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Wholesale Price Index (WPI) Primer

Wholesale Price Index

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 Index that traces the relative changes in the price of an individual good (or a marketbasket of goods) over time It is also substituted for the annual average inflation at times It gives an idea of the week-to-week fluctuations in the prices of all the tradedcommodities in the country as a whole It is calculated for wholesale prices in which the quantities of the base year andcurrent year are different

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Page 1: Wholesale Price Index

Wholesale Price Index (WPI)

Primer

Page 2: Wholesale Price Index

Introduction

Page 3: Wholesale Price Index

What is WPI?

Index that traces the relative changes in the price of an individual good (or a market basket of goods) over time

It is also substituted for the annual average inflation at times It gives an idea of the week-to-week fluctuations in the prices of all the traded

commodities in the country as a whole It is calculated for wholesale prices in which the quantities of the base year and

current year are different

Page 4: Wholesale Price Index

Origin and History The Office of the Economic Adviser to the Government of India undertook to publish for the first time,

WPI with base week ended August 19, 1939, from the week commencing January 10, 1942 The index was calculated as the geometric mean of the price relatives of 23 commodities These commodities were classified into four groups

Food & tobacco Agricultural commodities Raw materials Manufactured articles

Each item was assigned equal weight There was a single price quotation for each item An important modification in the WPI was that in the ‘70-71 series, weights were assigned on the basis

of the entire wholesale transactions and therefore the values of transactions of the non-selected commodities (which did not find place in the index) were assigned to those selected commodities whose nature and price trends were similar.

The base year of the WPI which commenced in India in week ending in august 1942 was revised to year ending august 1942, 1981-82

The current base year is 1993-94 The latest series includes three broad sectors namely,

Primary Articles Fuel, Power, Light and Lubricants Manufactured Products

Page 5: Wholesale Price Index

Functions & Uses It is used by the Reserve Bank of India and the Government of India to frame their

monetary and fiscal policies and to take appropriate corrective steps during inflationary periods

It is also utilized for purposes like forecasting changes in business conditions indicating supply-demand relationships, deflating aggregates such as national income, etc

It is used by a number of departments of the Government of India, semi-government bodies, chambers of commerce, trade associations and private concerns

Conventionally, it has been used to measure the variations in exchange value or purchasing power of money

Other organizations like the Planning Commission, Department of Civil Supplies, Central Statistical Organization, base their various schemes on the price trends revealed by the index numbers of wholesale prices

Also used by some of the units in public and private sectors for the purpose of escalation clause in the supply of raw materials, machinery and construction work

Page 6: Wholesale Price Index

Advantages & DisadvantagesAdvantages

It represents the wholesale trade transactions of all the commodities produced and traded in the system

It is available on a weekly basis with the least time lag The traditional WPI is important in so far as it provides an economy- wide measure

at the level of overall transactions in the economy with money as its numeraire It is quite handy for purposes of comparisons

Disadvantages

It is non-specific in nature for use by various agencies It is not a proper measure for measuring inflation in the basket of final use

commodities It does not include the range of services which cater to both businesses and

consumers thus they all tend to use a series which is not designed with their specific requirements

Page 7: Wholesale Price Index

Construction Methodology

Page 8: Wholesale Price Index

Index Calculation(1/4) It is calculated on the principle of weighted arithmetic mean, according to the

Lasperyre’s formula which has a fixed base-year weighting diagram operative through the entire life span of the series.

I= Σ (Ii . Ri)/Σ Wi

Where, I = Index Number of wholesale prices of a sub-group/group/major group/all commodities

Wi = The weight assigned to the ith item/sub-group/group/major group. Ii = Index of the ith item/subgroup/group/major group The weekly WPI at the time of its initial compilation and release is provisional as it

does not take into account some of the price quotations that are received belatedly. The prices of the missing quotations are either repeated or estimated depending on

the nature of the commodity. The provisional index is made ‘final’ after a period of eight weeks by which time

almost all the required price quotations are expected to have become available.

