InvestorQ : How were the major macro data announcements during the week? Were they positive for the stock market overall?
Dhwani Mehta made post

How were the major macro data announcements during the week? Were they positive for the stock market overall?

Khushi Patel answered.
2 years ago

During the last week, there were some important macro data points that were announced. We saw key data points like inflation (both retail and wholesale), IIP growth and the trade data. Normally, such data announcements are made around the middle of every month. Here are 3 interesting data announcements in the week.

· Retail inflation was higher but wholesale inflation was marginally lower for the month of May 2019. The CPI (Consumer Price Index) inflation for May came in higher at 3.07%. In addition, the inflation for April was upgraded from 2.92% to 2.99%. Normally, inflation has 3 key baskets; food inflation, fuel inflation and core inflation. The RBI normally looks at overall inflation to arrive at rate decisions. For the month of May, the real pressure came from the food basket inflation, which went up from 1.15% to 1.83% on a MOM basis. However, the core inflation continues to be on a consistent down trend. Apart from food, fuel inflation was also higher due to higher crude prices. The government does have reasons to worry since food inflation could go up higher if the monsoon is lower than average. Both the IMD and SKYMET have predicted lower than average rainfall this year. That could impact the rate decision as RBI may not be too keen to cut interest rates at a time when inflation is headed up.

· There has been some revival seen in the index of industrial production (IIP) with the YOY growth in IIP coming at 3.6% for April 2019. (Unlike inflation, the IIP growth is always announced with a time lag of 1 month). This compares very favourably with the negative growth seen in the month of March. The good news on the IIP front is that growth was steady across the three principal segments of Mining, Manufacturing and Electricity. Capital goods have also shown a sharp recovery during the month of April and that is normally interpreted as a signal of the capital investment cycle reviving. That can be positive for companies like L&T.

· The merchandise trade deficit (gap between imports and exports) widened for the month of May 2019 to $15.36 billion. For the month of May, the growth in exports was tepid at just 3.3%. In the case of imports, the real pressure came from oil imports. While non-oil imports were up by just 2.9%, the oil imports saw a spurt of 8.4% on the back of higher import volumes and a higher average price. At this rate, the trade deficit could actually get closer to $200 billion for the full year; in the process putting pressure on the external value of the rupee.