Bank Policy Tuesday: RBI Governor completes policy action

inflation
inflation (Photo credit: SalFalko)

With the forced liquidity constraints as the currency devolved on the nation in June ( after May 21 announcement) RBI was stuck in the middle of a rate cut leg of its policy to encourage growth. Already hampered by banks using Central Bank liquidity to the extent of INR 2 Tln instead of market, the Central bank’s rate hike onsequently in September even as the MSF hikes were redacted and brought back to the normal line may finally break the back of the markets on the verge of a bullish move from 6200.

The only inflation out of control however is the Food inflation which may not respond to any rate hikes and this rate hike may just be a mechanistic response continuing since Duvvoori Rao demitted office to stabilise the higher rate environment, in which case India may old these levels for a good six months, and in developed markets this new intermediate leg could have lasted years, till the rate cuts can begin again.

Meanwhile consumer staples will continue to see large double digit price increases to correct 2-3 years of suppressed marketing budgets and pricin pressures unrequited to keep basic sales growth alive in consumer markets

The announced policy steps however will increase bank rates and as retail lending has reounded such increases are largely going to be absorbed by consumers and however will have had debatable impacts on fueling furthr inflation now controlled by bank rates. NBFC business is already looking better in consumer durables with a clampdown on 0 interest loans and while that may not segment the market in favor of first time durable buyers that have been an absent quantity fooling marketers and policymakers, it will continue to better control the negative output gap with more advantages for NBFC lending even for banks that have already relied a fair portion of their portfolio on the sector at the expense of obviating the real winning consumer sectors or industry sectors winning n the changed scenario

RBI hiked rates 25 bp and MSF channel has returned to 100 bp over the repo rate clearing the path for a return to the Repo rate as the Bank rate.. WPI forecast has been banded to the central bank’s comfort zone as 6-7%. GDP growth is updatd to 5% for FY 2014

The banks lead the Nifty comeback post policy action as they assume the deed is done and currency will consolidate around 61-62 levels before going back to the trade deficit control led highs nearer 60-61 levels The sponsored rally ost policy is however blushingly even across non actors and non performers in the banks bunched with YES Bank, ICICI Bank and even HDFC Bank and Axis Bank. IDFC has recovered its morning deficit too. BOB is up 15 pointsand BOI is in the positive with Pharma/result candidate DRL also staging a mini rally. The short on LIC Housing ahead of results has also disappeared and tomorrow’s results are likely to see fat positives as sentiment needs a good build up and inflows ontinue to allow market makers to perform as such and the Financials are likely to reward investors who stuck through the unreasonable 2 months pre the last MSF related policy action. Further policy action unless embargoed by inflation is likely to stay with seeing the bank rate climb down from the current MSF 8.75% to the Repo rate of 7.75% ( The Revese Repo is 6.75% where  RBI issues new collateral securities)

 

India Morning Report: HUL divines the uptrend, shift in stock weights

NEW DELHI/INDIA, 16NOV08 - Klaus Schwab, Execu...
NEW DELHI/INDIA, 16NOV08 – Klaus Schwab, Executive Chairman, World Economic Forum, Narendra Modi, Chief Minister of Gujarat, K.V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank; and President, Confederation of Indian Industry at the welcome lunch for the World Economic Forum’s India Economic Summit 2008 in New Delhi, 16-18 November 2008. Copyright World Economic Forum ( http://www.weforum.org )/Photo by Norbert Schiller (Photo credit: Wikipedia)

 

One part of the funding trade is of course another substitution from IT into post result scrips including private banks. Another reinforcing trend for the market is the return of interest to Mid Caps like Tata Global Beverages for the Coffee Auction expansion in their Global Supply chain effort and the Starbucks JV. More importantly however, HUL’s mid trend reinforcing of Ad spends by 24% has signaled more than return of its brands in that despite its lack of growth in soaps and detergents as in Personal Care by 16% nd in Food (9%) and Beverages (16%) , it seems to have forced the hat off ITC which has gone into a tailspin with investors likely to exit as the funding trade returns to HUL instead. Bharti is still strong however, and likely after HUL is not taken by a majority of brokers (from old times more than anything else)

 

ITC wll return to favor as an in trend consumer staples scrip as its Consumer Brands fared pretty well and they have already taken big ad spend jumps in a 2012 quarter instead. Also P&G despite its continuing domination of US markets has not ventured that strngly upon India as China walked away with most of the “Middle Class” Consumer equations leaving India’s non encouraging performance a fundamental back bone of most Global Consumer staples

 

Nifty is strong at 6150 as Monday morning sees uick exits from IT trades for another day with the bulls before the end of next week. Banknifty is finally catching on strong results and has crossed into 11000 so there is speculative interest there to take it to 12000 in a rush.