Page 9: Wholesale Price Index

Index Calculation(2/4) The WPI Index is composed of three broad heads namely Manufactured Products,

Primary Articles & Fuel, Power, Lights and Lubricants with weight 63.75%, 22.02 % and 14.23% respectively

Let us examine the detailed breakup of the Manufactured Products along with the indexed prices of each of the sub heads

Description Base Price Current Price Price Relative(p) Avg. P(Ii) Wi Wi*IiCoal Mining 117.67 1.75 205.93Coking Coal 50 56 112

Non Coking Coal 56 65 116.07Coke 48 58 120.83

Lignite 78 95 121.79

Mineral Oils 103.68 6.99 724.71LPG 350 375 107.14

Petrol 48 49 102.08Kerosene 15 12 80

Aviation turbine Fuel 850 1020 120High speed diesel oil 625 569 91.04

Light diesel oil 425 498 117.18Naptha 536 592 110.45Bitum in 658 689 104.71

Furnace oil 468 450 96.15Lubricants 249 269 108.03

Electricity 121.67 5.48 666.73Elec.(Dom estic) 4 5 125

Elec(Com m ercial) 8 10 125Elec(Industry) 6 7 116.67

Elec(Railway Traction) 5 6 120Sum 14.2 1597.38

Page 10: Wholesale Price Index

Index Calculation(3/4) Thus the manufactured products index stands at I = Σ (Ii . Ri)/Σ Wi = 1597.38/14.23 = 38.74

Similarly the Primary articles and the Fuel, Lights, Power and Lubricants index can be calculated and let us take their values as 52.26 and 85.96 respectively

Thus the value of WPI index for the week ‘x’ is equal to

= Manufactured products Index + Primary articles Index + Fuel, Lights Index

= 38.74+46.35+29.78 = 114.87 Now let us assume that the prices in each of the sub heads of the manufactured

products index changes in the next week say ‘y’

Page 11: Wholesale Price Index

Index Calculation(4/4)

Thus the new manufactured products index value is 1614.73/41.2 = 39.16

Corresponding value for the primary articles and fuel, lights index is at 46.63 and 32.63 respectively

Thus the value of WPI index is at the end of week ‘y’ stands at 39.16 + 46.63 + 32.63 = 118.42

Thus the Index has grown by 3.09% in week ‘y’ compared to its value in week ‘x’

This signifies a growth in the wholesale price in India

For the week ended ‘Y’ the inflation rate in India is at 3.09%

Description Base Price Current Price Price Relative(p) Avg. P(Ii) Wi Wi*IiCoal Mining 129.04 1.75 225.82Coking Coal 50 60 120

Non Coking Coal 56 63 112.50Coke 48 82 170.83

Lignite 78 88 112.82

Mineral Oils 103.64 6.99 724.46LPG 350 360 102.86

Petrol 48 50 104.17Kerosene 15 10 66.67

Aviation turbine Fuel 850 1200 141.18High speed diesel oil 625 558 89.28

Light diesel oil 425 512 120.47Naptha 536 568 105.97Bitum in 658 698 106.08

Furnace oil 468 465 99.36Lubricants 249 250 100.40

Electricity 121.25 5.48 664.45Elec.(Dom estic) 4 4.5 112.5

Elec(Com m ercial) 8 11 137.5Elec(Indus try) 6 7.5 125

Elec(Railway Traction) 5 5.5 110Total 41.2 1614.73

Page 12: Wholesale Price Index

Salient features of the series with base 1993-94 The latest series contains 435 items in the commodity basket. "Primary articles" contribute 98 items "Fuel, Power, Light and Lubricants" 19 items "Manufactured products" provide 318 items Beverages, Tobacco & Tobacco Products and Machinery and Machine

tools have considerably increased in terms of the number of commodities

The groups with a marginal increase are Textiles and Rubber & Plastics Products

However the Wood & Wood products and Paper & Paper Products remained constant in the terms of number of commodities

In all, there are 136 new items added in the revised series Out of that, Primary articles account for 13, Fuel, Power, Light and

Lubricants contribute 1, and Manufactured Products have 122 new commodities

The Group Machine and Machine Tools within Manufactured Products has the highest number of new commodities

Page 13: Wholesale Price Index

Problems of Price data Collection System

It has happened very frequently that instead of wholesale prices, price data have been collected from sources as "producers’ prices" from manufacturing units.

