The latest wholesale price index (WPI) data, released last Friday (25 May 2007), shows the annual rate of inflation at 5.27% as on 12 May. That’s its lowest level in eight months and below the two-year high of 6.69% in late January this year.
But last Friday also saw the release of the numbers for another measure of inflation: the CPI (UNME) or the consumer price index for urban non-manual employees. That index showed a year-on-year rise of 7.7% in April, a tad higher than the 7.6% rise for March. There’s no sign of the CPI (UNME) coming down, the main reason being high food prices. The April data show the year-on-year increase in the food, beverages and tobacco segment at 10.56%. The housing index is up 5.59%, which seems to be very low, considering the huge rally in real-estate prices in the metros in the past year. The cost of education is up 7.34%.
Inflation measured by yet another CPI, that for agricultural labourers, also shows no signs of coming down. The year-on-year rise in this index was 9.4% for April 2007 and it was 9.5% in March. A related index, that for rural labourers, showed a rise of 9.1% in April.
CPI for agricultural and rural labourers has a high weight for food, which is why the rate of inflation in terms of this index is much higher than that for WPI. Even within WPI, the food index, as on 12 May, has gone up 9.8% year on year. The price rise in the case of cereals and pulses has abated, but vegetable prices have gone through the roof, moving up 10.8%. The price of eggs is up a huge 56.9%, but that’s being attributed to the Asian flu scare last year, which saw a sharp drop in egg prices at the time. But that excuse doesn’t work for marine fish, which too have seen a price rise of 29.4%. Oilseed prices also have gone up by 29.3%.
The rise in food prices is not just an Indian phenomenon—the Economist commodity index for food is up 16.1% year on year and higher 3.3% in the last one month. Some analysts believe there’s a structural shift in food demand, with strong economic growth in developing countries leading to higher demand at a time when supply is being curtailed because of the diversion of crops for biofuels. That could result in upward pressure on food prices.
Between mid-2006 and early 2007, Mahindra & Mahindra shares outperformed the market by a huge margin. In the past few months, they have underperformed by an equally high margin.
M&M suffered from the negative view on auto stocks after interest rates hardened, although most M&M auto products are not as sensitive to interest rate increases as commercial vehicles. But there are other reasons. Volume growth at its tractor business fell to 11% last quarter, from over 20% in the previous ones. The company now expects volume growth of 6-8% for its tractors.
The performance of its three listed subsidiaries on the markets also led to M&M’s underperformance. M&M’s holding in these subsidiaries is now valued at Rs11,000 crore, an 18% drop from mid-January levels. M&M’s own market value stands at Rs18,000 crore, which signifies the importance of its subsidiaries.
In one sense, M&M has now become a company managing two portfolios. One which is present in the entire gamut of auto-related businesses, and another that has controlling stakes in various businesses. Given this, it would be unusual for the markets to react dramatically to M&M’s results. In any case, the sales growth of 20% and profit growth of 36% weren’t very different from what analysts were expecting.
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