 "6 event risks to track in July")
In a recent report by Indranil Sen Gupta and Abhishek Gupta, India economists at Bank of America Merrill Lynch (BofA-ML) suggest investors track six event risks in July apart from the events unfolding in Greece. They, however, don’t expect any early resolution of the Greek crisis. “Our Europe economists note that Greece is already on the path of exit, with capital controls, limited liquidity and odds of IOUs increasing. A lot of mutual pride swallowing is needed to avoid Grexit, but it can still be avoided,” they said in India Economic Watch report released on Tuesday.
Here are the six events that the research house lists:
May IIP
BofA-ML estimates industrial growth in May will slow down to 2.8 per cent from 4.1 per cent in April. “On our part, we think recovery should be back-ended as lending rates take about six months to support growth. We see GDP (gross domestic product) growth slowly bottoming out to 6 per cent (in the old series) in FY16 from 5.5 per cent in FY15,” the report suggests.
June inflation
BofA-ML pegs consumer price inflation (CPI) at 5.4 per cent, higher than May’s five per cent, which will be driven by higher prices of pulses; increase in service tax could raise consumer price index (CPI)-based inflation by around 20 basis points (bps); and fall in petrol deflation to -2.6 per cent in June from -8.9 per cent in May could impact CPI inflation by 10-15 bps. In this backdrop, they expect the RBI cut rates by 50 bps by early 2016 with inflation well on track to its below six per cent January 2016 target.
Parliament session
In the backdrop of recent political controversies, BofA-ML is not too hopeful that the goods and services tax Bill or amendments to the Land Acquisition Act will see a smooth passage in the coming monsoon session of Parliament. It suggests the market is over-rating the contribution of either legislation to growth. “We believe lending rate cuts, rather than reforms, hold the key to an immediate cyclical recovery by, say, end-2015. Reforms will support growth only over, say, five years and so, it does not really matter where they are legislated in this parliamentary session or next.”
Monsoon
A good June is no guarantee for a normal monsoon as it accounts for only 15.2 per cent of the seasonal rainfall, cautions the report and expects a clearer picture to emerge by mid-July.
Corporate results
Analysts at BofA-ML expect Sensex profit growth to recover to four per cent in the June quarter from -0.1 per cent in March on a standalone basis. Overall, they expect a turnaround from September onwards.
Rate hike by US Fed
The report suggests the US Federal Reserve could give clues to the possibility of a hike in interest rates in the coming policy meet on July 28/29. “Despite improving data, the bond market is pricing in only about a one-in-five chance of a rate hike in September,” BofA-ML says.