>INDIA WEEK AHEAD (MERRILL LYNCH)

Of rains, hope and despair…

■ Met expects the monsoons to advance…
We join a parched India in praying for rain. The Met does expect widespread rainfall over the west, central and north-east this week. The good news: rains are resuming at last (Table 2). Weekly deficiency has shrunk to 8% by July 8 from July 1’s 29%. Besides, rains are watering the south’s relatively early June sowing.

The bad news: time’s running out. The north need sow by early August (Table 3). Although better than 54% a fortnight ago, 36% seasonal deficiency remains scary. What if rains fail? We expect a 100bp downside risk to our expected 6.3% FY10 growth and ~150bp upside risk to our 6.1% March 10 inflation forecast (Table 4). When would we know? End-July. Do read Jyoti and my monsoon report here.

■ Cropping doubled last week; but still 20% lower y-o-y
Yet, all is still not lost. We are relieved to report that autumn – kharif – cropping doubled last week as the monsoon penetrated the hinterland (Table 5). Rice farming is now up 33% from last year in contrast to last week’s 27% fall. Soya is also staging a recovery. And NCDEX oilseed prices are softening.

■ (-)1.4% deflation on 40bp fuel price hike impact
We expect the 40bp ‘direct’ impact of July 1’s fuel price hike to limit deflation to (-)1.4% Thursday (Tables 6-7). Oil minister Deora has promised to roll back the fuel price hike if oil slips below US$60/bbl. On our part, we expect US$64/bbl Brent this fiscal. This, in turn, should induce neither a fuel price hike/cut from Delhi. We thus expect inflation to climb back by March 10, forcing the RBI to hike CRR/rates by January/April (Chart 1). Do read our oil report here.

■ RBI will issue new borrowing calendar…
Gilts will watch out for the RBI’s new borrowing calendar expected by weekend. On our part, we estimate that the government need borrow Rs3260bn/US$68bn in FY10 (Table 8), net of repayments, MSS maturity/”desequestering” and Rs1200 bn RBI OMO here. Seasonal July liquidity and a large ~375bp 10y – 3.25%RBI rate spread should hold fiscal pressures for now. Do read Ashish and me here.

■ … fx flows swing on earnings: HDFC Bank (Tue), L&T (Thu)
We expect FII inflows to swing to June 09 earnings. Our analysts see BSE Sensex earnings bottoming at 4-5% (ex metals) (Table 9, here). By the way, bouts of INR volatility in no way detract from our long-held twin view of BoP risks overdone/ constructive INR outlook. Do read Christy and me here.

■ 7.6% 2Q09 China growth supports Asia bottoming out
We expect China to grow 7.6% in 2Q09, up from 1Q09’s 6.1%. At home, 2.7% May 09 industrial growth surprised us (1%) and consensus (1.3%) on the up Friday (Tables 10-12).

To see full report: INDIA WEEK AHEAD