The above prices correspond to farm-gate, factory-gate or mine-head prices They at times refer to prices at the level of primary markets, secondary markets or

other wholesale or even retail markets. It is also the case that producers’ prices, other than in wholesale markets may

contain significant components of transport and other allied costs which could move autonomously of the basic prices of commodities in question.

It is therefore recommended that a new system of data collection based on a network of centers spread throughout the country be put in place and linked through nodal centers by means of high speed computing and data transmission facilities with the assistance of the NIC.

It is difficult to collect wholesale prices from the market except contemporaneously and so it is difficult to conceive of collecting historical data from the market,

Therefore, the Working Group further recommends that the system of data collection may be started immediately with a view that this data base will be of invaluable use for future revision exercises.

Page 14: Wholesale Price Index

Selection of Items & Source of Data To ensure that the items in the index basket are as best representatives as possible, efforts

are made to include all the important items transacted in the economy during the base year In the existing WPI series, items, their specifications and markets have been finalized in

consultation of with the Directorate of E&S (M/O Agriculture), National Horticulture Board, Spices Board, Tea board, Coffee Board and Rubber Board, Silk Board, Directorate Of Tobacco, Cotton Corporation of India etc

As there is a little scope of emergence of new commodities in the agriculture, the selection of new items in the basket is done on the basis of increased importance in wholesale markets

The inclusion and exclusion of mineral items, their grades, market centers etc. are taken on the suggestions of Indian Bureau of Mines

Specifications of coal, coke and lignite have been decided in consultation with the Department of Coal

The selection of petroleum products the Ministry of Petroleum is consulted and for electricity suggestions are taken from Central Electricity Authority

Regular time series data of organized manufacturing sector on value of production are available through Annual Survey of Industries covering factory sector

The criterion for selection of items has been based on the cut off traded value of a product during the base year which is 120 cr.

Selection of data sources for manufactured products is done on subjective sampling basis For each item, a list of 10 major manufacturers/ producers is prepared and efforts are made

to seek willing cooperation from the top five manufacturers for regular supply of weekly wholesale price quotations

Page 15: Wholesale Price Index

Choice of base Year

The base year of a price index series has to be carefully chosen since the base year would have a considerable influence both on the movement of price relatives of the individual commodities and on the weighting pattern thus influencing the movement of the Index as a whole

The base year should be a normal year in respect of production and trade. The base year should be a normal year in respect of prices of commodities in general. The period at least should not be one representing abnormal prices and their fluctuations

Reliable price data may be available for the selected base year The base year should be aligned with the base year of other important economic

indicators and indices, such as national income series, other price series, etc The base year should be as recent as possible so that by the time the revised

series is released it has not outlived its utility The current base year which is 1993-94 should be revised to 2004-05 because a

base year so old does not have any significance

Page 16: Wholesale Price Index

Understanding WPI

Page 17: Wholesale Price Index

WPI – A Myth(1/2)

WPI should not be considered as a measure for inflation since it has many flaws because the price spread information is not even because the subscribed number of price quotation to be received for assessing changes in WPI is 1918 quotations, whereas Indian agencies responsible for calculating WPI receive not more than 1200 quotations

Two-thirds of the price quotations are sourced from only four metros. Price reporting by manufacturers is voluntary and often not forthcoming

Service sector accounts for 55% of GDP but they are not duly accounted in WPI Services such as rail and road transport, health care, education, postal, banking

and insurance, for example, are not part of the WPI basket Scrutiny of data by the collection agency is lax Transparency is lacking with respect to pricing data and index computation

Page 18: Wholesale Price Index

WPI – A Myth(2/2)

The items that are considered for the WPI and their respective weights were fixed back in 1999- 2000 and have not been revised since then though there have been major changes in the economy over the last decade

The products of the unorganized sector that are estimated to constitute about 35% of the total manufactured output of the country are not part of 'WPI basket'

The index thus falls well short of being a broad based indicator of the price level even in its construction

