Economy
Interest rate cycle reaching the bottom
Inflation has bottomed out leaving the Reserve Bank of India (RBI) with less room to undertake further rate cuts, says India Ratings and Research (Ind-Ra). The ratings agency says it believes that in such a scenario companies may lock in their long term funding at the current rates, before the cycle turns.
 
"Though global factors particularly low interest rates and fund inflows into emerging markets have remained favourable for a fairly extended period of time, the likelihood of interest rates moving up from here has strengthened - notwithstanding the fact that the US Federal Reserve may still take some time to resume hiking rates. With the backdrop of rising global yields, where global sovereign-bond yields have risen to the highest in almost three months, the Indian currency may come under pressure and push the RBI to turn hawkish," Ind-Ra says.   
 
As per the ratings agency inflation appears to have bottomed out, however inflationary expectations have once again shown an up-tick. 
 
The RBI carries out a quarterly survey of about 5,000 households across 16 cities in India to assess inflationary expectations of households three months ahead and one year ahead. As per data released by the central bank, mean household inflationary expectations for three months ahead in June 2016 rose by 110bp to 9.2% from the March 2016 survey. The one-year ahead mean inflation expectation is even higher at 9.6% than the three-month ahead expectations, implying households expect the inflation trajectory to move further up.
 
Ind-Ra says, "The shift in RBI's stance with respect to liquidity to neutral from deficit mode has had a significant impact on the yields of government securities (G-sec). Liquidity is no longer in the deficit mode, in fact in the last two months there has been net liquidity surplus in the system. The yield on the benchmark 10 year G-sec is presently hovering around 7% as against 7.5% in April 2016. We believe that the possibility for a further liquidity driven drop in the G-sec yield is limited. However, due to negative yields prevailing globally, demand from foreign participants can push yields down further."
 
According to the ratings agency, one of the unstated objective of the outgoing RBI governor Raghuram Rajan was to maintain real interest rates, the difference between risk free interest rate and consumer price index (CPI), positive and in the range of 1.5% to 2%. 
 
Ind-Ra says it expects the new RBI governor Urjit Patel to also follow this approach. Real interest rate has remained positive since January 2014. It peaked at 4.91% in November 2014 and has declined since then to 2.06% in August 2016. "It may be noted that the period when the real rate of interest was significantly in excess of 2% was also the period when RBI cut the policy rates. As the real rate of interest fell close to/lower than 2% from April 2016 onwards, RBI has maintained a status quo on policy rates," it added.             
 
Since the soft trend over the last three years has significantly affected earnings and debt repayment capacity, the ratings agency feels that corporate India will be keenly monitor the nominal GDP growth rate. 
 
In its previous report, Ind-Ra had highlighted that the total refinancing required by the top 500 Corporates in FY17 aggregates to Rs2.1 lakh crore, with potential candidates which will be able to access the bond market being Rs70,000 crore. "While it is early to signal a shift in the revenue trend line, corporates are likely to benefit from the current refinancing opportunities at low rates and will possibly lock-in long term funds since the downside to interest rates are limited or negligible," the ratings agency concluded.

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COMMENTS

Deepak Narain

3 months ago

With interest rates continuously going down, the future of pensioners like me, who park their funds in FDs with Banks, is getting darker. I think the govt has some responsibility towards us also.

Weekly Market Report: Nifty,Sensex may head higher
We had mentioned in last weeks closing report that the Nifty and Sensex were highly overbought. On Monday, the major indices of the Indian stock markets suffered a sharp correction to close more than 1.5% lower than last weeks close. Post the market holiday on Tuesday, the bulls struggled to take full control. Despite being in the black over three consecutive days, the indices were not able to recover from Monday’s losses. The Nifty ended the week 0.98% lower at 8,779 as compared to 8,866 as on last Friday’s close. The trends of the major indices in the course of the weeks trading are given in the table below:
 
 
On Monday, the increased possibility of a US rate hike and a rout in Asian and European equities dragged the Indian markets down, as heavy selling pressure was witnessed in automobile, banking and capital goods stocks. The BSE market breadth was skewed in favour of the bears -- with 2,033 declines and 688 advances. On the NSE, on Monday there were 186 advances, 1,251 declines and 53 unchanged. Data on the consumer price index released on Monday by the Central Statistics Office showed that the annual retail inflation eased by 100 basis points to 5.05% in August. With inflation easing, there is reduced pressure on aggregate demand and corporate earnings. 
 
India's direct tax collection was up by 15.03% to Rs1.89 lakh crore while the indirect tax collection jumped by 27.5% to Rs3.36 lakh crore during the April to August period this year, an official statement said on Monday. On indirect tax collection, the Finance Ministry statement said, "The figures for indirect tax collections (central excise, service tax and customs) up to August 2016 show that net revenue collections are at Rs3.36 lakh crore which is 27.5% more than the net collections for the corresponding period last year." The collection up to August 2016 indicates that 43.2% of the annual budget target of indirect taxes has been achieved, it said. The exchanges were closed on Tuesday on account of Eid.
 
