Inflation, current account deficit to hit D-Street this year: Report

New Delhi: Wiping out hopes that the stock markets will scale new highs in 2011, a report said that the year will rather bring negative returns for the Indian equities, with a string of disappointing cues from the domestic arena, reports PTI.

"In all likelihood, 2011 will be a year of negative returns for Indian equities. Growth in capital formation is faltering, current account deficit is widening due to rising energy import dependence, inflationary pressures are building up and policy rates are set to further harden," a report by brokerage house IIFL said.

In the year gone by, the stock market's benchmark Sensex gave a modest return of over 17% and witnessed an all-time high closing on Diwali day.

However, in the current year, the equity markets will have to struggle with the current account deficit, which is running over 3% of the gross domestic product (GDP). The widening current account deficit will slow down the foreign capital flows which in turn will upset several macro economic variables, it said.

Besides, rising energy import dependence, coupled with the recent spike in energy prices, is also a concern for the domestic stock markets.

Also, inflationary pressures are likely to dictate the Reserve Bank of India's (RBI) monetary policy outlook in the first half (H1) of 2011.

"While headline wholesale price index (WPI) will decelerate year-on-year (YoY) till January this year due to the higher base, the medium-term outlook for inflation is already changing for the worse-and this will dictate RBI's monetary policy outlook," it said.

If the rupee comes under pressure owing to a slowdown in capital flows, it can potentially aggravate the inflationary outlook. It is now widely expected that policy rates will rise by 50 bps in the monetary policy review this month, the report noted.

It also feared that consensus growth estimates will see downgrades, and deterioration in the earnings mix will weigh down market valuations.

Meanwhile, on a brighter side the report showed optimism that software and pharma sectors remain strong and the growth environment is very favourable for them in this year.

Besides, the country's FY' 11 fiscal deficit will be at 5.1% of GDP, much lower than the budgeted 5.5%, it said. The bonanza from the third generation (3G) spectrum auctions, higher than budgeted tax collections will help more than offset higher government expenditure and higher oil subsidies this year.


Capital control measures valuable for India, Brazil: IMF

Washington: The International Monetary Fund on Thursday said capital control measures could be valuable for countries like Brazil and India, facing excessive short-term capital inflows that threaten to damage their economies, reports PTI.

"Capital controls are a little bit in the eye of the beholder, but it is certainly a part of the toolkit," said IMF spokesperson Caroline Atkinson at a news briefing.

"Some capital control measures are focused on macro-prudential stability. Others focus on shifting the length of the maturity of inflows, as they are taxing short-term and encouraging long-term flows.

So these are all part of a range of measures that countries may consider," she said.

Ms Atkinson comments come even as India has maintained that the economy is resilient enough to absorb the current short-term foreign institutional investor (FII) inflows and, therefore, does not need capital controls at the moment.

Brazil has, however, threatened to take more measures to stem the rally in its currency-real.

The Latin American nation had imposed an upfront 2% tax on capital inflows in October 2009, paving way for countries like South Korea, Thailand who in 2010 adopted similar measures to safeguard their economy from excessive FII inflows.

Ms Atkinson said a number of emerging markets were facing substantial capital inflows at the moment, as their economies were recovering and growing rapidly.

"And these are good signs. It's a sign of strength and some of the inflows are structural and will be accommodated over time and help to promote investment and growth in those economies," she said.

"But when countries fear that they might be temporary, there's also a concern in some countries about what that might do to the macro economy," the IMF spokesperson said.

"There is fiscal contraction and macro-prudential controls to strengthen the banking system and intermediation of these flows can be important," Ms Atkinson said.

"What I am trying to suggest is, the range of measures that countries may take, some of which are focused on the way capital comes into the country and whether it should be taxed if it comes on a short-term basis, and if a bank gets capital it should have higher reserve requirements to pay back the capital when it needs to," she said.


NABARD to stream micro credit through grass root groups

Thiruvananthapuram: The National Bank for Agriculture and Rural Development (NABARD) will pay greater focus on financing through 'Joint Liability Groups' (JLGs) in Kerala as it is found more effective way of priority sector lending, reports PTI.

JLGs are informal groups of even 4-10 individuals joining together for the purpose of availing bank loans through group mechanisms against mutual guarantee.

According to NABARD's State Credit Plan 2011-12, financial inclusion through JLGs would be deepened in partnerships with neighbourhood groups like 'Kudumbasree', non-governmental organisations (NGOs) and banks.

Over 21,000 JLGs had been promoted by the bank in the last year in Kerala alone. It also gives promotional assistance for formation and nurturing of JLGs by banks and NGOs, sources said.

Through JLGs, the bank could "reach the rural masses including the tribals, fisherfolk and farmers in a better way," a NABARD document quoting Dr Prakash Bakshi, executive director, said.

NABARD's 'State Credit Plan' for 2011-12, an aggregation of potential linked credit plans of the 14 districts of Kerala, envisaged an outlay of Rs58,159 crore.

While the 'primary sector' comprising agriculture and allied activities would get Rs25,872 crore, the 'secondary sector' with small and micro enterprises would get a credit share of Rs4,130 crore.

The 'tertiary sector' including small road transport, tourism, housing and educational loans would get an outlay of Rs28,155 crore under the Credit Plan.

To help farmers meet growing expenses, the bank would ensure 100% coverage of Kisan Credit Cards (KCC) to all eligible farmers in the state. Efforts will also be done to make KCCs smart and linking to ATMs, it says.

The plan has laid focus on adequate credit estimate for crop production, organic farming, land development, soil and water conservation, rural tourism and traditional industries like coir, handlooms and handicrafts.

NABARD's annual financial assistance to Kerala for various economic activities in rural sector and rural infrastructure creation is in tune of over Rs2,100 crore.

While it had provided an assistance of Rs913 crore to banks for agriculture lending and non-farming activities, Rs837 crore was outlayed under short-term credit during 2009-10.

For creation of rural infrastructure, loans to the tune of Rs382 crore was provided to the government of Kerala during the same period, sources said.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)