There is a huge difference between the provisional and final index figure and it is sometimes more than 100 basis points difference between them which is not acceptable for such a sensitive index

Out of 435 commodities, more than 100 commodities are unimportant from consumer point of view so their price changes does not really affect the consumers

Page 19: Wholesale Price Index

Difference between CPI and WPI

WPI essentially measures the price changes from the production side and not from the consumption side and hence it is a lop sided viewpoint of consumers

WPI measures inflation at each stage of production while CPI measures inflation only at the final stage of production thus bringing a calculation fallacy in WPI through double counting

WPI does not reflect the actual price hike, which the consumer is paying because it measures the general level of price changes at the level of either the wholesaler or at the producer and does not take into account retail margins

WPI gives very little weightage to the food component which actually is one of the most important component of CPI

Page 20: Wholesale Price Index

Corrections to be made A new WPI series is supposed to be out in October,2009 It is expected that the base of the series will be revised from 1993-94 to 2004-05 It is suggested that attempt should be made to set up a network of data collection system

with the help of NIC, and data should be sourced from wholesale markets as far as possible The wholesale transactions that are to be used to determine the prices that go into the index

are not precisely specified. Service sector constitutes nearly one-half of the economy and and is increasing in

importance. Thus, a separate exercise may be undertaken to develop a price index for services sector.

The weights of the various components should be restructured Importance or weightage of food-articles should be increased It should include seasonally adjusted data It should use quarter-to-quarter or month-to-month changes instead of year-on-year ones

Page 21: Wholesale Price Index

Story behind a falling WPI...... Most economies like US, UK, Japan, China, France, Singapore etc uses CPI as the

official measure to calculate inflation But India uses WPI as the official measure of inflation Food accounts for 53 per cent of the average rural Indian's and 40 per cent of the

average urban Indian's monthly expenditure The poorer the family, the higher is the proportion of budget on food, and greater the

impact Food prices have sky-rocketed in previous few months In this context, it is astonishing that WPI is zero or negative It is happening due to meager contribution of food articles in WPI While CPI is showing high figures because it has a high weightage of food articles The government's obsession with WPI clearly shows a strong bias towards the

interests of business to the virtual neglect of the interests of the common man The WPI 'basket' is clearly far removed from any consumers 'basket' and meant

only as an indicator of a change in the general level of prices in the economy

Page 22: Wholesale Price Index

CPI at its best yet WPI; a measure of inflation Government has a problem in choosing among the five measures of inflation—one

wholesale price index and four consumer price indexes WPI is often seen as a comfortable tool to take measure against price rise by the policy

makers as it gives direction before the commodity actually hits the market The different CPI's are-CPI for urban non-manual employees (CPI-UNME) CPI for

industrial workers (CPI-IW), for agricultural laborers (CPI-AL) and for all rural laborers Each CPI series is meant to reflect the cost of living for a homogenous group of

consumers The inflation as measured by the CPI-AL and CPI-IW is extremely important for another

reason - it is used in arriving at the official poverty line The poverty line identifies the families that will have access to government subsidies;

underestimation of inflation denies access to families who should legitimately be covered.

All 4 CPI indexes do not provide a true and accurate picture of inflation because of the lack of care of the government to keep them up to date by reflecting changes in the consumer expenditure patterns.

Page 23: Wholesale Price Index

Budget Deficit and Inflation (1/2)

• In the latest budget the government has spent heavily and has lead to a problem of aggravating budget deficit

• Fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in B.E. 2008-09 and 6.2 per cent as per provisional accounts 2008-09

• This increase in fiscal deficit combined with the state deficit takes the total deficit to a level of around 13%

• The funding of this high deficit also causes an upward movement of the general price levels in the system and leads to inflation

• This depends on the ways in which the government tackles the deficit problem

• The next slides gives an analysis of impact of deficit on inflation

Page 24: Wholesale Price Index

Budget Deficit and Inflation (2/2)

YesPrices increase because each note (money unit) is now backed by less, is worth less so that its purchasing power is less

 Print more moneyMoney in Circulation*

YesPrices increase as costs increase because of additional taxation to pay the interest and to pay off the loan

