Expectation over India’s growth prospects is moderating
Real Economy: A pick-up in the industrial production will only be gradual as investment remains subdued. Rural sector demand will remains affected by the floods occurring in between July–October 2019 and lower agricultural output. However, the initiatives by the RBI for policy rate transmission, the various measures announced by the government and the festive months are expected to uplift the urban demand. D&B expects Index of Industrial Production (IIP) to have remain subdued and grown by 0.5%-1.0% during Sep-19.
Price Scenario: Inflation in food prices, as the rural sector faces floods, and lower agriculture output is expected to keep CPI inflation elevated. While negative inflation in the fuel group and subdued demand impacting the ability of the firms to pass on the price hike to consumers is expected to keep the WPI inflation lower, increasing the divergence between the two indices of inflation. D&B expects the CPI inflation to remain in the range of 4.0%-4.2% and WPI inflation to be in the range of (-) 0.1% - 0.2% during Oct-19, respectively.
Money & Finance: Rate cuts by the RBI and the monetary easing taking place globally is likely to exert downward pressure on yields, while expectation of high fiscal deficit will exert upward pressure on bond yields. D&B expects 15-91-day T-Bill yield to average at around 5.1%-5.3 and 10-year G-sec yield at around 6.7%-6.8% during Oct-19.
External Sector: Strength in the dollar index, foreign fund outflows and the uncertain outcome of the ongoing trade war is expected to keep the rupee under pressure. Domestically, dismal corporate earnings and weak domestic growth would also weigh upon rupee. D&B expects the rupee to remain at around 71.0-71.10 per US$ during Oct-19.