E
CO
S
COPE
CPI inflation lowest-ever at 6.5%
Broad-based decline to prompt RBI to cut rates earlier
13 October 2014
The Economy Observer
Sep-14 CPI Inflation
The Sep-14 CPI Rural Urban (CPI-RU) inflation at 6.5% was lowest-ever
for the new series and was somewhat better than expectations (MOSL
6.9%; Consensus 7.1%).
The CPI index remained static implying no inflation MoM - thus the
sharp decline was not due to base effect alone.
Vegetables contributed to 44bp drop in MoM inflation while cereals
contributed another 13bp. Deceleration in fuel group inflation
contributed 7bp while ‘transportation and communication’ group
within services sector of CPI contributed to another 16bp drop in
MoM inflation.
Sep-14 CPI-RU lowest ever at 6.5%
CPI index remained static MoM
Vegetables inflation declined to 8.6% from
15% during Aug-14; contributed 44bp drop
Fuel and ‘transportation & commnications’
group resulted in 23bp drop
Core CPI lowest ever at 5.9%; rural core
lower and falling at a faster rate
Rural inflation marginally higher than
urban inflation due to fuel and clothing
With broad-based decline in CPI and IIP
remaining near zero, expect RBI to cut
rates 2-3 quarter ahead of consensus
Core inflation made a new low of 5.9% with rural core lower than
their urban counterpart and also recording faster decline. At the aggregate level however, rural inflation stood
moderately higher than urban inflation due to somewhat higher inflation for fuel and clothing group.
With inflation showing signs of broad-based decline, RBI is expected to cut rates 2-3 quarters ahead of consensus.
Sep-14 CPI lowest ever at 6.5%; vegetables contributed to 44bp decline
CPI-RU inflation lowest ever:
The CPI-Rural Urban (CPI-RU) inflation fell sharply
to their lowest level ever to 6.5%, somewhat better than expectations (MOSL
6.9%, Consensus 7.1%). 1HFY15 average CPI-RU inflation at 7.7% was 185bp
lower than 9.6% during 1HFY14.
Not just base effect:
The value of CPI-RU index remained static MoM implying
that the YoY decline in inflation was not contributed by a favourable base effect
alone.
Vegetables prices fell MoM:
The vegetable prices declined -1.9% MoM resulting
in near halving of the YoY vegetable inflation to 8.6% from 15% a month back.
This alone led to 44bp correction out of total 127bp correction in overall CPI
inflation MoM. Cereal prices led to another 13b correction. Altogether food
inflation fell sharply to 7.6% from 9.1% a month back, contributing o 79bp
correction in CPI inflation MoM.
Benefit from lower oil prices:
Fuel group inflation declined to lowest ever to
3.5% (from 4.2% during Aug-14). On the other hand the ‘transportation and
communication’ group within services sector of CPI too fell sharply to just 2.5%
from 4.7% a month back. These two groups resulted in 7bp and 16bp decline in
overall CPI inflation MoM.
Core inflation at new record low of 5.9%:
The core retail inflation broke the
record low of previous month and went below 6% (at 5.9% it meant a 93bp drop
MoM. Again base effect had very little influence on this. Rural core (at 5.6%)
stood lower than their urban counterpart (6.1%) and also witnessed sharper
MoM drop (112bp vs. 81bp in urban areas).
Dipankar Mitra
(Dipankar.Mitra@MotilalOswal.com); +91 22 3982 5405
Investors are advised to refer through disclosures made at the end of the Research Report.

Rural inflation moderately higher:
Rural inflation at 6.7% stayed somewhat
higher than 6.3% in urban areas. While food and services inflation has
converged in the two areas rural inflation was somewhat higher for fuel and
clothing group.
RBI may to cut rates earlier than anticipated:
As definitive proof of broad-based
decline in inflation has emerged, RBI may cut rates at least 2-3 quarters ahead of
market consensus.