Made worse because regular interest payments and capital repayments have to be made

Long-term borrowing of foreign capital

Foreign Debt

YesPrices increase because interest rates in whole country increase correspondingly and cost of investment and of working capital increases

Made worse because higher amount of interest has to be paid

Attract foreign currency deposits by increasing the rate of interest

Foreign Currency Deposits

Causing Inflation?Effect on PricesEffect on Balance of Payments

Method of Paying for the Deficit

Mechanism

*This is the tool which government is using currently, which will lead to a rising price levels

Page 25: Wholesale Price Index

WPI & Currency

• High WPI leads to an erosion in the currency's value

• It results in the loss of purchasing power of the currency and thus depreciation of the currency

• Thus it means that the currency depreciates in relation to the currency of other countries

• This leads to a weakening performance of the sectors which are import depended and boost for the companies which export

Inflation & Currency Movement

-3-1.5

01.5

34.5

67.5

910.5

1213.5

15

Jan-

06

Apr-0

6

Aug-

06

Nov-

06

Mar

-07

Jun-

07

Sep-

07

Jan-

08

Apr-0

8

Aug-

08

Nov-

08

Mar

-09

Jun-

09

Time

WPI

30

34

38

42

46

50

54

USDI

NR

WPI INR

Rising WPI Leading to a Weakening

Rupee

Page 26: Wholesale Price Index

WPI & Interest Rates

• A very high inflation leads to a contractionary monetary policy by the Reserve bank of India

• This leads to a reduction in the total money supply in the system which results in the upward movement of the interest rates

• The rationale behind the hike in interest rates is that it reduces the money demand and hence the demand for goods and services, because inflation is mainly an outcome of too much money chasing too few goods

• Thus with the hike in interest rates consumption demands partly switches to investment demand and leads to a reduction in inflation

• This hike in interest rates have a double impact on corporate profitability lower profitability of the corporate because– Higher cost of capital and – Lower realizations because of a reduction in the demand for their products

Page 27: Wholesale Price Index

WPI Constituents

Page 28: Wholesale Price Index

Primary Articles

The components of Primary articles

Food Articles, 15.40%

Minerals , 0.48%

Non-Food Articles ,

6.14%

Goods that are sold (for consumption or production) just as they were found in nature

For e.g.: oil, coal, iron, and agricultural products like wheat or cotton

It has a weightage of 22.02% in the WPI which is the second highest

It consists of 98 items The 3 sectors of primary articles are

further sub-divided into groups and sub-groups

Food has a very small weightage in Primary articles

Page 29: Wholesale Price Index

Fuel, Power, Lights & Lubricants

It has the least contribution in WPI It has a weigtage of only 14.23 This segment consists of major items They are fuel, power, lights and

lubricants As we can see this segment is a

mixture of many varied products It consists of 19 items

The Components of Fuel,Power,Lights & Lubricants

Mineral Oils , 6.99%

Coal Mining, 1.75%

Electricity, 5.48%

Page 30: Wholesale Price Index

Manufactured Products

Manufactured products are goods that have been processed by way of machinery They include intermediate as well as final goods For e.g. bakery products, dairy products, edible oil, etc. Manufactured Products is the segment which has the highest contribution in the WPI It has a weightage of 63.75% in the WPI It consists of 318 items It has 12 sectors under it which have been sorted according to their weightage in the manufactured products

Manufactured Products Weights (in%)Chemical Products 11.93

Food Products 11.54

Textiles 9.8

Machinery & Machine Tools 8.36

Basic Metal, Alloys & Metal Products 8.34

Transport Equipment & Parts 4.29

Non-Metallic Mineral Products 2.52

Plastic & Plastic Products 2.39

Paper & Paper Products 2.04

Beverages & Tobbaco Products 1.34

Leather & Leather Products 1.02

Wood & wood Products 0.17

Page 31: Wholesale Price Index

Inflation and Impact on Sectors

Page 32: Wholesale Price Index

Sensitive Sectors

• There are certain sectors in the industry which are sensitive to fluctuations in the interest-rates which in turn occurs due to persisting inflation or deflation in the economy

