by admin | May 25, 2021 | Banking, Economy, Markets, News
Mumbai : Hopes of lower interest rates and more liquidity on the back of easing retail inflation and the Reserve Bank’s outreach efforts and foreign fund inflows aided the barometer S&P BSE Sensex to gain over 150 points while NSE Nifty50 ended the session just short of 10,800 points.
On a sector specific basis, the rise was supported by healthy buying in the state-owned banking stocks after Reserve Bank of India Governor Shaktikanta Das on Thursday held a meeting with heads of Mumbai-based public sector banks.
However, three days of upward movement gave investors a chance to book profits, capping the session’s gains.
Apart from banking stocks, most sectoral indices, especially interest-sensitive — auto and capital goods — shares on the BSE and NSE ended in the green.
Globally, major Asian markets closed on a positive note. European indices like FTSE 100, DAX and CAC 40 also traded in the green.
“In anticipation of some firm measures by the new RBI Governor to ease the credit squeeze, the markets rallied in the morning but cooled off in the 2nd half on some profit booking,” said Essel Mutual Fund CIO, Viral Berawala.
“Stocks with rural focus also gained momentum on expectations of some pro-rural announcements by the central government.”
Said Geojit Financial Services’ Head of Research Vinod Nair: “Benign CPI inflation at 2.3 per cent supported an improvement in RBI’s current stance of ‘calibrated tightening’.
“Additionally, pick up in industrial production at 8.1 per cent supported the continuation of the rally. Ease in US-China tensions and the UK PM wining the vote of confidence brought stability in the global market.”
The Nifty PSU Bank index gained 1.03 per cent. Banking stocks also rose as RBI is scheduled to purchase government securities and infuse liquidity worth Rs 10,000 crore on Thursday.
Index-wise, the Sensex settled 150.57 points up at 35,929.64 points, touching an intra-day high of 36,095.56 and a low of 35,794.51. The Nifty50 gained 53.95 points or 0.50 per cent to closed at 10,791.55.
In terms of broader markets, the BSE Mid-cap rose 0.82 per cent while the BSE Small-cap was down 0.65 per cent. The BSE market breadth was positive with 1,493 advances against 1,058 declines during the day.
On the currency front, V.K. Sharma, Head PCG and Capital Markets Strategy, HDFC Securities, said: “Rupee started on a stronger note following better than expected economic data. The inflation for November came at 2.33 per cent from previous months’ 3.38 per cent, the slowest pace in 17 months.
“The sentiment got a boost on stronger domestic equity markets and weakening of the US dollar against G-10 currencies.”
The rupee settled at 70.68-69 per US dollar from Thursday’s close of 70.86.
“Technically, with the Nifty rallying higher for the third consecutive session, the bulls remain in control. Further upsides are likely once the immediate resistances of 10,839 are taken out,” said HDFC Securities’ Retail Research Head Deepak Jasani.
“Crucial supports to watch for any weakness are at 10,750.”
Foreign Institutional Investors (FII) bought shares worth Rs 675.14 crore on Thursday while Domestic Institutional Investors (DII) sold stocks worth Rs 51.86 crore, provisional data from the BSE showed.
Stock wise, Yes Bank shares fell by 6.48 per cent, the most among the 30 shares on Sensex. Shares of the private lender declined steeply after its Board on Thursday could only finalise the Non-Executive Part-Time Chairman position.
Stock-wise, Wipro, Infosys, Kotak Mahindra Bank and Maruti Suzuki gained over 2 per cent. In contrast, Sun Pharma lost 2.12 per cent and TCS, Tata Steel and Adani Ports declined in the range of 1 to 2 per cent.
—IANS
by admin | May 25, 2021 | Banking, Economy, Finance, News, Opinions
By Nikhil Arora,
The battle between the Indian government and its central bank is neither new nor unique.
Though the ongoing spat between the Reserve Bank of India (RBI) and the government can boast of multiple drivers, the most recent, and by all appearances a perennial bone of contention, is the former’s adoption of Flexible Inflation Targeting (or FIT) as its monetary policy framework.
What is FIT? Through an agreement signed between the RBI and the government as at February 20, 2015, RBI decided to adopt a “modern monetary policy framework” with the objective to “primarily maintain price stability, while keeping in mind the objective of growth”.
Thus, price stability became an overarching objective of monetary policy, moving other factors to the background.
The said price stability is to be achieved by keeping track of, forecasting, and controlling inflation, meaning that if the percentage change in monthly Consumer Price Index or CPI (headline) year-on-year was outside or expected to be outside a specific range of numbers (the “Target”) for a certain duration, it gives RBI a justification to decrease or increase short-term interest rates.
No other consideration is to have an equivalent weight. Inflation must be granted precedence.
The agreed upon target range at present stands at four per cent with a band of () two per cent for three consecutive quarters.
So, what is the problem? The proponents of FIT argue that it gives a clear goal for policy setting and, over time, helps in establishing the credibility of the central bank while managing and anchoring price and policy expectations of the public. A quantifiable target reduces the chances of monetary policy being steered for political purposes.
