Equity Market Sentiment to Improve with Normal Monsoon and low WPI

India Meteorological Department (IMD) in its first stage operational forecast for the southwest monsoon seasonal (June to September) rainfall for the country as a whole has forecasted the monsoon seasonal rainfall to be 97% of the Long Period Average (LPA) with a model error of 5%. The LPA of the season rainfall over the country as a whole for the period 1951-2000 is 89 cm. Forecast also suggests maximum probability for normal monsoon rainfall (96-104% of LPA) and low probability for deficient rainfall during the season.

IMD will issue the update in early June, 2018 as a part of the second stage forecast. Along with the updated forecast, separate forecasts for the monthly (July and August) rainfall over the country as a whole and seasonal (June-September) rainfall over the four geographical regions of India will also be issued.

The 5 category probability forecasts for the Seasonal (June to September) rainfall over the country as a whole suggest probability of rainfall to be deficient i.e. below 90% of LPA is only 14% and below normal (90-96%) is 30%. However, the probability of rainfall to be normal (96-104%) is 42%, above normal (104-110) 12% and excess (>110) is 2%.

The Wholesale Price Index (WPI)-based inflation, base year 2011-12, was steady at eight-month low of 2.5% in March 2018, after declining for last three straight months. Among the three major components of the WPI index, the inflation for primary articles dipped sharply, while inflation for manufactured products group was flat in March 2018. However, the inflation for fuel & power group has moved up in March 2018. Core inflation (manufactured products excluding foods products) declined to 3-month low of 3.6% in March 2018 from 42-months high of 3.9% in February 2018.

Inflation of primary articles dipped to 0.2% in March 2018 from 0.8% in February 2018, while the inflation for manufactured products was flat at 3.0% in March 2018. However, the inflation for fuel items rose to 4.7% in March 2018 from 3.8% in February 2018.

As per major commodity stock group-wise, inflation declined for vegetables, milk, egg, fibres, metallic minerals, coal, mineral oil, tobacco products, textiles, wearing apparel, leather products, chemical products, cement, basic metals, fabricated metal products, motor vehicles, other transport equipment and gold ornament. On the other hand, inflation of cereals, pulses, fruits, spices, oilseeds, fodder, floriculture, crude petroleum, electricity, food products, food products and furniture increased in March 2018.

Inflation of food items (food articles and food products) declined to (-) 0.1% in March 2018 from 0.1% in February 2018 level. Meanwhile, inflation of non-food items (all commodities excluding food items) was flat at 3.6% in March 2018.

The contribution of primary articles to the overall inflation of 2.5% was negative at 05 basis points (bps) in March 2018, showing dip from positive contribution of 16 bps to 2.5% in February 2018. The contribution of fuel product group rose to 51 bps against 42 bps in February 2018, while that of manufactured products was flat at 193 bps in March 2018.

The contribution of food items (food articles and food products) to inflation turned negative at (-) 02 bps to 2.5% in March 2018 compared with positive 2 bps to 2.5% in February 2018. Meanwhile, the contribution of non-food items (all commodities excluding food items) notched up 254 bps in March 2018.

The WPI inflation stood at 2.9% in April-March FY2018 against 1.7% in April-March FY2017. The primary articles inflation eased to 1.3% in April-March FY2018 from 3.4% in April-March FY2017, while fuel products inflation increased to 8.1% from (-) 0.3%. The inflation for manufactured products jumped to 2.7% in April-March FY2018 from 1.3% in April-March FY2017.