• The above occurs because heavy capital investment is required in these sectors

• The amount of investment depends on the lending rates offered by the banks

• If the rates are high the investment slows down and vice-versa

• Some of the sectors affected by the scenario are listed beside and their details are given in next slides

SectorsReal Estate

InfrastructureAutomobiles

Banking & FinanceCement

Capital Goods

Page 33: Wholesale Price Index

Realty Sector With interest rate coming down coupled

with valuations being attractive, several fund houses have increased their exposure in the realty sector

• FM has announced a subsidy of 1% on home loan up to Rs.I0 lakh when the overall cost of the house does not exceed Rs 20 lakh. This could benefit realty firms

• Another measure that that could provide a boost to the realty sector the government has allowed developers of housing projects a tax holiday under section 80 IB(10) of the Income Tax Act on profits from projects approved between 1 April 2007 and 31 March 2008

• The benefit is subject to a condition that the projects are completed on or before 31 March 2012

• The top 5 companies in this sector are sorted in a decreasing order according to their market cap

The top 5 companies

D L F Ltd

Unitech LtdHousing Development &

Infrastructure Ltd

Indiabulls Real Estate Ltd

Anant Raj Inds. Ltd

Page 34: Wholesale Price Index

Event Analysis

Realty & WPI

-100.00

-80.00

-60.00

-40.00

-20.00

0.00Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Jan-

09

Feb

-09

Mar

-09

Apr

-09

May

-09

Jun-

09

Aug

-09

(%)

-4.00-2.000.002.004.006.008.0010.0012.0014.00

(%)

REALTY WPI

High interest-rates caused realty

to fall

Page 35: Wholesale Price Index

Infrastructural Sector A huge capital investment is required in

this sector which depends on the interest-rate prevailing in the market

The falling interest-rates have provided the much needed boost attracting inflows of capital

Government also has provided support from its side by announcing stimulus packages

The Finance Minister has announced tax breaks for industrial park schemes and road projects to stimulate the economy and lift growth to 8-9 percent by the end of 2010

The government has also extended tax holiday to developers of industrial parks by two years until March 2011

The top 5 companies in this sector are sorted in a decreasing order according to their market cap

The top 5 companiesJaiprakash Associates Ltd

Lanco Infratech Ltd

I V R C L Infrastructures & Projects Ltd

Hindustan Construction Co. Ltd

Nagarjuna Construction Co. Ltd

Page 36: Wholesale Price Index

Event Analysis

Infrastructure & WPI

-150.00-100.00-50.00

0.0050.00

100.00150.00200.00

Jan-

08

Feb-

08

Apr-

08

Jun-

08

Jul-0

8

Sep-

08

Oct

-08

Dec

-08

Feb-

09

Mar

-09

May

-09

Jun-

09

(%)

-4.00-2.000.002.004.006.008.0010.0012.0014.00

(%)

INFRASTUCTURE WPI

Did not perform well because of economic

slowdown

Page 37: Wholesale Price Index

Automobiles Sector• This sector's growth depends on the

disposable income of the consumers which is in turn affected by inflation

• After two decades of impressive growth, the automobile sector’s performance has not been encouraging after 2006-07, but its growth turned modestly positive last fiscal, and in 2008-09, the industry has witnessed a modest growth of 3%

• Almost all the big-wigs of auto-sector have reported a decent profit

• The top 5 companies in this sector are sorted in a decreasing order according to their sales value

The top 5 companiesTata Motors Ltd

Maruti Suzuki India LtdHero Honda Motors Ltd

Bajaj Auto Ltd

Mahindra & Mahindra Ltd

Page 38: Wholesale Price Index

Event Analysis

Auto & WPI

-100.00

-50.00

0.00

50.00

100.00

150.00Ja

n-06

Apr-

06

Jul-0

6

Nov

-06

Feb-

07

Jun-

07

Sep-

07

Jan-

08

Apr-

08

Aug-

08

Nov

-08

Mar

-09

Jun-

09

(%)

-4.00-2.000.002.004.006.008.0010.0012.0014.00

(%)

