Collapsing commodity prices may have been primarily driving inflation levels lower late last year, but with factory gate prices continuing to retreat and layoffs picking up speed the reality of sinking demand by domestic industry is here. Rate cuts, fuel subsidies and anemic stimulus proposals won’t be enough to replace external demand for India’s manufacturers products. The illiterate inhabitants of urban slums and rural farming villages (fully half the adult population of India cannot read by some estimates) now seem like the much vaunted rising consumer class that the India Bulls were flogging in research reports just 6 months ago.
We shorted IFN into today’s strength. Rate cuts and government intervention alone can’t turn this economy around, and we still do not see any sign that external demand will return soon.