A spike in onion prices, firming global commodity indices, mainly oil and mobile tariff hikes lead to a sudden rise in CPI inflation to way beyond RBI's 2-6% target range at 7.35%. That and a likely fiscal slippages may have an adverse impact on interest rates. But a Crisil analysis shows the current spike in inflation comes from idiosyncratic factors, which, typically, do not last long. Plus, falling freight costs, widening output gap and a bumper harvest this year should help dissipate this inflationary pressure soon enough.
STREET PULSE: Where we stand Nifty futures on Singapore Exchange traded nearly 31 points higher at 7 am (IST), signalling continuation of the positive momentum on Dalal Street. Asian share markets rose and safe-haven assets slid as signs of goodwill between China and the US supported optimism for global growth, with the world's two biggest economies preparing to formalise a trade-war truce.
HERE'S WHAT TO WATCH  | MSCI's broadest index of Asia-Pacific shares outside Japan opened at an all-time high and drifted higher. Nikkei added 0.8% and hit its highest point in a month. Australia's S&P/ASX 200 rose 0.7% and touched a fresh record intraday high. |
| Overnight Wall Street made new record closing highs. S&P500 rose 0.7%, while Nasdaq added 1% and also closed at a record peak. Dow rose 0.29%. |
| Oil prices edged lower on Tuesday as receding Middle East tensions took some heat out of the market. Brent crude fell 8 cents, or 0.1%, to $64.12 a barrel while WTI crude futures slipped 4 cents to $58.04. |
| The rupee rose by eight paise to close at 70.86 against the US dollar on Monday as the upcoming US-China trade deal signing kept global market sentiment upbeat. |
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Bullish Undertone… The elevated price-earnings of the benchmark Nifty 50 may sustain in the near term given the favourable ratio between the 10-year government bond yield and the earnings yield of the index. The ratio that measures relative attractiveness of equities over bonds is currently at 1.22 — in line with the 10-year average of 1.17, according to data from Bloomberg. The bond-earnings yield ratio, often called as BEER ratio, is calculated by dividing the benchmark 10-year bond yield and earning yield of the stock market or the benchmark index. India's 10-year bond yield is currently at 6.58%, while the earnings yield of the Nifty 50 is 5.4%, which is the inverse of the price-earnings (P/E) multiple.
Read More More Tax Rebate: The government is considering a proposal to extend further incentives to salaried tax payers in the upcoming budget. The finance ministry may allow tax exemptions of up to Rs 2.5 lakh for savings under the Sec 80 and carve out a separate segment under Section 80C of the Income-Tax Act to give tax exemptions up to Rs 50,000 for NSC.
Read More Sino-US Goodwill… The US Treasury Department on Monday said China should no longer be designated a currency manipulator - a label it applied as the yuan slid in August. China, meanwhile, has allowed the tightly managed currency to climb to its highest point since July. The moves came as a high-level Chinese delegation arrived in Washington ahead of Wednesday's signing of the Phase 1 trade agreement, a step toward de-escalating a prolonged dispute that has hurt the world economy. China's offshore yuan extended strong gains to the dollar, supported by rising optimism towards Sino-US trade developments.
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Inflation Worry... Retail inflation rose to its highest in more than five years in December following a spike in food prices, breaching the targeted outer limit and effectively ruling out the possibility of further interest rate cuts by RBI. The rate of inflation as measured by the Consumer Price Index was 7.35% last month, the most since 7.39% in July 2014, according to data released by the statistics office on Monday. India's GDP growth is forecast to slip to an 11-year low of 5% in the current fiscal.
Read More Anti-Trust Probe… The Competition Commission of India has ordered its investigative wing to probe Amazon and Flipkart over their discounting practices, exclusive brand launches on the platforms and the preferential treatment they have allegedly offered to certain mobile sellers. In its order on Monday, CCI said it "is of the opinion that there exists a prima facie case which requires an investigation".
Read More Job Cuts… Oyo Hotels and Homes is laying off an estimated 2,400 employees, or 20% of its total workforce in India, this week. The layoffs will primarily be in mid-management, business development, sales and operations roles, and in select technology teams. Oyo may let go of more employees by March-end.
Read more Meanwhile... Tax rules get tighter! The government is likely to make fraudulent claims for input tax credit a non-bailable offence in the hands of recipients of goods and services in the February 1 Budget by tightening the GST law, as it seeks to plug leakages. CXOs, directors or employees directly responsible for making such claims can also be penalised as per the proposed changes aimed at tackling evasion.
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