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After opening the day marginally lower, share markets in India have continued the downtrend and are trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the oil & gas sector and stocks in the pharma sector trading in the green, while stocks in the IT sector are leading the losses.
The BSE Sensex is trading down by 106 points (down 0.4%), and the NSE Nifty is trading down by 28 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading up by 0.4% The rupee is trading at 64.38 to the US$.
In news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Consumer Price Index (CPI) rose to 3.8% in March, continuing its upward march, after snapping a four-month downtrend in February.
CPI picked up from 3.65% in February mirroring a revival in household spending after months of waning demand triggered by a notebandi induced cash crunch.
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CPI inflation rose to a five-month high of 3.8% from 3.6% in November and inched closer to the pre-notebandi levels of 4.2% seen in September.
The data justified the Reserve Bank of India's (RBI) caution on loose monetary stance. The RBI, which kept its key lending rate unchanged last week, has warned of a looming inflation threat over the next 6-12 months, leaving the door ajar for an interest rate hike in 2017-18.
A higher inflation rate, can indicate a pick-up demand and stronger economic activity, driven by higher spending on goods such as cars and greater discretionary expenses on eating out and recreation.
In March 2016, CPI-based retail inflation grew 4.8%.
Among the CPI components, inflation of food and beverages increased to 2.5% in March 2017 from 2.3% in February 2017 mainly contributing to the rise in CPI inflation. The inflation for housing rose marginally to 4.9%, while that for miscellaneous items was flat at 4.8% in March 2017.
Signaling its worries about inflation, the RBI surprised markets last week in raising the reverse repo rate by 25 basis points to 6.0%. It kept the key policy repo rate unchanged at 6.25%.
Such an uptick in prices could force the RBI, which ended a long easing cycle in February by changing its policy stance to neutral from accommodative, to raise interest rates for the first time in over three years.
In news from the manufacturing sector, India's industrial output slipped to a four-month low in February.
The Index of Industrial Production (IIP) which is an indicator of India's industrial production fell by 1.2% in February.
IIP is compiled using data received from 15 source agencies, some of them being Department of Industrial Policy and Promotion (DIPP), Central Electricity Authority, Ministry of Steel, Ministry of Petroleum and Natural Gas and the Railway Board.
The decline is mainly on account of decline in the manufacturing sector and lower offtake of capital as well as consumer goods. The decline in IIP for February is mainly on account of 2% contraction in manufacturing sector, which constitutes over 75% of the index.
Capital goods, which is an indicator for investment demand in the economy contracted 3.4% in February.
The IIP had registered a growth of 1.9% in February last year.
The 76th round of the Reserve Bank of India's industrial outlook survey suggested that financing conditions facing the manufacturing sector have worsened in Q3 of 2016-17 and are expected to remain tight in Q4. This is corroborated by the sharp slowdown in bank credit to industry and continuing sluggishness in the investment climate in some sectors.
The RBI which kept its policy rates unchanged last week said growth is expected to recover sharply in 2017-18 as discretionary consumer demand held back by notebandi is expected to bounce back beginning in the closing months of 2016-17.
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