Core CPI inflation falls sharply to lowest ever and converges
CPI-RL
CPI-RU
11
9
7
5
9.2
8.4
7.3
5.9
Core Retail - Rural
Core Retail - Combined
Core Retail - Urban
All CPI indicators falling sharply
14
12
10
8
6
4
CPI-IW
CPI-AL
Source: CSO, MOSL
Source: CSO, MOSL
Sharp decline in both rural and urban CPI closing the gap
between the two
12
11
10
9
8
7
6
6.3
6.7
CPI (Rural)
CPI (Urban)
11.7
Rural inflation converges for food and services but stays
somewhat higher for fuel and clothing group
Rural
8 8 8
8
7
4
2
3
8
8 8
7 6 6
5
4 5
Urban
Total
10.5
Food and Fuel and Clothing, Housing
bvrgs
light
bedding &
footwear
Source: CSO, MOSL
Misc.
Services
General
index
Source: CSO, MOSL
13 October 2014
2

Macro Economic Indicators
Annual
I. National Income (Growth %)
Nomi na l GDP (USDb)
Gros s Domes ti c Product
Agri cul ture
Foodgra i ns (M Ton)
Ra i nfa l l (% of l ong peri od a vera ge)
Indus try
Servi ces
II. Inflation (Y-o-Y %)
WPI (Annua l Avera ges )
Al l commodi ti es
Pri ma ry a rti cl es
Fuel & power
Ma nufa ctured products
CPI-IW/CPI-RU (from FY12)
III. Fiscal Situtaion (as % of GDP)
Tota l recei pts
Di rect ta x
Indi rect ta x
Net ta x
Tota l expendi ture
Pl a n
Non-pl a n
of whi ch s ubs i di es
Fi s ca l defi ci t
Revenue defi ci t
Combi ned fi s ca l defi ci t (centre + s ta tes )
Publ i c debt
IV. Money and Banking (Y-o-Y%)
Res erve money
Money Suppl y (M3)
Depos i ts
Ba nk credi t
V. External Sector
(i n USDb)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Net ca pi ta l fl ows
Forex Res erves
(As % of GDP)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Externa l debt
VI. Financial Markets (Avg %)
Ca l l ra te
1-yr AAA corpora te bond
Yi el d on 10-yr G-s ec (%)
Excha nge Ra te (INR/USD)
BSE Sens ex return
P/E ra ti o (Tra l l i ng)
Ma rket ca pi ta l i s a ti on (a s % of GDP)
Oi l pri ce (Indi a n Ba s ket, USD/bbl )
Fi gures i n red a re es ti ma tes
FY05
721
7.0
0.2
198
-9.1
9.8
8.1
FY06
834
9.5
5.1
209
-1.0
9.7
10.9
FY07
948
9.6
4.2
217
-5.2
12.2
10.1
FY08
1,239
9.3
5.8
231
-0.8
9.7
10.3
FY09
1,226
6.7
0.1
234
-10.0
4.4
10.0
FY10
1,366
8.6
0.8
218
-18.6
9.2
10.5
FY11
1,708
8.9
8.6
245
1.8
7.6
9.7
FY12
1,879
6.7
5.0
259
-7.2
7.8
6.6
FY13
1,858
4.5
1.4
250
-9.5
1.0
7.0
FY14
1,878
4.7
4.7
263
6.4
0.4
6.8
FY15E
2,102
5.6
1.1
265
-13.0
4.0
7.0
6.5
3.7
10.1
6.3
3.8
15.6
4.1
5.3
6.9
15.4
4.1
11.3
1.4
3.9
2.4
7.2
82
12.1
12.3
10.8
26.2
4.4
2.9
9.5
3.1
4.4
14.3
4.5
