The Weekly Wrap | Of lemons and lemonade

When life gives you lemons, make lemonade. That’s a useful lesson we all know. What if the lemons are just too costly? That’s a trick question few would ponder upon.


Welcome to Kuvera’s weekly wrap on the most critical developments in business, finance and markets in India.


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When life gives you lemons, make lemonade. That’s a useful lesson we all know. What if the lemons are just too costly? That’s a trick question few would ponder upon.



If you are wondering why we are talking about lemons, it means your spouse does all the grocery shopping and sooner or later you will be in big trouble.

Jokes aside, we are talking about lemons because the citrus fruit is now selling for anywhere between Rs 250 and Rs 350 a kilogram, or Rs 10-15 per piece.

The humble lemon isn’t the only food item that’s getting costlier. Prices of several other items, from fruits and vegetables to milk, fish, meat and cooking oil, have risen so much so that it’s becoming a headache for the Reserve Bank of India.

Indeed, retail inflation in India has touched its highest level since October 2020. Government data this week showed the consumer price index (CPI) inflation for March jumped to 6.95% from 6.07% in February. Food inflation showed a sharper rise to 7.47% from 5.93%.

The situation was worse in villages, with CPI for rural areas jumping to 7.66% in March from 5.75% in February and food price inflation rising above 8% from 5.8% in the previous month. In urban areas, CPI was a tad above 6% while food inflation was around 7% last month.

Inflation will likely accelerate further when we start feeling the full impact of the series of increases in prices of petrol, diesel, LPG cylinders and piped natural gas. These price hikes began in late March after state elections ended.

So, what is the RBI doing about it? Well, it says it is watching the situation closely. And last week, it raised its inflation forecast for FY23 to 5.7% from 4.5% during its monetary policy review when it kept interest rates on hold as it struggled to balance its objectives of promoting economic growth and controlling inflation. However, the latest inflation data leaves the RBI with few options but to raise rates at its next meeting in June.

Two other sets of data released this week paint a rather worrying picture of the state of the economy.


Factory output

India’s industrial growth remained subdued in February, with the Index of Industrial Production (IIP) inching up to 1.7% from 1.5% in January, government data showed.

On the plus side, growth in production in the mining and electricity sectors rose 4.5% each, up from 2.8% and 0.9%, respectively. Output of primary goods, intermediate goods, and infrastructure goods also improved.

But what’s more concerning is that growth in the manufacturing sector, which accounts for three-fourths of the total output, slowed to just 0.8% in February from 1.3% in January.

Also, growth in capital goods output slowed to 1.1% in February from 1.4% in January. Moreover, consumer durables and non-durables recorded a contraction of 8.2% and 5.5%, respectively, indicating tepid consumer demand.


Auto sales

If inflation data wasn’t proof enough, another indicator that India’s hinterland is hurting more than urban areas came this week when the Society of Indian Automobile Manufacturers, or SIAM, released sales data for March and the year ended March 31.

The industry lobby group said domestic sales of automobiles fell 6% in FY22 to hit a 10-year low of 1.75 crore units due to chip shortages and a COVID-weakened economy.

But surely, a 6% drop in a pandemic year isn’t so bad, right? Well, it kind of is. Since FY21 was also a pandemic year and had recorded a fall in sales.

Take a closer look at the latest data and the divide between rural versus urban becomes abundantly clearer. Sales of passenger vehicles rose 13% to 30.7 lakh units in FY22. This was thanks mainly to a 40% jump in SUVs—the new vehicle of choice for urban consumers—to 14.9 lakh. On the other hand, sales of two-wheelers—used widely in rural areas and smaller towns and cities—declined 11% to 1.34 crore units.

Indeed, mass segments such as two-wheelers and smaller cars are facing “serious affordability issues”, SIAM President Kenichi Ayukawa said.

Rural areas, however, can take some comfort in the weather forecast issued this week.


IMD’s prediction

In its first Long Range Forecast, the India Meteorological Department (IMD) predicted that monsoon rainfall will be normal or above normal in most parts of the country. The IMD said that rainfall during the June-September period will be 99% of the long-period average, which is 87 cm.

