Heard on Street : Indian Inflation

Weekly data showed annual inflation as measured by the wholesale price index soared to 7.0 percent on March 22, its highest reading since Dec. 4, 2004 and far exceeding analysts' expectations of 6.62 percent. Today's heard on street at tech-reliance reflects this...

"Prices of everything are going up. Prices of dal (pulses), which is our staple, could soon be beyond our means," said Premlata Singh, a 65-year-old housewife."My husband is retired and it is increasingly becoming difficult to survive on the monthly pension."

"There is a limit to tightening monetary policy because growth will suffer and if growth slows it will aggravate the inflationary pressures. It is a very tough situation."T.K. Bhaumik, chief economist at Reliance Industries."Growth is also slowing and prices could rise in future, so you are in a vicious cycle," said political commentator Kuldip Nayar, who feels the government will push through nuclear talks, sign up with the United States and face the consequences.



HSBC cut its targets for the main index, known as the Sensex, to 17,500 at the end of 2008 and to 21,000 by the end of 2009, adding there were downside risks to earnings growth in Asia's third-largest economy."Although history may not repeat, looking at past trends, further downside cannot be ruled out. In the worst-case scenario, Sensex may bottom out at close to 10,000," it said in a report on Friday.

"I think things are spinning out of control, at least in the short term," said Abheek Barua, chief economist at HDFC Bank."And I wouldn't at this stage rule out some kind of interim action by the Reserve Bank of India, perhaps in the form of a cash reserve ratio (CRR) increase."RBI Governor Y.V. Reddy said this week inflation was "unacceptably" high and the central bank was ready to act if necessary.

"Fresh shorts were seen in auto, banking, capital goods," Siddharth Bhamre, analyst at Angel Broking, said. Shorts were also built-up in construction and real estate, both which have a good
component of debt, he added."The government could either make exports for commodities more difficult, appreciate the rupee or hike CRR (cash reserve ratio)," Bhamre said. "It looks like a CRR hike is on the cards."

"Volumes are in line with yesterday's. There is no bullish sign right now," Ravi Sharma, analyst, Prabhudas Lilladher said. He expects the market to remain lack-lustre and choppy until the quarterly results start coming in.

Goldman Sachs said in a note after the inflation data the central bank may raise rates by 50 basis points in April and also expects it to allow the rupee to rise by 4 percent in 2008/09.