5.4
7.3
13.7
3.8
9.9
1.3
4.0
2.5
6.5
79
17.2
21.2
23.4
38.0
6.5
9.6
6.5
5.6
6.7
13.6
5.4
5.7
8.2
13.6
4.0
9.6
1.3
3.3
1.9
5.4
75
23.7
21.3
23.8
28.1
4.8
8.3
0.0
4.9
6.2
14.3
6.3
5.6
8.8
14.3
4.1
10.2
1.4
2.5
1.1
4.1
71.4
31.0
21.4
22.4
22.3
8.0
11.1
11.6
6.1
9.1
15.8
6.0
4.9
7.9
15.8
4.9
10.9
2.3
6.0
4.5
8.5
72.2
6.4
19.3
19.9
17.5
3.6
12.7
-2.1
1.8
12.4
15.9
5.8
3.8
7.1
15.9
4.7
11.2
2.2
6.5
5.2
9.6
70.8
17.0
16.9
17.2
16.9
9.6
17.8
12.3
5.7
10.5
15.6
5.8
4.5
7.4
15.6
4.9
10.7
2.3
4.9
3.3
7.4
66.0
19.1
15.9
15.8
21.4
8.9
9.9
13.6
7.3
10.5
14.8
5.6
4.5
7.2
14.8
4.8
10.0
2.4
5.9
4.4
8.0
65.6
9.2
13.0
13.4
17.0
7.4
9.8
10.6
5.4
10.2
13.9
5.5
4.7
7.3
13.9
4.1
9.9
2.5
4.9
3.6
7.1
64.0
8.4
13.6
14.3
14.1
6.0
9.8
10.1
3.0
9.5
14.0
5.6
4.6
7.4
14.0
4.2
9.8
2.3
4.6
3.3
6.7
65.0
9.5
13.5
14.3
14.6
5.0
7.7
4.5
3.0
7.5
13.7
5.9
4.8
7.7
13.7
4.3
9.4
2.0
4.1
3.0
6.0
10.0
12.0
13.0
15.0
85
119
-34
31
-2
28
142
11.8
16.5
-4.7
4.3
-0.3
18.5
4.7
5.5
6.2
44.9
16.1
14.4
52.4
39.2
105
157
-52
42
-10
25
152
12.6
18.8
-6.2
5.0
-1.2
17.3
5.6
6.7
7.1
44.3
73.7
21.6
81.8
55.7
129
191
-62
52
-10
45
199
13.6
20.1
-6.5
5.5
-1.0
18.2
7.2
8.5
7.8
45.3
15.9
18.2
82.5
62.4
166
258
-91
76
-16
107
310
13.4
20.8
-7.4
6.1
-1.3
18.1
6.1
9.3
7.9
40.2
19.7
18.8
103.0
79.5
189
309
-120
92
-28
7
252
15.5
25.4
-9.8
7.5
-2.3
20.5
7.1
9.8
7.6
45.9
-37.9
11.8
54.8
82.7
182
301
-118
80
-38
53
279
13.2
21.8
-8.6
5.8
-2.8
18.9
3.2
5.9
7.2
47.4
80.5
21.0
95.2
69.6
251
381
-130
86
-44
57
305
14.5
22.1
-7.6
5.0
-2.6
17.3
4.5
8.1
7.9
45.6
10.9
19.0
87.7
85.1
310
500
-190
112
-78
68
294
16.8
27.0
-10.3
6.0
-4.2
18.7
8.0
9.6
8.4
47.9
-10.5
15.5
69.0
111.9
307
502
-196
107
-88
89
293
16.5
27.0
-10.5
5.8
-4.7
21.4
8.0
8.2
9.3
54.4
8.2
15.9
62.9
108.3
319
466
-148
115
-32
49
304
17.0
24.8
-7.9
6.1
-1.7
23.2
8.1
9.4
8.3
60.5
18.8
16.7
65.4
105.5
326
488
-162
126
-36
80
348
15.5
23.2
-7.7
6.0
-1.7
24.2
8.0
9.0
8.0
60.0
17.2
73.8
105.8
13 October 2014
3

Macro Economic Indicators
Quarterly
I. National Income (Growth %)
Gros s Domes ti c Product
Agri cul ture
Indus try
Servi ces
II. External Sector (USDb)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Net ca pi ta l fl ow
Forex Res erves
Dec-11 Mar-12
6.0
4.1
2.6
8.3
71
119
-48
28
-20
8
297
5.1
2.0
2.1
7.3
80
132
-52
30
-22
17
294
Jun-12 Sep-12 Dec-12 Mar-13
4.5
1.8
0.3
7.2
75
119
-44
27
-17
16
290
4.6
1.8
-0.4
7.6
73
120
-48
27
-21
18
295
4.4
0.8
1.7
6.9
74
133
-58
27
-32
31
297