Okay, this sounds good but is it really that important? Yes, it certainly is. The four-month monsoon season accounts for three-fourths of the country’s annual rainfall. What makes it more critical is the lack of adequate irrigation facilities in most states, barring exceptions such as Punjab and Haryana.

The monsoon is vital for kharif crops such as paddy, maize, cotton, soybean, groundnut, sugarcane and a wide range of fruits and vegetables. Essentially, this means that a poor rainy season could push up the prices of not just staples like rice but also of poultry products, fruit juices and other beverages, cooking oil, sugar and even clothes. And we are back to discussing inflation! But let’s move on to other major developments of the week.


Earnings season kicks off

India Inc’s focus shifted to fourth-quarter earnings this week with Tata Consultancy Services and Infosys, the two biggest IT companies, first off the block.

TCS’ net profit rose 1.6% sequentially to Rs 9,926 crore in Q4, missing analysts’ forecasts of above Rs 10,000 crore. But it met revenue expectations with a 14.3% growth to Rs 50,591 crore. Its operating margin was flat at 25%, lower than its own target of 26-28% as it faced pressure due to supply constraints and higher consultant costs.

Infosys posted a 2.1% fall sequentially in consolidated net profit to Rs 5,686 crore for the January-March quarter, missing analysts’ forecasts. Its revenue increased 1.3% to Rs 32,276 crore but again missed market estimates.

Like TCS, Infosys also faced margin pressures with its operating margin contracting by 300 basis points to 21.5%. Infosys CFO Nilanjan Roy hinted at some cost cutting when he used phrases such as “aggressive cost optimization programs”, “value-led pricing” and “post-pandemic normalization of expenses”.

The biggest news in the corporate world, however, came from the US this week.


Musk targets Twitter


Elon Musk, the maverick billionaire, the world’s richest man and the founder of SpaceX and Tesla, made a hostile bid to acquire Twitter. Musk offered to pay $54.20 per share for Twitter, valuing it around $43 billion.

The shock offer comes just days after he revealed he had bought a 9.2% stake in Twitter and that he had rejected an offer to join Twitter’s board.

So, what does the unsolicited offer mean for Twitter? The company will perhaps have to find another buyer if it rejects Musk’s offer. That may prove very difficult.

What does Musk plan to do with Twitter, if he does acquire it? For starters, he would take it private, meaning delist from stock exchanges. Musk also plans to open up Twitter’s algorithms for everyone to see and even asked on Twitter itself whether its corporate headquarters should be turned into a homeless shelter!


India markets

Back home, Indian stock markets fell all three days of the holiday-shortened week to clock a loss of about 1.8%. The BSE Sensex ended at 58,338.93 on Wednesday while the NSE Nifty closed at 17,475.65.

While it may have been a routine week for stock market and mutual fund investors, crypto investors were in for a rude shock. Cryptocurrency exchanges CoinSwitch Kuber and WazirX disabled rupee deposits through the UPI, which is rapidly becoming the preferred mode to pay for everything from groceries to investments.

The latest move further clouds India’s regulatory regime for cryptocurrencies, especially after the central government’s decision to impose a tax suggested authorities were moving towards accepting virtual currencies.


Other headlines

  • Bank of India takes Future Retail to insolvency court
  • SC asks RBI to consider probing Hindujas’ status as promoter of IndusInd Bank
  • Government in favour of lifting ban on iron ore exports from Karnataka
  • Moody keeps outlook stable for India banks
  • KKR to buy 10% in Shriram General Insurance
  • OPEC cuts estimate for global oil demand growth
  • Sri Lanka to default on all external debt
  • US inflation hits 8.5% as energy, food prices surge
  • Shehbaz Sharif is the new prime minister of Pakistan
  • Macron and Le Pen to fight for presidency in French elections


The week ahead

  • March premium collection of insurance companies
  • India’s wholesale price inflation for March
  • India’s final trade data for March
  • Minutes of Monetary Policy Committee’s meeting



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