Rate hike looms as inflation tops 6%
Even as the Government drags its feet on the issue of cutting fuel prices, India's inflation, based on the Wholesale Price Index (WPI), surged past the 6% mark during the week ended January 6. The barometer of prices at the wholesale level stood at 6.12% versus 5.58% in the previous week due to costlier food and energy products, the Government said. It was the highest inflation rate since Dec. 25, 2004. Inflation was 3.86% during the comparable week of the previous year. The figure, which was just above the forecast of 6.1%, sent the rupee higher against the dollar and pushed the 10-year government bond yield up.
The WPI rose by 0.05% to 208.2. The index for Primary Articles (weight: 22.02%) rose by 0.3% to 213.1. The index for Fuel, Power, Light & Lubricants (weight: 14.23%) was up 0.1% at 322.3. The index for Manufactured Products (weight: 63.75%) declined by 0.1% to 181.1. The index for Food Articles group rose by 0.2%. The index for Non-Food Articles group rose by 0.6%. The index for Textiles group rose by 0.6%. The index for Paper & Paper Products group rose by 0.6%. The index for Food Products group declined by 0.5%. The index for Chemicals & Chemical Products group fell by 0.3%.
The Government also revised the inflation rate for the week ended Nov. 11 to 5.39% from the previous estimate of 5.29%. The final WPI for the same period stood at 209.1 as against 208.9. Analysts said the sharp jump in inflation could prompt the Reserve Bank of India (RBI) to boost its key short-term rates when the central bank reviews its monetary policy on January 31. Some analysts expect the RBI to hike both repo and reverse repo rates by 25 basis points.
IT results remain robust
The result season got off to a sedate start last week with Infosys reporting numbers that pretty much matched consensus estimates. There were no big fireworks from the IT bellwether this time around. But, TCS, Wipro and HCL Tech more than made up for the subdued results from Infosys. All three companies came out with much better than expected earnings and revenues. The new kid on the block, Tech Mahindra too joined the party, but Satyam missed the revelry, sending its shares down along with the market on Friday. TCS became the first software firm to clock US$1bn in revenues in a quarter, and in the process crossed US$3bn in topline for the first nine months of FY07. The company also reported a large US$140mn deal from a bank in Ecuador.
The main focus this quarter was the appreciation in the rupee versus the dollar. Most companies managed the currency fluctuations well, barring Satyam. In fact, all the top tier companies not only managed to limit the damage from a rising rupee, but also registered an increase in operating profit margins. Even Satyam, which suffered the most from the rupee appreciation, improved its OPM by over 200 basis points. Better management of expenditure coupled with increased employee productivity and higher billing rates helped offset the adverse impact on the forex side. The performance of Wipro was quite commendable as it undertook wage hikes for its offshore staff in the quarter. Satyam also effected salary hikes. Attrition continues to remain a sticky issue, though Wipro managed to bring it down over the previous quarter and TCS maintained it at just above 10%.