4.4
1.6
2.1
6.3
85
130
-46
28
-18
21
293
Jun-13 Sep-13 Dec-13 Mar-14
4.7
4.0
-0.4
7.2
74
124
-50
29
-22
21
285
5.2
5.0
2.6
6.3
81
115
-33
28
-5
-5
276
4.6
3.7
-0.4
7.2
80
113
-33
29
-4
24
296
4.6
6.3
-0.2
6.4
84
114
-31
29
-1
9
304
Jun-14
5.7
3.8
4.2
6.8
82
116
-35
27
-8
20
316
Macro Economic Indicators
Monthly
Nov '13 Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14 Aug '14 Sep '14
I. Growth and inflation (Y-o-Y %)
IIP
-1.3
0.1
1.1
-1.8
-0.5
3.7
5.0
3.9
0.4
0.4
WPI - Al l commodi ti es
7.5
6.4
5.1
5.0
6.0
5.5
6.2
5.7
5.2
3.7
Pri ma ry a rti cl es
15.3
10.8
6.8
6.3
7.3
7.0
8.6
7.0
6.8
3.9
Fuel & power
11.1
10.9
9.8
8.7
11.8
9.3
10.5
9.0
7.4
4.5
Ma nufa ctured products
2.9
3.0
3.0
3.4
3.7
3.7
3.9
3.9
3.7
3.5
CPI-RU
11.2
9.9
8.8
8.0
8.3
8.6
8.3
7.5
8.0
7.8
II. Fiscal situation (as % of budgeted)
Tota l recei pts
45.6
57.7
69.2
75.1
99.0
0.6
3.2
9.2
14.2
21.7
of whi ch ta x revenue
44.8
58.6
68.9
75.0
97.6
0.1
2.9
10.1
15.0
19.0
Tota l expendi ture
61.3
69.9
79.8
88.0
98.3
6.8
15.9
23.0
28.1
37.5
Non-pl a n
65.8
73.2
80.8
88.9
99.6
8.1
18.3
24.7
30.5
40.6
Pl a n
52.4
63.3
77.6
86.0
95.3
4.1
10.7
19.4
23.0
30.9
Fi s ca l defi ci t
93.9
95.2 101.6 114.3
96.9
21.5
45.6
56.1
61.2
74.9
Revenue defi ci t
103.5
97.7 102.3 117.3
97.3
26.4
53.6
65.9
70.4
85.8
III. Money and Banking (Y-o-Y%)
Res erve money
12.1
10.7
8.2
9.8
14.4
9.0
11.9
9.8
11.5
11.3
9.7
Money Suppl y (M3)
14.9
14.8
14.5
14.5
13.2
13.7
13.5
12.2
12.7
13.0
12.7
Ba nk Credi t (Y-o-Y %)
14.2
14.5
14.7
14.3
14.3
14.3
13.6
13.3
13.3
10.9
9.7
Depos i ts (Y-o-Y %)
16.1
15.9
15.7
15.8
14.6
15.3
14.6
12.4
13.0
13.6
13.4
IV. External Sector
Exports (USD b)
24
26
26
26
30
26
28
26
28
27
Exports (Y-o-Y %)
2.0
1.9
2.4
-3.7
-3.8
5.3
12.4
10.2
7.3
3.0
Imports (USD b)
34
36
36
34
40
36
39
38
40
38
Imports (Y-o-Y %)
-16.7
-15.3
-18.8
-17.1
-1.1
-15.0
-11.4
8.3
4.2
2.9
Tra de Defi ci t (USD b)
-10
-11
-10
-8
-11
-10
-11
-12
-12
-11
Forex Res erves (USD b)
291
296
291
294
304
310
312
316
321
319
Rea l effecti ve excha nge ra te
94.9
96.4
96.2
95.9
97.9
99.4 104.2 103.8 104.6
105.3
106.7
RBI's net forex i nterventi on
3.9
10.1
3.5
-1.9
7.8
5.9
1.8
0.6
5.5
-0.5
V. Financial Markets (Avg %)
Ca l l ra te
8.2
7.9
7.9
8.0
8.1
7.9
7.7
7.9
8.0
7.6
7.6
Govt borrowi ng (% compl eted)
80.3
88.0
98.3 100.0 100.0
11.4
25.5
33.2
42.9
54.6
61.6
91-da y T-bi l l
8.9
8.7
8.8
9.1
9.1
8.9
8.8
8.6
8.6
8.6
8.6
Yi el d on 10-yr G-s ec (%)
9.0
8.8
8.7
8.8