 

In Autos, CV Sales continue to scare investors and bankers, and it may hit NBFCs and Banks with Auto portfolios as well and Maruti’s recovery is pretty much incomplete with a return to barely 100,000 cars a month rate in the last two months. Justdial success was an eyeopener for sceptics but is likely a Jubilant/Talwalkars repeat in the trade being years’ ahead of the performance volumes not unlike the 2001 dotcom boom (and bust)

 

Interest returning to Metals and Energy would be a good sign for the market to retain higher volumes and move past 6400 levels for the longer term if a recovery oes come to substantiate higher EM flows that will definitely prop up Indian equities. Bonds are still twirling as yields still hope for no repo rate hikes by mid week . If there is a repo rate hike therefore yields will move further north and the Rupee in the offshore NDF market and in bank trading will lose some sheen even as other EMs catch up on the No Taper news, now becoming the new market basis for further Economic clairvoyance

 

Signing off, Essar Oil’s squeeze on GRMs to $6.98 could be in fact a positive sign for the Energy scrips as it means international prices of crude are weak and that other efficient producers(refiners) may still be able to score on their GRMs . India is not currently on Import Parity pricing but on Trade Parity ricing with 20% weightage on Exports and the Government may well ski the Ketan Parikh committee recommendations for this term.

 

ICICI Bank performance is instructively better, and Bank nifty would do well to exit all pessimistic trades shackling it for the last 2 odd months, also PSU Banks at the bottom like Union Bank esp are unlikely to return. Some among them have since jettisoned Bulk DEposits to break the negative attern in the product’s impact on the bottomline but unless REpo rates stop moving a higher cost of funds will be the norm for those in bulk deposits and LCR inspired wholesale funding only model shifts.

 

 

 

India Morning Report: A double trade in IT and the falling Gold prices but China is not good for the Dollars

Before we proceed however on the mechanics of an extremely juicy rally portender yesterday, I/we must recommend you dig in to Bharti, ITC and Bajaj Auto irrespective of your faith in the Network Analysts out there recommending fresh shorts. The thing to worry about is the weak prices in Gold right on the edge of festival season, as buyers tend t o stay away unless there is a heady cheer and while import limits CAD, Gold is still below 30,000 per 10 grams in trades around the country and on MCX.

The MCX resolution is also a matter for some grave restructuring and not an easy one as the promoter being the Technlogy provider and if they have been given permission to create the public exchange in such, the regulators must also bear it and not fall for a half baked compromise.

That said, the correction in IT stocks yesterday was a simple reminder that ESOP mechanics and Wealth Funds still hold sway on that sector as it is overweight in most global portfolios plus ESOP managers have a real safe exit if they can recommend take profits on post results euphoria. However, other insiders may also be involved in that they guess the “Q4 Winter” about to strike IT prospects may really simmer down market interest in the IT pack. However, as the rally proceeds this correction ahs also made possible for short term traders to dig into the sector as a fail safe trade probably before the first two weeks of November series are over.

Rupiah
Rupiah (Photo credit: Anis Eka)

Also, the banks are back as policy tones clearly show Repo rate pressures are off because Taper is moving out at least another year and that also means a stronger Rupee, Baht and Ringgit or even the Rupiah and Won that have shown up as pressure spots again in the Emerging Asia economies because of a uniquely intractable dependence on the US Dollar(“single currency” ).

Rupee however may skip the party even as inflows return because of the Crude prices ratcheting up the difference again and supply chain pressures will keep food inflation also high, rural consumption at a better tick thru festival season and it seems a dead Bollywood except Anil Kapoor’s above average attempt at bringing professional production to Colors ( as usual) KBC is working up the consumption dime too. Rupee will however seemingly head to 60 before the investor celebration begins with fresh inflows exceeding expectations into Election time

6100 is already back an the straddle at 6200 (sold call)  5700 (sold put) will have to move up again to 6500 levels but you should not switch till it is time

China GDP is still at a resilient 7.8% bottom and the credit squeeze, real estate asset bubble or a sad 2014 outlook mean the sun is not shining on private and llisted share portfolios in the biggest and only superpower enticing OECD funds and locking them in by the month, now at a 72 month positive inflow trend, and likely unbroken. Also China orders for Iran crude are up 60% that may still influence crude prices stabilizing.

