Coming this week: MPC minutes, FMCG results, UK inflation

1. RBI Meeting Minutes

In a widely anticipated move, RBI’s Monetary Policy Committee (MPC) in its meeting held on 6-8 October retained its accommodative stance. Jayant Verma, an outside member, was once again the only dissident. Did the other members at least seem to agree with their fears on inflation? We will know when the central bank will release the minutes of the meeting this Friday.

RBI Governor Shaktikanta Das has pledged that the policy stance will continue to support growth, even as the MPC takes its first step towards normalization by halting securities purchases. The minutes will provide clarity on these decisions.

While the economy is rapidly gaining traction, the committee has retained the growth forecast for 2021-22 at 9.5% but lowered the retail inflation forecast to 5.3% from 5.7%. With the base effect keeping inflation data deceptively low, markets will keep an eye on the MPC’s views on how the underlying price pressure will play out in the coming months.

2. FMCG Income

Three fast-moving consumer goods (FMCG) majors will announce September-quarter earnings this week: HUL and Nestle India on Tuesday, and Tata Consumer Products on Friday.

Most analysts expect a decent revenue growth for the sector, fueled by a lower base and higher product prices. A revival in demand for discretionary products, which happened during the second Covid-19 wave, will also aid growth.

However, there are concerns about profit margins as the rise in prices is expected to partially offset the rise in prices of other commodities like milk, crude oil and edible oils.

Brokerage ICICIDirect has forecast 11-15% year-on-year revenue growth for the three companies. For HUL, the largest of the three, gains could come on the back of reforms in the home care and beauty and personal care segments. Investors will keep an eye on the performance of new nutritional brands like Horlicks.

3. ICICI Prudential Earnings

ICICI Prudential Life Insurance is another major company that will announce its September-quarter earnings on Tuesday. The company had set a target of doubling the value of its new business (VNB) between 2018-19 and 2022-23, but that got hampered by the pandemic. However, the company saw a strong year-on-year growth of 78% in VNB in ​​the June quarter, claiming that it was on course to meet the target. A research report by KR Choksi has projected a growth of 3.8 per cent in VNB this time.

The growth momentum is likely to continue in the September quarter, supported by a lower base. In general, margins of insurance companies are likely to be supported by a broader recovery in the economy as claims related to the Covid-19 outbreak have seen a decline since the second wave. Investors will watch for what India’s second largest private insurer has to say about its future goals and outlook for the industry amid the ongoing pandemic.

4. JSW Steel Earnings

JSW Steel, one of India’s top steel producers, will announce its September-quarter earnings on Thursday. Last quarter, the company posted a strong 145% year-on-year increase in its consolidated revenue, but this was due to a lower-basis impact. The base effect is likely to continue, with analysts forecasting over 50% revenue growth for the steelmaker in the September quarter.

Sequential revenue gains are likely to be supported by better realizations and increased volumes as steel-consuming sectors resume operations after the lockdown. However, the expectation of reduction in demand from construction and infrastructure activities on account of monsoon rains could pose a downside risk. The company reported flat crude steel production sequentially in the September quarter, even though it grew 29% year-on-year.

The increased cost of coking coal is likely to increase the cost of production for the broader sector, not all companies passed on to the customers. This may put pressure on margins.

5. UK Inflation

Recent pictures of long queues outside UK petrol stations have raised concerns over alarming inflation levels as the country recovers from the pandemic. The Bank of England (BoE) hasn’t moved on to lower interest rates so far, but it may be close to becoming the first major central bank to replace it. Retail prices rose 3% year-on-year in August, well above the BoE’s 2% target, and are only at risk of further upside. The September issue is due out on Wednesday.

Inflation continues due to supply constraints, labor shortages and rising energy prices. The Organization for Economic Co-operation and Development (OECD) has also predicted that the UK inflation rate could remain around the 3% level for another year. If this happens, it will be most sustainable in advanced economies. If monetary policy is not addressed, it could soon begin to damage the spending power of households.

The recently released optimistic employment numbers could eventually prompt the BoE to move in that direction.