AUTO WPI

Auto sector at its peak due to low

interest-rate

Page 39: Wholesale Price Index

Banking & Finance

With interest rate coming down coupled with valuations being attractive, several fund houses have increased their exposure in the banking sector in April compared to March 2009

Banking stocks jumped on hopes falling interest rates will boost lending growth Almost all the banks have made a neat profit Bankex, banking index of BSE increased to 0.67% in August compared to 6.88% in May The top 5 banks and non-financial institutions are sorted in a decreasing order according to

their market cap

The top 5 banks

State Bank Of India

I C I C I Bank Ltd

H D F C Bank Ltd

Axis Bank Ltd

Kotak Mahindra Bank Ltd

The top 5 non-banking financial institutions

Housing Development Finance Corpn. Ltd

Reliance Capital Ltd

Infrastructure Development Finance Co. Ltd.

Shriram Transport Finance Co. Ltd

L I C Housing Finance Ltd

Page 40: Wholesale Price Index

Event Analysis

Bankex & WPI

-100.00-50.00

0.0050.00

100.00150.00

Jan-

06

Apr-

06

Jul-0

6

Nov

-06

Feb-

07

Jun-

07

Sep-

07

Jan-

08

Apr-

08

Aug-

08

Nov

-08

Mar

-09

Jun-

09

(%)

-4.00-2.000.002.004.006.008.0010.0012.0014.00

(%)

BANKEX WPI

High inflation (interest-rate)

caused Bankex to be low

Page 41: Wholesale Price Index

Cement• A 4% cut in excise duty, sharp correction

in imported coal, petcoke and crude oil prices by 67.8%, 49% and 66% respectively from their peak levels have reduced cost pressures from the cement industry

• Softening of intrest-rates would reduce the intrest-rate burden of small cement players

• The correction in sea freight has further reduced the landing cost of imported coal

• Reduction in crude oil prices has led to a saving in packing cost and cut in domestic diesel prices

• All the above components of the cement division has made it intrest-sensitive and has contributed in reducing its production cost

• The top 5 companies in this sector are sorted in a decreasing order according to their sales value

The top 5 companiesBinani Cement Ltd

Ambuja Cements Ltd

A C C Ltd

Grasim Industries Ltd

Ultratech Cement Ltd

Page 42: Wholesale Price Index

Event Analysis

Cement & WPI

-100.00-50.00

0.0050.00

100.00150.00

Jan-

06

Apr-

06

Jul-0

6

Nov

-06

Feb-

07

Jun-

07

Sep-

07

Jan-

08

Apr-

08

Aug-

08

Nov

-08

Mar

-09

Jun-

09

(%)

-4.00-2.000.002.004.006.008.0010.0012.0014.00

(%)

CEMENT WPI

Trickledown effect of poor performing

realty and infra sector

Page 43: Wholesale Price Index

Capital Goods

That investment by firms in capital goods is highly sensitive to fluctuations in real interest rates

The sensitivity of investment in capital is high because of low capital depreciation rates

Companies in this sector are not performing well

Due to monsoon deficit this year the sale of tractors have really slowed down

After some disappointing performances the IIP figure in June for this sector stood at a modest 11.4%

The top 5 companies in this sector are sorted in a decreasing order according to their sales value

The top 5 companies

Larsen & Toubro Ltd

Mahindra & Mahindra Ltd

Escorts LtdTractors & Farm Equipment

Ltd

Kirloskar Oil Engines Ltd

Page 44: Wholesale Price Index

Event Analysis

Capital & WPI

-100.00-50.00

0.0050.00

100.00150.00200.00

Jan-

06

Apr-

06

Jul-0

6

Nov

-06

Feb-

07

Jun-

07

Sep-

07

Jan-

08

Apr-

08

Aug-

08

Nov

-08

Mar

-09

Jun-

09

(%)

-4.00-2.000.002.004.006.008.0010.0012.0014.00

(%)

CAPITAL WPI

WPI is an all time high because of both demand-pull & cost-

push inflation

Low investment caused this sector to

perform badly

Page 45: Wholesale Price Index

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