The farm sector is probably where the next major economic growth will happen. Closer physical linkages with cities, thanks to new highways, higher prices for farm produce and a continuous flow of money from migrant workers in metros into the Hindi heartland, are factors that are creating increasing consumption in the rural sector. There is only a handful of companies fully prepared to take...
The local market is likely to open on a cautious note as the Reserve Bank of India (RBI) is set to announce its mid-term monetary policy review today. This apart, the US Federal Reserve will announce fresh stimulus measures on Wednesday to prop up sagging economy, weighed down by rising unemployment.
The US markets ended flat with a mixed bias on Monday ahead of the US mid-term elections and the Fed announcement. Markets in Asia were trading mostly lower this morning, awaiting the US “quantitative easing” announcement and the outcome of the Bank of Japan policy meeting. The SGX Nifty was down 17.50 points at 6,138.50 from its previous close of 6,156 on Monday.
The Indian market opened firm on Monday, tracking positive cues from across the Asian region and upbeat manufacturing output numbers for September, as announced by the HSBC Markit Purchase Managers’ Index (PMI). Sensex suffered a setback as trading was halted at noon due to “technical glitches.” However, the Nifty continued its north-bound journey amid a fair degree of choppiness.
The Sensex, which resumed trading at 2.30pm, recouped and touched the day’s high but declined to its pre-closure levels to trade in a narrow range and close near those figures. The Sensex closed 323.29 points (1.61%) higher at 20,355. The Nifty settled at 6,117, a gain of 100 points (1.66%) over its previous close.
The US market closed steady overnight awaiting the results of the mid-term elections and the Federal Open Market Committee announcement, due on Wednesday. It is widely believed that the Fed will announce plans to buy government securities worth $500 billion in a bid to enhance growth and curb unemployment. Earlier in the day, stocks were up on positive manufacturing reports from across the globe and a rise in US construction spending.
The Dow closed 6.13 points (0.06%) higher at 11,124. The S&P 500 added 1.12 points (0.09%) to 1,184. The Nasdaq shed 2.57 points (0.10%) to 2,504.
Markets in Asia were mostly lower in early trade this morning as investors awaited the outcome of the US and Japanese central banks’ meetings this week. The Bank of Japan said last week that the bank’s board advanced the next session to 4th and 5th November, following a meeting by the US Federal Reserve on 2nd and 3rd November.
The Shanghai Composite was down 0.36%, the Hang Seng was down 0.07%, Jakarta Composite was down 0.44%, KLSE Composite was down 0.13%, Nikkei 225 was down 0.10%, Seoul Composite was down 0.08% and Taiwan Weighted was down 0.14%. On the other hand, the Straits Times gained 0.32% this morning. The SGX Nifty was down 17.50 points at 6,138.50 from its previous close of 6,156 on Monday.
High inflation which is pushing cost of merchandise production is affecting competitiveness of Indian exports, the Reserve Bank of India (RBI) said on Monday.
"Higher inflation differential between India and major trading partners is a source of pressure on the competitiveness of Indian exports. Containing inflation, thus, is important even for improving the external balance position," the RBI said, ahead of its monetary policy review on Tuesday.
It said overall inflation, which stood at 8.62% in September, is "above the comfort level".
During the April-September 2010-11 period, exports increased by 28% to $103.64 billion compared to the same period previous fiscal, according to an official data.
Though the growth this fiscal is impressive, it has come on a low base of comparison of the last fiscal, when the global trade had hit a new low under the recessionary conditions in several markets.
Chanda D Kochhar, managing director and CEO of ICICI Bank, spoke to Moneylife’s Sucheta Dalal and Debashis Basu on the Indian macroeconomic environment and the thrust areas for the lender. This is the first part of a two-part series
Sucheta Dalal & Debashis Basu (ML): There is a world of difference between the state of financial markets when you took over and now. You started out shrinking the bank and cutting back on retail, what is the strategy now?
Chanda D Kochhar (CK): Yes, at that time we had what we called the '4C' strategy. Each of the Cs stood for - consolidation, getting more CASA (current account, savings account) deposits, cost control, containing credit loss. As times changed, we had the option of changing '4C' to a 'G' and say that we are all for growth of the kind we enjoyed before 2008. Instead, what I have said is that we now have 5Cs. While keeping our eye on the first 4Cs, we are now going for credit growth as the fifth C. In that sense, our growth is still a measured growth. So if you talk of credit cards, it's not as if we are not adding new cards. We have consciously weeded out a lot of the credit cards that don't make sense for us from the loss point of view or transaction vis-à-vis operation cost. Mortgage loans are also growing. But again, we are not at the kind of market shares we had in the past, because we believe that the current rates of interest give only a certain return on investment, so we are calibrating our growth but also keeping in mind our final profitability as rates adjust.
ML: What are your thoughts about the real-estate sector today?
CK: Interestingly, mortgages have been very safe throughout economic cycles. The losses, if at all, are due to fraudulent documents. These are very different across different banks because it depends on what their processes are. For us, the loss rate is minimal and continued to be low even when the economy was in a downturn.
ML: Despite the job losses and the stories about young techies booking multiple flats at the same time?
CK: Actually, the young techies never booked six flats with a loan. While they may have wanted to do it, when banks decided to lend, only lend against cash flow. So if we thought that they had income only to book one house or at the most if they were living in one house and they had income enough to book a second, they got the loan only for that. Broadly, most people also continued to retain their job. So as long as they had their job, it didn't matter if they didn't get increments. They had their job and they were living in their home they wanted to continue to pay their installments and not lose their home.
ML: So which are the sectors that are doing very well?
CK: Actually the whole retail lending sector is very stable. Commercial vehicles are doing well, even personal loans and credit cards are doing well. In credit cards, we find that cards issued to your own customers are doing pretty well. We have pruned this business, but haven't got out of it; it's just that in case of new-to-bank customers, we don't want to be stuck with an unsecured portfolio where you really don't know how to trace the customer when there is a problem. On the corporate side again I am very bullish. What is happening is that projects have been finalised and commitments are being made and it's just that the drawdown of loans has been low. That is because corporates have either raised equities or they are first putting in equities or they are opening some long-term LCs, and so credit drawdown has been slow. But it will soon pick up.
ML: Mr Kamath used to say that for the first time since Independence, all sectors of the Indian economy are doing well at the same time…
CK: That is actually more true now. If you look at the trajectory of India's growth over the past 50 years, from Independence till about the late 90's it was the industrial sector that was mainly pulling India. In the 2000s it was the turn of consumer-led growth. But now both engines are driving the economy. And because of demographics there is a need for roads, ports, airports and so investments have also started happening to build new infrastructure. So one will keep feeding the other.
ML: Do you worry about things like regulatory risks, such as frequent changes in rules, change of rules with retrospective effect?
CK: What I would think is that all said and done, domestic regulatory changes in areas like banking are predictable and stable. In the current economic environment, it is global regulations, such as the kind of capital needed for different geographies that can cause uncertainty. Every regulator in a way is becoming more nationalistic and what you are doing in that country becomes of paramount importance. That means that our efficiency of usage of capital may keep coming down because none of them will take a holistic view of capital requirements; everyone is taking only their particular point of view.
(This is the first part of a two-part series).