On Wednesday, Indian equities market traded flat during the mid-afternoon trade session. Negative global cues, coupled with slide in factory output data for July and profit booking dented investors' sentiments. However, the BSE market breadth was tilted in favour of the bulls -- with 1,764 advances and 947 declines and 198 unchanged. On the NSE, on Monday, there were 1006 advances, 458 declines and 57 unchanged. India's annual rate of inflation based on wholesale prices moved up to 3.74% in August, from 3.55% in the month before, as per data released on Wednesday. 
 
On Thursday, both the key indices closed on a flat-to-positive note after a volatile trading session. The benchmark indices opened in the green, despite negative global cues. The Nifty edged up by 15.95 points or 0.18% to 8,742.55 points. The Sensex closed at 28,412.89 points -- up 40.66 points or 0.14%. The BSE market breadth was slightly tilted in favour of the bulls -- with 1,466 advances and 1,271 declines. Investors were cautious ahead of Bank of England's (BoE) monetary policy review. Besides, increased possibility of a US rate hike kept the global and local markets subdued. The US Fed's FOMC (Federal Open Market Committee) will meet on September 20-21. A hike in US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India. It is also expected to dent business margins as access to capital from the US will become expensive.
 
On Friday, the benchmark indices opened in the black and managed to stay above water throughout the day’s trade. The benchmark indices opened in the green on the back of positive Asian markets. Though the bears tried to pull the indices lower post noon, the bulls remained in control. The Nifty closed at 8,779.85 with a gain of 0.43%, while the Sensex closed the week at 28,599.03. up 0.66% over Thursday’s close. The BSE market breadth was marginally tilted in favour of the bears -- with 1,418 declines and 1,275 advances. Good macro-economic data on foreign trade and positive Asian markets aided in the initial rally. However, a correction in the key European indices and the upcoming rate-setting meeting of the US Fed, capped gains.

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COMMENTS

V ganesan

3 months ago

It looks like the bulls want the support to be kept artificially at 8700 because they jacked up the prices of It stocks in the fag end of todays session.And they re firming up reliance industries because of its heavyweight in bothe the indices sensex and nifty.Without bank nifty they cannot jackup the indices.Time to be highly cautious and rise cash levels.

V ganesan

3 months ago

It looks like the bulls want the support to be kept artificially at 8700 because they jacked up the prices of It stocks in the fag end of todays session.And they re firming up reliance industries because of its heavyweight in bothe the indices sensex and nifty.Without bank nifty they cannot jackup the indices.Time to be highly cautious and rise cash levels.

600 kids die from malnutrition: So what? asks Maharashtra minister
Palghar (Maharashtra):  Maharashtra's Tribal Welfare Minister Vishnu Sawra faced the ire of tribals in Palghar whose children have perished due to malnutrition.
 
When he visited a tribal hamlet in Khoch village in the worst-hit Mokhada sub-district on Thursday evening, angry locals confronted the minister and demanded answers.
 
Some infuriated tribals asked him: "600 children have died here (in 2016) what have you done for us?"
 
"So what? The government is doing its work, implementing schemes.....," Savra retorted, as some of the enraged villagers virtually asked him to 'get out'.
 
One grieving young tribal woman, whose two-year-old son died due to severe malnutrition late August, accosted the minister at the doorstep of her hut: "Where were you so long.. My son died 15 days ago and you come now? You want to click pictures? We don't want to meet you. No need to come here."
 
Other villagers also joined the chorus and said there was no need for the minister to come, and Savra arrogantly shot back: "If you don't want me to come, then I won't".
 
Savra's comments were dubbed "insensitive" by the Congress, Nationalist Congress Party and even ruling alliance partner Shiv Sena, with several leaders including Leader of Opposition (Congrss) Radhakrishna Vikhe-Patil, demanding his resignation or dismissal from the cabinet.
 
Later, Savra alleged that some activists of Shramjeevi Sanghatana, a local organisation, were instigating the tribals and that his comments were being "twisted out of context," even as videos of the encounter went viral on the social media.
 
The locals expressed their anger that though claims are made of huge funds being allocated for their welfare, they received no funds and had to even 'beg' for money to treat the child of the young tribal woman.
 
The child's condition suddenly worsened last month and he was rushed to a Nashik government hospital, but succumbed due to suspected malnutrition symptoms.
 
Stung by the villagers' aggressive attitude, the BJP leader who is also Guardian Minister for the district, beat a hasty retreat along with his motorcade from the village.
 
Governor C. V. Rao had directed three ministers -- Minister for Women and Child Development Pankaja Munde, Tribal Welfare Minister Vishnu Savra and Minister for Public Health Deepak Sawant -- to take urgent remedial steps to tackle malnutrition not only in Palghar but in other parts of the state also.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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