Both high inflation and low inflation hurts. While the former eats through real rates of return, i.e. the borrowed interest rate minus inflation; the latter is an indicator of either oversupply or low demand. Hence it makes a lot of sense to keep it on a leash.
However, the outcome of using monetary policy to control inflation often depends on how the said price instability has originated in the first place.
When inflation is demand-driven, i.e. the demand gets too hot for sustainable supply, the FIT approach works well as hawkish monetary policy then becomes a lever to control consumption spend.
However, when inflation is supply-driven, i.e. the supply is artificially low (either due to low productivity, lack of investment, hoarding, supply shocks caused by inadequate monsoons, oil price hikes, etc.) but the demand is “business as usual”, FIT would be less effective as it would lower investment appetite, thereby risking supply being pushed further down.
Warwick J. McKibbin, a Senior Fellow at Brookings, a think tank says: “Falling productivity would cause both a rise in input costs and a fall in output. An inflation targeting central bank would tighten monetary policy as input costs rose but in doing so would reduce real GDP in the economy. Thus, monetary policy would lead to a worse outcome for the real economy than caused by the shock alone.”
Most governments, especially in emerging markets where supply shocks are common, are hence apprehensive of FIT. Plus, there is a natural tendency to blame lack of growth on tighter monetary policy, taking attention away from larger structural issues where fiscal intervention is needed.
Businesses also tend to oppose FIT, linking higher rates to a lower investment appetite which may be a disingenuous claim.
Raghuram Rajan, ex-RBI Governor who pushed for FIT, in his book “I do What I do” elaborates: “I have yet to meet an industrialist who does not want lower rates, whatever the level of rates. But will a lower policy interest rate today give him more incentive to invest?”
Answering his rhetoric himself, he claims: “Even if [RBI cuts] policy rates, we don’t believe banks, who are paying higher deposit rates, will cut their lending rates. The reason is that the depositor, given her high inflationary expectations, will not settle for less than the rates banks are paying her. Inflation is placing a floor on deposit rates, and thus on lending rates.”
What, you may wonder, is the solution? A popular alternative suggested by many has been to track the growth in Nominal GDP (NGDP targeting), instead of inflation. NGDP growth is basically the sum of inflation and real GDP growth.
The idea here is that in supply shock-driven inflation, though the inflation component of NGDP would go up, the real GDP component would go down. Whilst a FIT regime would drive up rates to control inflation but be at the risk of pushing real GDP down further, the NGDP target would be a more holistic measure in that situation, warranting a less dramatic response.
Optically it literally combines the objective of price stability and growth. It would, however, widen the mandate and accountability of the central bank, as per a view shared by The Economist, while it was pushing for a NGDP target framework for the US Federal Reserve (Fed).
“A Central bank with an explicit NGDP level target would have faced (appropriately) intense pressure to do much more much sooner than one with the Fed’s present, vague focus on an inflation target as a means to broader macro-economic stability,” The Economist said.
(Nikhil Arora, a former investment banker at HSBC London, is Founder and CEO at Transfin. Views expressed are personal. He can be contacted at arora.nix@gmail.com)
—IANS
by admin | May 25, 2021 | Economy, Finance, Markets, News
Mumbai : A recovery in the Indian rupee’s value along with broadly positive global cues and a slower rise in wholesale price inflation for August pushed the Indian equity indices higher on Friday.
Consequently, the S&P BSE Sensex was up by 0.99 per cent and the NSE’s Nifty5O ended 1.28 per cent up from its previous close.
Index-wise, the Nifty50 of the National Stock Exchange (NSE) closed at 11,515.20 points, higher by 145.30 points or 1.28 per cent from its previous close of 11,369.90 points.
The barometer S&P BSE Sensex, which had opened at 37,939.29 points, closed at 38,090.64 points, higher by 372.68 points or 0.99 per cent from its previous close of 37,717.96 points.
It touched an intra-day high of 38,125.62 points and a low of 37,859.52 points.
In the broader markets, the S&P BSE Mid-cap rose by 1.62 per cent and the S&P BSE Small-cap ended 1.38 per cent higher from its previous close.
The BSE market breadth was bullish with 1,811 advances against 850 declines. The total number of stocks traded on the exchange was 2,831, with 170 ending unchanged.
“The gains came on the back of positive global cues. The sentiment was also buoyed after data showed inflation eased in August, thereby increasing the likelihood that the RBI will not increase interest rates in October,” said Deepak Jasani, Head of Retail Research at HDFC Securities.
According to Vinod Nair, Head of Research, Geojit Financial Services: “Ease in inflation and recovery in rupee added optimism in the market.”
“Stability in yield and rupee will be crucial for the market momentum while investors have continued to stay cautious due to global triggers. The global peers also traded on a positive note in expectation of ease in trade tensions between US and China. Any redressal in tensions will provide enough headroom for the domestic market.”
