Chief economic advisor Kaushik Basu also said the country's headline inflation is likely to be around 8.5% in April below the 9% average projected by the RBI for the first half of 2011-12
New Delhi: The finance ministry today said the 9% growth projection for this fiscal may have to be revised on account of the high global commodity prices and the ongoing debt crisis in Europe, reports PTI.
"It is true the way the global scenario has moved… And in Europe there has been deterioration. We are worried about Greece and the oil price which, despite softening over the last week, has been very high.
"In this scenario it is likely we are going to downgrade growth projection a little bit," chief economic advisor Kaushik Basu told reporters here.
Mr Basu also said the country's headline inflation is likely to be around 8.5% in April (the data of which will be released next week) below the 9% average projected by the Reserve Bank of India (RBI) for the first half of 2011-12.
His comments came a day after finance minister Pranab Mukherjee said it would not be possible to achieve the targeted growth rate of 9% in 2011-12 because of rising global commodity prices.
"Due to volatility in international commodity prices and other supply constraints, it may not be possible to achieve the growth rate of 9% (+/- 0.25%) for the current financial year," Mr Mukherjee had said yesterday.
The Indian economy grew by 8.6% during 2010-11.
"Overall inflation that we will get for the month of April now looks like it will be somewhere between 8.5% and 8.6% which is a decent drop," Mr Basu said.
This is below the 9% average inflation projected for the first half of this fiscal by the RBI in its monetary policy released earlier this month.
Headline inflation was 8.98% in March, much above the government's comfort zone of around 5%.
Though rising food prices were the main contributors to inflationary pressure in 2010, recent months have witnessed a rise in prices of core (non-food) items. Core inflation was above 7% in March.
The RBI had hiked interest rate by 50 basis points earlier this month to tame demand and control inflation. It was the ninth hike in short-term lending and borrowing rates made by the central bank since March 2010.
Mr Basu, however, added that other fiscal targets remained on track.
"I don't think anything has happened to change our view... We want to hold on to 4.6% (fiscal deficit) and borrowing at Rs3,40,000 crore. We want to hold on to those targets. Nothing has happened as yet to require a change in these positions," he said.
As expected, another downleg of the ongoing decline has started. The support has shifted down to 5,400 on the Nifty
The market opened lower, tracking the weak Asian markets in early trade and concerns about the industrial output data for March and weekly food inflation numbers, which were expected today. The Sensex opened at 18,525, down 60 points from its previous close and the Nifty was 27 points lower at 5,538.
The subdued trend prevailed till the mid-morning session, when a small bounce-back was noticed taking the market to the day's high. At the intra-day high the Sensex touched 18,610 and the Nifty was at 5,573. However, even after the Index of Industrial Production (IIP) data turned out better than expected, the market dipped into the red.
An easing of the food inflation numbers for the week ended 30th April also did not help the market. The slide continued through the post-noon session with the pressure on metals, banking and capital goods sectors. A weak opening on key European bourses also added to the woes.
The indices touched their intra-day lows at around 3.05pm with the main indices at 18,314 and 5,476. With the exception of the BSE Realty index, all sectoral indices were in the negative today.
At the end of trade today, the Sensex closed 249 points lower at 18,336 and the Nifty was down 79 points at 5,486. The advance-decline ratio on the National Stock Exchange was a dismal 504:1198.
With today's decline, a fresh downturn has started that may take the Nifty to 5,400 and in case of extreme selling to 5,250.
Among the broader markets, the BSE Mid-cap index declined 0.91% and the BSE Small-cap index settled 1.06% lower.
BSE Realty (up 0.48%) was the only sectoral index in the green. Rate-sensitive sectors led the decline. BSE Metal (down 2.99%), BSE Capital Goods (down 1.42%), BSE Bankex (down 1.39%), BSE Power (down 1.20%) and BSE IT (down 1.16%) were all down.
ONGC (up 0.58%), Hindustan Unilever (up 0.52%) and DLF (up 0.18%) were the gainers on the Sensex, whereas Sterlite Industries (down 4.76%), Hindalco Industries (down 4.66%), HDFC (down 2.77%), TCS (down 2.31%) and Jaiprakash Associates (down 2.25%) were the major losers.
Growth in industrial production for the year 2010-11 fell to 7.8% compared to 10.5% in the previous fiscal. The government attributed the poor performance to a slowdown in manufacturing and mining.
Factory output in March also witnessed lower growth of 7.3%, compared to 15.5% in the period a year ago. However, the performance in March was an improvement from the 3.6% growth registered in February this year.
