WPI Inflation Update | Economy

June 14, 2013

WPI Inflation Update May 2013

Inflation continues to tread positively
Key highlights

Bhupali Gursale
022-3935 7800 Ext: 6820 bhupali.gursale@angelbroking.com

The Wholesale Price Index (WPI) based inflation moderated for the fourth straight month in May 2013 to 4.70% as compared to 4.89% in the previous month and 7.55% in May 2012. Owing to benign commodity prices as well as a break-down of pricing power in manufacturing, headline WPI inflation is now within the 5% comfort zone for the second consecutive month, since its spike post Nov 2009. The moderation is led by core inflation which eased for the ninth straight month to 2.4% as compared to 2.7% in the previous month and 5.2% in May 2012. Headline inflation for March 2013 has been positively revised down by 31bp to 5.7% from 6.0%, mainly owing to a 242bp revision in fuel inflation. Despite the considerable moderation in WPI inflation, we believe that the Reserve Bank of India (RBI) is unlikely to ease policy rates in its upcoming policy meeting on June 17, 2013. We believe that the RBI is likely to be cautious since the sharp INR depreciation could potentially compound the trade deficit in the near term and also offset the positive impact of benign global commodity prices on inflation. Further, inflation at the retail level, measured by the Consumer Price Index (CPI), continues to remain elevated (9.3% in May 2013).

Trends in Inflation for May 2013

Primary articles weightage 20.1%
Inflation in primary articles (on a moderating trend since the past three months) inched higher to 6.7% in May 2013 as compared to 5.8% in the previous month. This can be attributed to higher inflation in primary food articles, even as non-food articles and minerals moderated sequentially. Food inflation is mainly led by the 4.9% yoy (9.0% mom) rise in vegetables inflation against a 9.0% decline in the previous month. In case of food articles, the marginal rise in cereal inflation to 16.0% from 15.6% in April 2013 was more than offset by moderation in pulses inflation to 5.9% from 10.3% in the previous month.

Fuel and power weightage 14.9%

Inflation in fuel and power moderated to 7.3% during the month as compared to 8.8% in April 2013 and 11.5% in May 2012. The electricity index has gone up in line with electricity tariff revisions by some states, pushing up inflation in this category to 27.9% as against 13.2% in April 2013. It contributed 69bp to the overall headline inflation of 4.70% as compared to a contribution of 33bp in the previous eight months. The increase in the electricity index was offset by the decline in coal index as well as moderation in mineral oils. Going ahead, the revision in coal price index is likely to keep the fuel index from inching downwards.

Please refer to important disclosures at the end of this report

WPI Inflation Update May 2013

Exhibit 1: Trends in WPI Inflation (%, yoy)

Weightage (%) Headline Inflation Primary Articles Fuel and Power Manufactured Products
Source: Office of Economic Adviser, Angel Research

May-13 4.7 6.7 7.3 3.1

Apr-13 4.9 5.8 8.8 3.4

Mar-13 5.7 7.4 7.8 4.3

May-12 7.5 10.3 11.5 5.2

100 20.12 14.91 64.97

Exhibit 2: Manufactured products inflation trending down

(%) 15.0 12.0 9.0 6.0 3.0 0.0 Aug-12 Oct-12 Mar-13 May-12 Apr-13 May-13 Nov-12 Jun-12 Jul-12 Sep-12 Dec-12 Jan-13 Feb-13 Primary Articles Fuel and Power Manufactured Products

7.3 6.7 3.1

Source: Office of Economic Adviser, Angel Research

Exhibit 3: Spike in food articles inflation during May 2013

(%) 15.0 12.0 9.0 6.0 3.0 0.0 -3.0 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Source: Office of Economic Adviser, Angel Research Primary Articles (wt: 20.1%) Non-Food Articles (wt: 4.3%) Food Articles (wt: 14.3%) Minerals (wt: 1.5%)

June 14, 2013

``

WPI Inflation Update May 2013

Manufactured products weightage 65.0%

Inflation in manufactured products decelerated for the eighth straight month to 3.1% in May 2013 as compared to 3.4% in April 2013 and 5.2% in the corresponding period of the previous year. Core inflation, ie the non-food manufacturing component of inflation, softened to a 41-month-low to 2.4% as compared to 5.2% in May 2012. The deceleration in core inflation can be attributed to decline in commodity prices on a yoy basis as well as continued weakness in pricing power.

Exhibit 4: Moderation in core inflation within 3%-level

(%) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Mar-11 May-11 Mar-12 May-12 Mar-13 Jul-11 Sep-11 Nov-11 Jul-12 Sep-12 Nov-12 Jan-11 Jan-12 Jan-13 Core Inflation CRB commodity index (RHS) (Index) 400 380 360 340 320 300 280 260 240 220 200 May-13

Source: Office of Economic Adviser, Angel Research

Policy Outlook
Despite the considerable moderation in WPI inflation, we believe that the RBI is unlikely to ease policy rates in its policy meeting on June 17, 2013. We believe that the RBI is likely to be cautious since the sharp INR depreciation could potentially compound the trade deficit in the near term and also offset the positive impact of benign global commodity prices on inflation. In fact we believe that INR depreciation and its stabilization at a higher level could stoke imported inflation and the RBI is likely to guard against those inflationary pressures. Further, despite the substantial moderation in WPI inflation, inflation at the retail level, as measured by the CPI, continues to remain elevated. CPI inflation came in slightly lower at 9.3% in May 2013 as compared to 9.4% in April 2013 owing to food inflation remaining above double-digits.

June 14, 2013

``

WPI Inflation Update May 2013

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

June 14, 2013

``

WPI Inflation Update May 2013

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Akshay Narang Harshal Patkar Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production Incharge tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com akshay.narang@angelbroking.com harshal.patkar@angelbroking.com

CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 / NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.

June 14, 2013

``