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INDA In Focus As India’s Inflation Rate Hits All-Time Low

Investors will no doubt be looking to India-focused funds for direction today, after India’s government reported that inflation in January slowed to its weakest pace on record.

India’s Statistics Ministry noted in a statement that consumer prices rose 3.17% overall in January from the year-ago period. Analysts had expected a higher 3.24% rate.

The previous record low inflation rate published by the ministry was 3.27% back in November 2014.

Food prices saw the sharpest decrease in inflation rate, hitting just 0.53% last month. A month earlier, food inflation sat at 1.37%.

Meanwhile, clothing and footwear saw the sharpest price increase in January, gaining 4.71%, while fuel and lighting’s inflation rate was 3.42%.

The weak inflation came despite India’s central bank leaving its benchmark interest rates intact last week. From Bloomberg:

Governor Urjit Patel kept the benchmark repurchase rate unchanged at a six-year low of 6.25 percent for a second straight meeting last week and signaled that its interest-rate easing cycle is coming to an end. However, the central bank forecast a sharp recovery in growth during the year through March 2018, helped by a rebound in consumption that has been hurt by Prime Minister Narendra Modi’s unprecedented cash ban.

What does it mean for India’s economy, and thereby the Indian stock market? One economist chimes in:

“Although food prices falling is partly seasonal, there seems to be the added effect of distress sales after demonetization,” said Sonal Varma, chief economist, Nomura Holdings Inc. “There is a risk of reversal as the effects of demonetization dissipate. There could be a rise incrementally going forward.”

The iShares MSCI India ETF (BATS:INDA) was trading at $29.36 per share on Monday morning, down $0.11 (-0.37%). Year-to-date, INDA has gained 9.51%, versus a 3.87% rise in the benchmark S&P 500 index during the same period.

INDA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 80 ETFs in the Asia Pacific Equities Ex-China ETFs category.

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