Economy
Higher inflation seals RBI’s 25bps repo rate hike, says BoA Merrill Lynch

With RBI Governor Raghuram Rajan focusing more and more on core CPI inflation, BoA Merrill Lynch sees a 25bps hike in repo rate on 29th October

Core consumer price index (CPI) inflation, at 8.4%, remained uncomfortably high largely driven by around 10% housing inflation. With Raghuram Rajan, governor of Reserve Bank of India (RBI) focusing more and more on core CPI inflation, BoA Merrill Lynch (BoA ML) said it expects a 25 basis points (bps) repo rate hike on 29th October. The central bank is scheduled to review its monetary policy on 29th October.

 

September 2013 CPI inflation, at 9.8%, came in marginally higher than the expected 9.7% (see chart and table below). Vegetable price inflation, at 34.9%, contributed 210bp to CPI inflation.
 

 

 

Cereals price inflation, at 12.8%, added another 150bp (see table below). BoA ML said it expects CPI inflation to ease to 8.4% by March 2014 as the harvest cools down.

 

Core wholesale price index (WPI) inflation, which is at 2.6% in September 2013, remained in check with tight monetary policy killing pricing power (see chart and table below). The research note expects core inflation to remain benign through FY14.

 


Media reports suggest that onion prices are beginning to come down with fresh supplies hitting the market. At the same time, inflationary pressures from depreciation, as well as higher coal, power and diesel prices, will keep WPI inflation over 6% for now. BoA Merrill Lynch has thus hiked its March 2014 WPI inflation forecast to 6.6% from 6.2%.

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Bajaj Finance Q2 net profit up 30% on increase in interest income

During the September quarter, the Bajaj group company’s net interest income-NII rose 32% to Rs582 crore while non-interest income rose 76% boosting its net profit to Rs167 crore
 

Bajaj Finance Ltd, the largest financier of two wheelers and consumer durables and third largest non banking financial corporation (NBFC) in India reported a 30% increase in its net profit during the second quarter on robust growth in its net-interest income (NII) as well as in non-interest income.
 

For the quarter to end-September, the Bajaj group company, said its net profit increased to Rs167 crore from Rs129 crore while its total revenues, including NII, rose 31% to Rs964 crore from Rs737 crore, same period last year.
 

During the quarter, its NII increased 32% to Rs582 crore from Rs 442 crore a year ago period mainly due to 15% increase in number of customers. Its non-interest income increased sharply 76% to Rs87 crore from Rs50 crore a year ago period.
 

Driven by healthy inflows the company’s total asset under management (AUM) increased 29% at Rs19,829 crore for the quarter ended September 2013, compared with Rs15,370 crore for the same period last year.
 

Bajaj Finance’s gross non-performing assets (GNPA) during the second quarter stood at 1.14% and net non-performing assets (NNPA) at 0.26% only. Its capital adequacy ratio (CAR) stood at 20.9% and provisional coverage ratio stood at 78% as of 30 September 2013.
 

On Tuesday, Bajaj Finance closed 2.17% down at Rs1,265 on BSE, while the benchmark S&P BSE Sensex ended marginally down at 20,548.

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Economy & Nation Exclusive
NHPC and PFC tax-free bonds: Should you wait for better offers?

NHPC and PFC tax-free bonds are offering identical returns. 8.92% tax-free returns from AAA-rated bonds for 20 years; it is a decent option for those in higher tax bracket. Should you go for NHPC, PFC or IIFCL bonds that are being offered or wait for future offers?

After the recent tax-free bond issues by Rural Electrification Corporation (REC), Housing and Urban Development Corporation (HUDCO) and  Infrastructure Finance Company Ltd (IIFCL), savers can expect to lock-in good rates from PFC and NHPC public issue of secured, redeemable tax-free bonds. Power Finance Corporation (PFC) launched on October 14th while NHPC will open from October 18th. Both are offering same rates, which are the highest so far. The coupon for retail investor (up to Rs10 lakh) coupon rates at 8.43%, 8.79% and 8.92%pa for 10, 15 and 20 years, respectively. The other bond in the market is IIFCL (till October 31st).
 

