Structural factors like mobile tariff hike need to be evaluated: Kotak MF on inflation numbers

The December consumer price index (CPI) based inflation came in above 7 percent due to transitory as well as structural factors. While transitory factors are unlikely to impact inflation numbers moving forward, the structural factors such as the mobile tariff hike need to be evaluated, according to Harsha Upadhyaya, CIO-Equity, Kotak Mutual Fund.

The retail inflation rose to its highest level in 5 years in December, with the CPI coming in at 7.35 percent.

“Some of the hike that has happened in inflation is due to transitory factors which we think can go off as quickly as they are coming... but there are some structural issues and those need to be evaluated. For example, the mobile tariff hike," said Upadhyaya in an interview with CNBC-TV18.

According to Upadhyaya, there may not be any further room for the Reserve Bank of India (RBI) to cut rates immediately. "Although we all know that interest rate is a blunt tool to manage food inflation, at this point of time, maybe they will continue to pause in terms of interest rates," said Upadhyaya.

Upadhyaya added that there was an improvement seen in the market breadth for the last three-four months since the corporate tax cut announcement.

“In the last three-four months, we have seen a little bit of improvement in terms of fund flow into the midcap segment and also there is an expectation that maybe the worst is over for at least some of the midcaps," he said.

In terms of sectors, he added, “We have been running an underweight position in the IT sector... We clearly continue to remain bullish on the chemical space. Most of the capacities are fully utilised, many corporates are looking to increase their capacities, there is also a disruption in the global market with a lot of Chinese capacities going out of production..."