Scope for the RBI to ease rates is “quite limited”, point out Nomura Economics Research analysts
Nomura Economics Research expects a 25bps (basis points) rate cut in Q2 of 2013 from the RBI (Reserve Bank of India) and then rates to remain on hold for some time. Based on Nomura’s year-ahead forecast that the negative output gap (see graph below) will gradually close and WPI (wholesale price index) inflation will be sticky at around 7%, the Taylor rule suggests that policy rates are very close to the neutral rate currently and, in fact, should move marginally higher.
Taylor rules do have limitations, but they reiterate the RBI’s guidance that room for further easing is “quite limited.”
Interest rate implied by Taylor rule = Real equilibrium interest rate + inflation + 0.5*(Inflation gap) + 0.5*(Output gap), where the real equilibrium interest rate is assumed at 1%, desired inflation rate at 5% and potential GDP growth rate is estimated based on the Hodrick-Prescott filter. Estimates beyond Q1 2013 are based on Nomura projections on GDP growth and WPI inflation.
The RBI recently estimated its neutral nominal policy rate at around 6%. This holds when WPI inflation is close to the target 5% and the output gap is zero. It is found that in reality, WPI inflation is around two percentage points above the desired rate, while growth is below potential. The RBI assumes potential output growth at around 7%, but it is believed that it has fallen to 6%-6.5%. Using actual growth and inflation data, Nomura finds that policy rates have broadly followed the Taylor rule.
The Securities Appellate Tribunal (SAT) on Tuesday adjourned its hearing in the Securities and Board of India (SEBI) and Sahara case to 13th April.
In an order, the SAT said, hearing of the appeal filed by Sahara Group chief Subrata Roy would be taken up along with appeals filed by Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, the two Sahara group companies and its three directors.
In all the appeals, Sahara has challenged the attachment order passed by SEBI on 13 February 2013. In a release, Srinivasan Ganesh, senior counsel for Sahara, said, “In these appeals, Sahara has challenged the attachment order passed by SEBI, inter-alia on the grounds that SEBI has no jurisdiction to pass such orders under the SEBI Act and that their documents of redemptions made to investors have been wrongly rejected as ‘not acceptable’ and that such orders of documents are in clear violation of the directions no7 contained in order dated 31 August 2012 passed by the Supreme Court.”
Officials from SEBI were not immediately available for comment.
The apex court had on 31st August last year directed the two companies to refund around Rs24,000 crore to their investors within three months with 15% interest per annum for raising the amount from its investors in violation of rules and regulations.
On 13th February, SEBI passed two separate orders, together running into 160 pages, directing attachment of properties and freezing of accounts.
It was after the Supreme Court said that the regulator was free to freeze the accounts and attach properties if Sahara firms were not complying with the apex court’s earlier orders of August 2012 towards refund of investors’ money totalling over Rs24,000 crore.
The assets ordered to be attached included those related to the group’s Aamby Valley resort town near Pune, real estate assets in Delhi, Mumbai and at other places across the country, shares, mutual funds and various other investments.
Passing the attachment orders, SEBI said that the two companies had raised Rs6,380 crore and Rs19,400 crore, respectively from bondholders and “various illegalities” were committed in raising of these funds.
With regard to Subrata Roy and three other directors, namely Vandana Bhargava, Ravi Shanker Dubey and Ashok Roy Choudhary, SEBI ordered freezing of all bank and demat accounts of these four persons, as also attachment of all moveable and immoveable properties in their name with immediate effect.
During its previous hearing on 23rd March at Mumbai, the SAT decided to hold final hearing on 26th March at New Delhi. It, however, decided to take up the matter again on 13th April along with all related petitions.
For Nifty to rally, it should hold above today’s low of 5,612 and close above 5,665