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Stock Market News: Monthly economy review

Monthly economy review

Economy: Industrial growth recovers in June; inflation stubbornly high
  • The growth of the Index of Industrial Production (IIP) for June 2011 came in at 8.8%, which was higher than the 5.6% year-on-year (Y-o-Y) growth recorded in May 2011. The growth was stronger in June mainly due to a strong growth in the manufacturing and capital goods sectors. For the year till date (YTD; FY2012), the IIP growth stands at 6.8% as against 9.6% in the corresponding period of FY2011. 

  • The Wholesale Price Index (WPI)-based inflation for July 2011 came in at 9.22%, which was lower than the Street’s expectations. However, on the flip side, the inflation figure for May 2011 has been revised upwards to 9.56% from the provisional figure of 9.06%.  

  • The trade deficit for June 2011 came in at $7.7 billion, lower than the trade deficit level recorded in June 2011. The trade deficit increased by 29.1% year on year (YoY). The growth in the exports remained high at 42.5% YoY (54.1% in June 2011). The imports grew by 46.5% YoY (56.9% in June 2010) which contributed to the contraction in the trade deficit.
Banking: RBI maintains anti-inflationary stance 
  • Given the Reserve Bank of India (RBI)’s focus to contain inflation even at the cost of growth, we expect the central bank to continue its policy of increasing the rates going ahead. We expect the RBI to increase its policy rates by 25 basis points in the mid quarter policy review in September 2011. 

  • The credit offtake registered a growth of 20.2% YoY (as on August 12, 2011), which was higher than the growth of 19.4% recorded in the previous month (as on July 15, 2011). The credit growth continues to be above the RBI’s guidance of 17%. 

  • Deposits registered a growth of 18.4% YoY (as on August 12, 2011), which was higher than the 18% Y-o-Y growth seen during the previous month (on July 15, 2011). The growth in deposits continues led by increase in deposit rates. 

  • The credit-deposit (CD) ratio was at 73.7% (as on August 12, 2011) as compared to 74.1% as on July 15, 2011. Meanwhile for the period the incremental CD ratio expanded to 45.7%, which was higher than the ratio seen during the previous month.  

  • The yields on the government securities (G-Secs; of ten-year maturity) stood at 8.26% as on August 2011, in line with the previous month’s levels. The G-Sec yields across the long-term maturities remained flat on a month-on-month (M-o-M) basis.