Hindi on whimsy: Akasmat(Sudden, equally apt in both up and down moves); utavala na hona(to not look too eager)

India Morning Report: Banknifty swings up like a monster trade, already semi-retired

RBI head office, Delhi
RBI head office, Delhi (Photo credit: Wikipedia)

Sorry, I’d rather understand why the party for reduction in MSF and INR 17000 cr (INR 170 Bln)  of Borrowing added in 0.25% of the Deposits. The channel to the low repo rate of 7.50% is still 150 points after the cut and the 10 yr yields are not really expected to move south from 8.6% ‘except at the low rate of’ 50 basis points in the next three months it had already proffered before Rajan made the change.

Anyway, markets at least recognize or get their bank spokespersons/contacts to say banks are at ease again so the 5950 mark has come. already on the markets. The Upward potential is truly limited at this juncture, all the media noise budget (DAVP one mite bite) for showing activity in the Economy not making up for the spending cuts to stay in and the investments still a far way off.

However, markets per se are undervalued fundamentally with earnings positive thru the crisis except that they wait on such changes in fundamentals which are India’s bane for moving up while China gets a free look again just for having underperformed as it finds no legs in manufacturing worth reviving the Economy in goods production and of course the stat spin fails to take the big opportunity off the table

Rajan seemingly has made it clear he will be taking the Repo rate up again, and as the October meet approaches, markets will be equally quick to reach the bottom of the 5750 – 6000 range of the markets. the Repo rate at 7.50% already looks steep enough to me esp as trading markets stay idled to a high rate pre Taper.

I rather liked the Welfare flavor of August & September and wonder if it will come back again. At least its things we can do. The exchange rate is no good at 61.77, and hopefully its just waiting to go u to 60 levels as signs of others interested in the breakdown to 77-78 recede.

The inflation rate Formulatonomics of getting to that ratio as differential to ‘PPP’ are rather lost to most with a real India, Economics or Finance background though. You want PPP, you should go for a reference you can live with and that still counts as the Mac or the Pizza probably where we are definitely looking for a rate under 40 instead. Indian inflation would count as facts show as deadbeat deflation at 6% itself, as the Economy at 4% is almost a dead duck in the water ( in India references, it being the flat minimum of National activity)

Related articles

RBI eases short-term rates and liquidity with 50bps MSF cut; small banks gain (dnaindia.com)

India Cuts MSF Rate to Ease Cash Squeeze After Climb in Rupee (bloomberg.com)

Cut in MSF, RBI to monitor CAD and Inflation(WPI)- Bank Policy and Mid Quarter Review (September 2013) (awardz.wordpress.com)

India Morning Report: Crude down, Gold trade dead, MSF cut a real boon?

Boon Lay Extension
Boon Lay Extension (Photo credit: Wikipedia)

Sorry, I’d rather understand why the party for reduction in MSF and INR 170 Bln of Borrowing added in .25% of the Deposits. The channel to the low repo rate of 7.50% is still 150 points after the cut and the 10 yr yields are not really expected to move south from 8.6% ‘except at the low rate of’ 50 basis points in the next three months it had already proffered before Rajan made the change.

Anyway, markets at least recognize or get their bank spokespersons/contacts to say banks are at ease again so the 5950 mark has come. already on the markets. the Upward potential is truly limited at this juncture, all the media noise budget (DAVP one mite bite) for showing activity in the Economy not making up for the spending cuts to stay  in and the investments still a far way off.

Again, however, markets per se are undervalued excpt that they wait on such changes in fundamentals which are India’s bane for moving up while China gets a free look again just for having underperformed as it finds no legs in manufacturing worth reviving the Economy in goods production.

Cabbage Market
Cabbage Market (Photo credit: Wikipedia)

Rajan seemingly has made it clear he will be taking the Repo rate up again, and as the October meet approaches, markets will be equally quick to reach the bottom of the 5750 – 6000 range of the markets. the Reo rate at 7.50% already looks steep enough to me esp as trading markets stay idled to a high rate pre Taper.