Food inflation dropped to 7.7% for the week ended 30th April, the lowest level in 18 months. The rate of price rise in food items, as calculated on the basis of the wholesale price index (WPI), was 8.53% in the previous week and 21.46% in the comparable period of 2010.
The decline in food inflation is seen as a breather for the government, as the rate of price rise has stubbornly remained high despite its fiscal measures and the Reserve Bank of India's (RBI) monetary tightening.
Asian markets, barring the Taiwan Weighted, settled lower on concerns that China might go in for another rate-tightening round as early as this weekend. Material and energy stocks ended lower after crude oil for June delivery plunged 5.5% to settle at $98.21 a barrel yesterday in New York. Copper fell to the lowest price in five months after China's inflation topped the government's target, signalling further monetary-policy tightening that may curb metal demand.
The Shanghai Composite declined 1.33%, the Hang Seng fell by 0.94%, the Jakarta Composite was down 0.77%, the KLSE Composite fell by 0.24%, the Nikkei 225 tanked 1.50%, the Straits Times retraced 1.47% and the Seoul Composite tumbled 2.03%. On the other hand, the Taiwan Weighted added 0.15%.
Back home, the equities segment saw a meagre participation from institutional investors on Wednesday. Foreign institutional investors were net buyers of stocks worth Rs125.07 crore while domestic institutional investors were net buyers of shares worth Rs89.12 crore.
The ETFs that focus on energy, metals and FMCG are the first of their kind. But investing in these funds may not give the returns one hopes for. Because, while the idea of focusing on a sector is good, picking the right sector is easier said than done
Axis Mutual Fund is all set to enter the growing market for exchange traded funds. It has filed offer documents to launch Axis Metal ETF, Axis FMCG ETF, Axis Banking ETF and Axis Energy ETF. Currently, there are no ETFs linked to energy, metals, and FMCG indices and these ETFs from Axis are the first of their kind.
All these ETFs are sector ETFs and will focus on stocks of just one sector. The theoretical case for sector funds is strong, because it can be based on two very strong tenets of investing. One, the focus and concentration on a few stocks works wonders. Two, identifying the right sector is the key to stock market success.
Sector funds incorporate both these aspects of investing. They focus on just one sector at a time and if the sector does well, the fund’s performance can be among the best. Therein lies the catch—accurately picking a winning sector, just in time, is easier said than done. It is known only in hindsight. Fund managers have always been bad in selecting the winning sectors. They were caught unawares by the tech bust of 2000 and the sluggish pace of infrastructure development since 2006.
That is why we believe that while the theoretical logic of sector funds is attractive, in practice, it is best to avoid them. They cannot beat the best of diversified equity funds.
Axis Energy ETF
As per the offer document, Axis Energy ETF can invest 95%-100% of its corpus in stocks covered by the CNX Energy Index, and up to 5% in money market instruments. The CNX Energy Index constitutes stocks like BPCL, Cairn India, Gail (India), NTPC, Reliance Industries and Tata Power. The fund aims to be fully invested in equity at all times. The CNX Energy Index has given a compounded return of 12.68% in the last five years.
Axis Metal ETF
This will invest 95% of its corpus in stocks in the BSE Metal Index and up to five per cent in money market instruments. The BSE Metal Index comprises 13 stocks, among them Tata Steel, Hindalco, Jindal Steel & Power, Sesa Goa and JSW Steel. Tata Steel has the highest weight in the index at 22.38% (as on 9 May 2011). The BSE Metal Index has given a compounded return of 12.74% in the last five years.
Axis FMCG ETF
The fund will invest 95% of its corpus in the CNX FMCG Index and up to five per cent in money market instruments. The CNX FMCG Index constitutes 15 stocks which include Britannia, Colgate Palmolive, Dabur and ITC. The CNX FMCG Index has been able to give a return of just 9.61% in the last five years.
Axis Banking ETF
Currently, there are three bank ETFs—Bank BeEs, Kotak PSU Bank ETF and Reliance Banking ETF. Axis Banking ETF will invest in stocks that constitute the CNX Bank Index. CNX Bank Index has stocks like Axis Bank, Bank of Baroda, Bank of India and HDFC Bank. CNX Bank Index represent 14.79% of the free float market capitalisation of the universe of stocks traded on the National Stock Exchange as on 31 March 2011. The CNX Bank Index has given a return of 20.21% in the last five years.
A bigger problem with ETFs in India is that they are illiquid. You pay more than the NAV to buy them and if you are forced to sell in panic for whatever reason, you pay an even bigger price, because the purchase bids may be much lower than the fair value.