Issuer

Duration

Coupon

Rating

Closing Date

Power Finance Corporation (PFC)

10, 15 and 20 years

8.43%, 8.79% and 8.92%

CARE AAA

11 Nov

NHPC (formerly National Hydroelectric Power Corporation)

10, 15 and 20 years

8.43%, 8.79% and 8.92%

CARE AAA

11 Nov

India Infrastructure Finance Company Ltd (IIFCL)

10, 15 and 20 years

8.26%, 8.63% and 8.75%

CARE AAA

31 Oct

Housing & Urban Development Corporation (HUDCO)

10, 15 years

8.39%, 8.76% and 8.74%

CARE AA+

Closed

Rural Electrification Corporation (REC)

10, 15 and 20 years

8.26%, 8.71% and 8.62%

CARE AAA

Closed

 

HUDCO (closed 14th October) with rating of AA+ was not great option considering that IIFCL with AAA rating offered better rates. IIFCL has a loan portfolio concentration in the road and power sectors which have dependency on regulatory and environmental approvals. With AAA rated PFC and NHPC rates eclipsing the IIFCL offer, savers may overlook IIFCL. They may invest in PFC, NHPC or possibly wait for better offers in future.
 

Tax-free Bonds: The Coming Opportunity
 

The future rates depend on the 10 year benchmark G-Sec yield. While it was flat over a period of one month, it rose sharply from 8.2% on 19th September to 8.87% on 23rd September as a result of rate tweaks by the Reserve Bank of India (RBI) in its mid-quarter credit policy review announced on 20th September. It has fallen after that to be around 8.5% today. RBI may step up bond purchases to ease liquidity pressure ahead of the upcoming busy season and that may soften yields on G-Secs. It means that rates in future can be lower than today, but no one can say that with certainty as there are too many parameters that can affect it. India's inflation is at a seven-month high in September mainly driven by higher food prices points to possible interest rate hike by RBI at its policy review later this month. It can lead to increase in G-Sec yields.
 

So, for those in the 20% and especially 30% tax bracket, may lock with 8.92% for 20 years for some portion of their debt portfolio or hope to get higher rates in the next issue. PFC provides and arranges finance for the electrical power sector. The business is similar to REC and hence those who have subscribed to REC in the current or previous fiscal/subscribed to PFC last fiscal, can avoid PFC. It is better to diversify your investments across different companies and this is the first time NHPC has been issuing these tax-free bonds through a public issue. NHPC is a mini ratna category-1 enterprise of the government with an objective to plan, promote and organise an integrated and efficient development of hydroelectric power in all aspects.
 

The rates of tax-free bonds this fiscal is almost 1% higher than what was offered last financial year. The retail investor response has been much better than last year, even though due to size of the issues especially due to green-shoe option with the company to retain oversubscription and multiple issues running at same time, there has been ample time for retail investor who did not have to rush in during the opening of subscription.
 

But, NHPC issue is of smaller size with retail investors offered only Rs400 crore as compared to Rs1,550.36 crore to be invested in the PFC issue. If you are keen on NHPC bond offering, you may have to hurry. In December 2012, PFC Tranche-I offering of 7.86% tax-free bonds had poor show as it managed to get only Rs497 crore till one day before the issue closes. This was much below the Rs1,000 crore issue size and no where close to Rs4,590 crore that it wanted to mop up by the end of last financial year.
 

Poor show of PFC tax-free bonds is a hurdle for the deluge of new offerings about to come

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COMMENTS

T SAMPATH

4 years ago

I am T.Sampath Salem

In the PFC Bond Scheme is there higher rate of interest for senior & super senior Citizens

A R Baldi

4 years ago

Whether in future can chance for higher rates in Tax Free Bonds ?

KRISHNA R M

4 years ago

Can any one provide the procedure to apply.

P.S: I dont have Dmat Account

Regards

REPLY

Rohit Kr Daga

In Reply to KRISHNA R M 4 years ago

Dear Mr. Krishna,

You need not have a demat account to apply for these bonds. There is an option to hold the bonds in physical form as well. I can send you the application form and list of docs required (PAN, address proof and cancelled cheque). Pls text me your email address at 9007156571 or rdaga.pdm@gmail.com
Regards, Rohit Kr Daga

Murali

In Reply to Rohit Kr Daga 4 years ago

Mr.Rohit,

Clients can apply in physical form..there is no compulsion of demat.

KRISHNA R M

In Reply to Rohit Kr Daga 4 years ago

Dear Mr. Daga,

Thank you for your reply. I already got the application and other details from other source.

Regards
Krishna R M

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