I rather liked the Welfare flavor of August & September and wonder if it will come back again. At least its things we can do. The exchange rate is no good at 61.77, and hopefully its just waiting to go u to 60 levels as signs of others interested in the breakdown to 77-78 recede.

The inflation rate Formulatonomics of getting to that ratio as differential to  ‘PPP’ are rather lost to most with a real India, Economics or Finance background though.

You want PPP, you should go for a reference you can live with and that still counts as the Mac or the Pizza probably where we are definitely looking for a rate under 40 instead.

Indian inflation would count as facts show as deadbeat deflation at 6% itself, as the Economy at 4% is almost a dead duck in the water ( in India references, it being the flat minimum of National activity)

India Morning Report: A technical correction to make space in the move

Nevertheless, whether the lost steam of the rally is recovered or if markets correct this series a little more steeply long enough to stem selling by Domestic institutions and some investors, profit taking would have been good for your business last week in both the Rupee and Indian equities (NSE Nifty 50, BSE 30 Sensex/BSE 100 or the MCX SX40). There has apparently been a natural disaster in Hang Seng Exchange ahead of the China data release today (Flash PMI) and next and the exchange is closed because of the Typhoon for two hours before the afternoon session. China’s manufacturing jump has gone up from last months record 50.8 to above 51 this month, but it is unlikely that Copper will indeed respond too positively if you are trading commodities. If it is equities, yes markets outside India incl OECD markets are likely to jump at the news , especially the European session ahead of Nifty’s late afternoon sessions. Doing well in China – Mining an Real Estate s something may well be wrong and come out so before next month but definitely trade data will be up as well for August. That optimism may change the course of the Indian markets mid day itself

 

OECD Countries Blue
OECD Countries Blue (Photo credit: Wikipedia)

 

SGX Nifty however leads the Indian investors correctly for a change ( a Feather in the cap of CME and Nifty teams) and the markets will definitely dip below 6000 before deciding whether banks are strong enough or the rebound before the repo rate increase was justified. A Repo rate to 7.5% upset the rally completely? Surely we are better than that. Banks not being given that vote of confidence could indeed decde the quantum of the down move(two thirds of the reason), as also to the other one third of the reason would be any volatility in he Rupee correcting from 62 levels down instead of continuing the up move to 60 levels. A good sign is if banks get new OI encouraged by build up in Put volumes sold at now definitely amongst the lowest levels for the Banknifty, so the Edelweiss analyss recommendations on ET Now could be right on the money

 

Infy has responded well to the Rupee appreciation, avoiding a reaction still correcting to below 3000 levels, but the HCL trade continues to put the wrong risk takers in the lead as even consolidation of the company with HCL Info is only a face saving device for the hardware business and not value accretion expected in the merger

 

The troubles of Ranbaxy keep the scrip in the spotlight and fortunately it never put the Indian Pharma sector under the wrong spotlight despite their brazen actions and the continuing cascade of FDA actions plant by plant at other suppliers as well fueling the anti-India anti-Quality prejudice traditional in OECD investors

 

Urban India also probaby thinks NaMo’s commmunal licences can be similarily ignored as a quirk and the resultant fractured mandate is not just India’s biggest fallibility bu also sign of the inadequate proficiency of Political Sciences in a land otherwise profuse with globally renowned academics and probably the situation in these arts and sciences is more deficient than the lack of educators in IITs and IIMs

 

The Nifty however may not leave the range of 5950 to a new number on the upside, which is still likely and which may see FNO action by midweek

 

 

Cut in MSF, RBI to monitor CAD and Inflation(WPI)- Bank Policy and Mid Quarter Review (September 2013)

RBI followed Fed into the ever present snare of having lost the confidence of the markets when it decided to recalibrate repo rates while decreasing MSF rates to 9.5%. The Repo rate at 7.5% in fact allows the 200bp cover on the normal MSF as it now stands exactly at 9.5% but the markets were spooked by an anti inflationary stance from the Central Bank blocking out possiblities  of growth returning in the immediate future.

