, the entire fall is attributed to a sharp decline in ‘food products & beverages’, excluding which IIP would have grown 0.6%. The second contraction in capital goods in three months, however, is concerning.

Overall, although IIP is a highly volatile series, the slowdown in economic activity is real, as was discussed in our monthly economic activity index update as well. Subdued inflationary pressures are in line with weak growth. We expect real GDP growth to decelerate meaningfully in 4QFY17.