Austerity ahead for the Indian government, warns Nomura

Nomura sees the Indian government lower spending by 0.6% of GDP over the next four months to meet the fiscal deficit target

The current run rate on the fiscal deficit leaves no space for slippage in the remaining four months of the fiscal year. It is estimated that the government will have to cut spending by 0.6% of GDP over the next four months to meet its deficit target. This is the austerity forecast for the Indian government from Nomura analysts in a research note.


Nomura expects overall revenues to fall short by Rs720bn (0.6% of GDP) in FY14 from weak growth causing net tax revenues to grow at only 10% year-on-year in FY14 (government's target: 19%), and a shortfall on disinvestment, which is unlikely to be completely offset by higher dividends.


According to Nomura, lower government spending and weak investment demand contribute to the view that GDP growth will remain in the 4.5%-5.0% range until Q2 2014.


The trends in government spending are shown in the chart below:



Nomura warns that these cuts having two key implications. First, a rising government cash balance will tighten banking system liquidity in Q1 2014. Second, growth in government spending should slow to 5.6% y-o-y in Dec-Mar from 17.7% in April-November, which will likely hurt growth. With a short-run (1-year) fiscal multiplier1 of 0.55, spending cuts worth 0.6% of GDP would lower GDP growth by 0.3% during this period.


Persons can be tried despite not being named in FIR: SC

A new development in the justice system in India could alter many proceedings in India, including the 2G scam

A new development in the realms of law could change the nature of court proceedings, which could also have wider implications on the justice system in India, especially the 2G scam and other high profile cases. The Supreme Court held that a person can be made an accused by the trial court in case evidence crops up during the proceedings even if that person has not been named in the First Information Report (FIR) or charge sheet.

A five-judge Constitution Bench headed by Chief Justice P Sathasivam said that the trial court has powers to summon a person as an accused despite his name being not mentioned by the investigators in the FIR and charge sheet.

The bench clarified that Section 319 of Criminal Procedure Code (CPC) empowers the trial court to proceed against a person who appears to be guilty of offence but not named in the FIR or charge sheet.

The judgement could have implications in some cases arising out of the 2G scam in which the trial judge had summoned as accused some corporate honchos despite their being not named by the Central Bureau of Investigation (CBI) in the FIR and charge sheet.

However, many businessmen have voiced their displeasure and approached the Supreme Court against the trial court's summoning order. The apex court is yet to pronounce its verdict in the case.




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Sensex, Nifty show no trend still: Thursday closing report

The market has to close beyond Nifty’s recent trading band of 6,220-6,150 to signal a trend

As we mentioned on Wednesday, the market outlook seems still negative. The indices, after trading in the negative for most of the part of the session closed lower on Thursday.


The indices opened marginally higher, BSE 30-share Sensex at 20,756 and the NSE Nifty at 6,182.  Immediately the benchmark rose to the day’s high before it could plunge into the negative. The Sensex hit a high of 20,778 while the Nifty hit a high of 6,188. At around 1.10pm the indices hit the days low from where it made an immediate recovery and entered into the positive zone, but couldn’t sustain it and ended the day marginally down. The Sensex hit the low of 20,653 while the Nifty hit the low of 6,148. The Sensex closed 20,713 (down 16 points or 0.08%) while the Nifty closed 6,168 (down 6 points or 0.10%). The NSE recorded a volume of 67.68 crore shares.


Among the other indices on the NSE, the top five gainers were PSE (1.26%); Metal (1.03%); Energy (0.85%); Pharma (0.71%) and Commodities (0.61%) while the top five losers were Realty (2.56%); PSU Bank (1.60%); Nifty Midcap 50 (1.22%); Infra (1.13%) and Smallcap (1.06%).


Of the 50 stocks on the Nifty, 19 ended in the green. The top five gainers were Sesa Sterlite (4.44%); HCL Technologies (3.20%); NTPC (3.05%); ONGC (2.86%) and Coal India (2.79%). The top five losers were Jaiprakash Associates (4.22%); ACC (2.78%); LT (2.61%); Ambuja Cements (2.35%) and Hindalco Industries (2.21%).


Of the 1,231 companies on the NSE, 341 closed in the positive, 842 companies closed in the negative while 48 closed flat.


Oil secretary Vivek Rae on Thursday said that the oil ministry is considering a partial rollback of bulk diesel prices as sales have dropped significantly. "We are circulating the Kirit Parikh report for inter-ministerial consultation," Rae told reporters on the sidelines of an industry event. He also said there is a need to review the subsidy sharing mechanism to ensure that upstream companies get about $65 a barrel on sale of crude oil.


India will soon invite foreign businesses to fully own new services in suburban areas, high speed tracks, and connections to ports, mines and power installations, said two senior officials involved in the deliberations. The government officials said the move could attract up to $10 billion of foreign investment over the next five years.


US indices closed mostly lower. The last Federal Open Market Committee meeting showed that a majority of officials judged the effects of the monthly asset purchases to be diminishing over time. The minutes showed that policymakers wanted to stress to the public that further reductions to bond buying would depend on progress in the labor market and on inflation, as well as on how well the program was judged to work in the months ahead.


Automatic Data Processing said on Wednesday that private employers created 238,000 jobs in December.


Except for Jakarta Composite (up 0.01%) and NZSE 50            (up 0.73%) all the other Asian indices closed in the negative. Nikkei 225 was the top loser which fell 1.50%.


China’s producer prices extended the longest slide since the 1990s in December, adding to evidence that the world’s second-largest economy weakened last month. The producer-price index fell 1.4% from a year before, the 22nd straight drop, and consumer-price gains trailed estimates at 2.5%, government reports showed in Beijing. Today’s releases followed declines in gauges of manufacturing and services based on surveys of purchasing managers. Food prices rose 4.1% from a year earlier, the least since May, today’s report from the National Bureau of Statistics showed. Services prices increased 3.3%, the same pace as November, which was the biggest gain since August 2011.


South Korea's central bank left its key interest rate unchanged for an eighth straight month after a monetary policy review today.


European indices are trading in the green while the US Futures were also trading higher.


Euro zone rose to a more than two-year high in December in another sign that the recovery is beginning to take hold after a prolonged down-turn. An index of executive and consumer sentiment rose to 100 from a revised 98.4 in November, the European Commission in Brussels said today. The commission’s industrial confidence index rose to minus 3.4 from minus 3.9 in November. The gauge of consumer confidence improved to minus 13.6 from minus 15.4 in November, the commission said. The commission’s gauge of employment expectations in the manufacturing industry rose to minus 4.7 in December from minus 6.3, today’s report showed.


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