On the currency front, the Indian rupee closed at 71.85, recovering 34 paise from its previous close of 72.19 per greenback.
Investment-wise, provisional data with the exchanges showed that foreign institutional investors bought scrip worth Rs 1,090.56 crore and domestic institutional investors bought stocks worth Rs 115.14 crore.
Sector-wise, all the indices closed in the green. The S&P BSE consumer durables index gained 458.43 points, the banking index gained 363.38 points and the metal index was up by 311.52 points from its previous close.
The top gainers on the Sensex were Vedanta, up 5.25 per cent at Rs 235.50; Power Grid, up 3.57 per cent at Rs 200.10; Asian Paints, up 3.04 per cent at Rs 1,331; NTPC, up 3 per cent at Rs 175; and Yes Bank, up 2.75 per cent at Rs 323.10 per share.
The losers were Coal India, down 1.42 per cent at Rs 277.30; Infosys, down 1.01 per cent at Rs 735.20 per share.
—IANS
by admin | May 25, 2021 | Corporate, Corporate Governance, Economy, Finance, Markets, News, Politics
New Delhi : The government on Tuesday declared its intent to change the base year for calculation of GDP and retail inflation to 2017-18 and 2018 respectively, likely to come to effect by fiscal 2019-20.
The previous base year revision for gross domestic product (GDP), the index of industrial production (IIP) and the consumer price index (CPI), or retail inflation was revised to 2011-12 and 2012, respectively, Statistics and Programme Implementation Minister Sadananda Gowda told reporters here while briefing about the ministry’s achievments in the last four years.
“The revisions facilitated more accurate assessment of the progress of the economy and the society. Steps are being initiated for the next round of revision also, for GDP we would like to revise the base year to 2017-18 and base year for consumer retail inflation to 2018,” he said.
“These principles are aimed at promoting good practices and professional ethics in production and dissemination of official statistics,” he added.
—IANS
by admin | May 25, 2021 | Banking, Economy, Markets, News
Mumbai : Following a cycle of rate cuts begun in January 2015, the RBI on Wednesday raised its key interest rate for the first time by 25 basis points (bps) to 6.25 per cent, responding to concerns on inflation from surging global crude oil prices, as per a central bank announcement.
The Reserve Bank of India (RBI), however, maintained its ‘neutral’ stance on policy, as it has done over four previous bi-monthly policy reviews when it held the repo, or its short term lending rate for commercial banks, at 6 per cent. This stance allows the RBI to move either way on rates.
“The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent,” the RBI statement said.
“Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.”
Addressing the media following the policy announcement, RBI Governor Urjit Patel elaborated that the neutral stance allowed various options to the central bank and was not in contradiction to raising rates.
“The neutral stance leaves all options open… other central banks do the same, there is no contradiction here,” he said in response to a query.
“We have kept the neutral stance as well as responded to the risks to inflation visible in recent months. Inflation has remained over the target level of 4 per cent for over six months,” he added.
The six-member MPC voted unanimously for the rate hike that the central bank was undertaking after more than four years and comes for the first time under the Prime Minister Narendra Modi-led government.
The RBI also revised upwards the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and to 4.7 per cent in the second half, including the impact of house rent allowance (HRA) for central employees, and with risks on the upside.
“The April-May prints show that inflation, excluding food and fuel has hardened. Higher oil prices and input costs have added to the upside risks,” RBI Deputy Governor Viral Acharya said.
“On the other hand, growth indicators show that economic revival is on sound footing. Given the inflation target of 4 per cent, it seemed the right time for the MPC to consider a hike of 25 basis points,” he added.
The country’s retail inflation rose to 4.58 per cent in April from a rise of 4.28 per cent in March and 2.99 per cent in the corresponding period of the previous year.
The fourth quarter estimate of Gross Domestic Product (GDP) released by the Central Statistics Office last month estimated the growth rate at 7.7 per cent, as against 5.6 per cent, 6.3 per cent and 7 per cent respectively in the first three quarters.
Recent crude oil price volatility imparts considerable uncertainty to the inflation outlook, the RBI said.
“Since the MPC meeting in early April, the price of the Indian basket of crude surged from $66 a barrel to $74. This, along with an increase in other global commodity prices and recent global financial market developments, has resulted in a firming up of input cost pressures,” the statement said.
To arrive at this decision, the MPC extended its deliberations this time by an extra day.
Commenting on the development, Deloitte India Partner Anis Chakravarty said in a statement: “The RBI was cautious on the factors that could change the course of the underlying optimism, major among them being the projections on oil price movement and rising geopolitical tensions.
“However, given that the committee has maintained a neutral stance, there remains room for manoeuvrability in policy perspective should incoming data show sharp fluctuations.”
“Recent hike in crude prices and better GDP for last quarter of FY 18 suggest inflation trajectory may be on the higher side. Though, this may put some pressure on borrowers, it is positive news for the savers in the economy,” said Arihant Capital Markets Director Anita Gandhi.
—IANS