RBI has in the meantime further eased intra day trading on FX limited for banks along with the extraordinary increase in MSF and Bank rate last month. The Reverse Repo rate is also notified to 6.50% and though the bank rate has not been updated, it has been notified to 9.5%. Unfortunately with yields pulling away sharply to 8.3% levels despite their being room to move to 8% levels after the policy announcement, it means markets and inflows are now gong to try and make economic judgments all over again and with no other policy action forthcoming that could fiscally pressure India all over again ahead of the tightening in December

Daily CRR has been reduced to 95% from 99% allowing banks a little more flexibility but CRR and SLR together still account for more than 23% of the Banking deposits

Changes to liquidity rates can be effected further at any time before or after he next policy review. The Mid quarter review sees to balance the good monsoon’s impact as he negative outut gap now expected with the increase in risks on CAD and inflation

RBI’s stress on WPI seems unwarranted at ur end esp wit Crude levels coming back to manageable levels even as they go down further.

RBI Mid Quarter Review 11 am  

RBI Media(1pm) and Analyst(3.30pm) Webcast –

USA: 1 866 746 2133
UK: 0 808 101 1573
Singapore: 800 101 2045
Hong Kong: 800 964 448

INDIA Dial In : +91 22 6629 0341/+91 22 3065 0128

 

RBI policy announcement May 2013: Repo rate cut to 7.25% CRR unchanged

Yields on the 2022 bonds moved down 5 bp to 7.77% in pre policy trading and kept the gains as RBI announced the expected cut of 25 basis points in the Repo rate despite macroeconomic concerns in a bid to sledgehammer the supply side weaknesses that have disabled policy transmission and kept illiquid markets near the marginal standing facility rates and the higher reverse repo rate which correspondingly moves down to 8.25%., The RBI emergency lending rates (MSF) are exactly 7.75%

The response follows a weak macroeconomic assessment yesterday and the hawkish tone though warranted has brought markets down to 5950 levels. markets correspondingly ill understand that “RBI has played true to form” *(ET lead on ET Now) and finally keep the faith in the economy after having been ebullient on the expectation of this rate cut. RB has cut the growth forecast on the GDP in this fiscal — FY 14 to 6% and inflation target is a 5.5% for this fiscal. The Macro review also highlighted that CAD is likely a risk till is funded by external capital flows (read new foreign debt)

The presser after the announcement focuses on the issues of liquidity and continued omo support from RBI

 

India Morning Report: Sorry Bears and Cartels, Bulls are still hiding in the Indian woodwork

Yes Bank
Yes Bank (Photo credit: Wikipedia)

 

Network analysts sitting on lower support levels and betting short on most new blue chips having seen the infracos slide, are in for another shocker as the march series looks to inch closer to 5600 on expiry day before closing out comfortably ahead of August 2012 levels. Both Sukhani continue on the second month of watchful short betting SS targetting YES Bank further from today while Bharti and some others responded in kind to the lack of interest to back the market interest to significant lower levels but the buls seem to have won on real strength of fund inflows for the time being. Markets will correct but not by much in April and while the upside was capped to 5850 levels by the weakness that just means the lowside is still as high as 5550 even for safe investors and 5500 puts should be real rich making sells for bullish investors. (We personally are not conflicted by any position here)

 

Five Rupee Coin
Five Rupee Coin (Photo credit: Dinesh Cyanam)

 

BRICS Development Bank aside, which we look to fund the Indian Infrastructure gap in due course, India inc starts off results season in a week and its profitability scores that already improved on identified sectoral leaders in Q3, are the ones that will be identified with the successful India story and not the politicking as enough stability and forward looking governance is guaranteed by incumbent ministers if not the party flags.

 

The Rupee keeps most of its strength in the new series and the may series may give pointers on the new range for the currency as Fixed income yields cross back into the 8+ range having lost the rate cut and pushed the bank to the reverse repo rate on the corrridor

 

Given the strength of equities and currency going in, profitability concerns of consumption and auto plays should be watched closely for bear victories even as IT forecasts and IT results will remain damp and not affect sentiment. Healthcare could lead stocks nose down but not up even if it maintains good profitability and revenue growth and any weakness in bank performance including Q1 FY14 forecasts will be a deal breaker.

 

Infra debt funds have indeed taken off and execution perofrmance of projects still hanging will come intpo play on the bourses also in Q3 FY14, QIP fund raising shifting out from infra and bank fund raising to NBFC or Capital expansion plays across manufacturing and services businesses with CDS holding sub 200 levels , a great performance for an isolated Asian performer.

 

 

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