8.8
8.9
8.7
8.6
8.7
8.8
8.5
SBI Ba s e ra te
10
10
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
CP - 3 month
9.4
9.1
9.5
10.0
10.0
9.4
9.2
8.9
8.9
9.1
8.9
CD - 1yr
9.2
9.3
9.3
9.7
9.5
9.2
9.1
8.9
9.0
9.1
9.1
AAA corpora te - 1yr
9.7
9.8
9.4
9.9
9.8
9.5
9.3
9.0
9.2
9.2
9.1
Excha nge Ra te (INR/USD)
62.6
61.9
62.1
62.3
61.0
60.4
59.3
59.7
60.1
60.9
60.9
BSE Sens ex return
-1.8
1.8
-3.1
3.0
6.0
0.1
8.0
4.9
1.9
2.9
0.0
P/E ra ti o (1 Yea r Forwa rd)
14.1
14.2
13.6
13.8
14.5
14.3
15.1
15.6
15.6
15.8
15.6
Mkt ca pi ta l i za ti on (a s % of GDP)
59.7
61.8
62.1
62.3
61.0
60.4
66.3
71.2
71.0
72.8
73.8
Oi l (Indi a n ba s ket, USD/bbl )
106.6 108.8 105.3 106.1 105.1 105.7 106.8 109.2 106.1
101.9
13 October 2014
4

E
CO
S
COPE Data Monitor
Annual
GDP growth (%):Expect gradual recovery
9.3
6.7
8.6
8.9
6.7
4.5
4.7
5.6
6.5
Quarterly/Monthly
GDP growth (%):First signs of growth pick-up
FY08
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E
Inflation: Showing signs of definite moderation
WPI
CPI-IW / CPI-RU
Inflation: CPI-RU lowest ever at 6.5%; WPI around 4%
WPI
CPI-RU
Fiscal deficit (% to GDP): Ongoing consolidation process
Centre
Centre + states
Fiscal trend: Year-end consolidation expected
Credit growth constrained by slowdown and tight money
Money Supply (M3)
Deposits
Bank credit
Credit growth has slowed down
20
18
15
13
10
M3
Bank Credit
Deposits
13 October 2014
5

E
CO
S
COPE Data Monitor
Annual
External sector: Corrected sharply in FY14
FY11
FY12
FY13
FY14
FY15E
FY16E
30
10
-10
-30
-50
Trade Deficit
Current A/c deficit
Quarterly/Monthly
External sector: Exports pick up, deficit under check
Exports
Imports
Trade deficit (USD b)
Financial markets: Rates stable now while yield curve is flat
Call rate
10
8
6
4
2
Yield on 10-yr G-sec (%)
Financial markets: Interest rates stable at high levels
12
11
10
9
8
CP - 3 month
AAA corporate - 1yr
Market ended with good return in FY14
Markets are fairly valued now
12
8
4
0
-4
-8
Market capitalization (as % of GDP) (RHS)
BSE Sensex return (LHS)
80
64
48
32
16
0
INR depreciated; forex reserves recovered
65
60
55
50
45
40
35
30
Forex reserves (USD b, RHS)
Exchange rate (INR/USD, LHS)
350
300
250
200
150
100
50
0
RBI intervened to stabilize INR
RBI's net forex intervention (USDm) (LHS)
Exchange Rate (INR/USD) (RHS)
14
9
4
-1
-6
66
60
54
48
42
13 October 2014
6

NOTES
13 October 2014
7

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