If Nifty closes above 8365, the short term rally will continue for some more days
Although market opened marginally lower today it immediately jumped to the day’s high. The indices tried reaching up to the intra-day high hit on Tuesday but were unable to sustain and started moving lower. After hitting the day’s low at around 10.25 am, the indices witnessed range-bound movement. In Tuesday’s closing report we had mentioned that the market is highly overbought in the short term and will move sideways for a few days.
Sensex opened at 27,903 and moved lower to hit a low of 27,740 after hitting a high at 27,981 while Nifty which opened at 8,332 and moved from the level of 8,360 to 8,290. Sensex closed at 27,869 (down 47 points or 0.17%) while Nifty closed at 8,337 (down 1 points or 0.02%). NSE recorded a volume of 102 crore shares. India VIX rose 2.58% to close at 14.1100.
The stock markets were closed on Thursday on account of Guru Nanak Jayanti.
The Ministry of Urban Development said that Singapore has shown keen interest in partnering with India in the urban development sector, including the development of a new smart satellite city and a new capital for the state of Andhra Pradesh.
The Market is now looking ahead to the reshuffle of the cabinet for signals, this could materialise on Sunday.
The Indian government is reportedly considering dropping a provision in the tax treaty between India and Cyprus that exempts capital gains made in India by investors from Cyprus, from tax.
Prime Minister Narendra Modi on Wednesday directed strict monitoring of projects based on monthly completion targets for road, railway, shipping and civil aviation projects. Emphasizing that there is now no delay in decision-making at the highest level, the Prime Minister said it should now be possible to achieve all infrastructure targets. Modi said that a new civil aviation policy is under preparation.
Paris-based think tank Organisation for Economic Co-operation and Development (OECD) has projected a 5.4% growth for the Indian economy this year as global recovery continues at a moderate pace. Earlier in September 2014, it had projected a 5.7% growth rate for India. Growth will strengthen in India as investment picks up, from a 5.4% rate in 2014 to 6.4% in 2015 and 6.6% in 2016, according to the advanced G-20 release of the OECD's latest Economic Outlook. Global GDP growth is projected to reach a 3.3% in 2014 before accelerating to 3.7% in 2015 and 3.9% in 2016, according to the Outlook.
Reserve Bank of India (RBI) Deputy Governor HR Khan reportedly said on Friday that India's inflation has a long way to go before it eases because of high input costs.
Cummins India (8.02%) was the top gainer in the ‘A’ group on the BSE. The stock hit its 52-week high today. It posted a net profit of Rs 202.40 crore for September 2014 quarter as compared to Rs 144.81 crore for September 2013 quarter. Revenue increased from Rs 932.71 crore to Rs 1,144.06 crore for the relevant quarter.
Weak September 2014 quarter results reported by Escorts pulled the stock lower. The stock was the top loser (7.89%) in the ‘A’ group on the BSE.
Dr.Reddy's Labs (4.51%) was the top gainer in the Sensex 30 pack. The stock also hit its 52-week high today. The US Food and Drug Administration said that it has granted final approval to Dr Reddy's Laboratories and the US based firm Endo International Plc to make cheaper copies of Roche Holding AG's anti-viral Valcyte.
Recently GAIL was in news after it announced that it slashed gas supplies to small industries in Gujarat on Oil Ministry orders. Small industries in South Gujarat accused it of arbitrariness and selective targeting, as supplies to similar units in other states have not been touched. The stock was among the top two losers (2.46%) among the Sensex 30 stocks.
US indices closed in the positive on Thursday.
The number of Americans applying for new jobless benefits lingered below 300,000 for the eighth straight week amid the lowest level of layoffs in years. US productivity in the third quarter grew at a 2% annual pace, preliminary data showed, marking the fourth sizable increase in the past five quarters.
Asian indices showed mixed performance. Nikkei 225 (0.52%) was the top gainer while Jakarta Composite (0.93%) was the top loser.
China's central bank vowed to lower funding costs for corporate borrowers amid increasing pressure on the nation's slowing economy.
European indices were showing mixed performance while US Futures were trading flat.
ECB President Mario Draghi said policy makers will be ready to implement further measures if needed as he signaled officials may cut growth forecasts next month.
The European Central Bank, left interest rates unchanged at its policy meeting on Thursday. The ECB's key lending rate, known as the Refi rate, was left at 0.05%, while the rate the ECB pays on deposits held at the central bank remains at minus-0.2%.
According to StanChart, the pace of reforms has picked up since the BJP won two state elections in October and the Modi government is likely preparing to introduce a series of measures in the winter session of Parliament
The National Democratic Alliance (NDA) government led by Narendra Modi started reforms slowly but surely. More of its initiatives were gradually made after the budget, initially focused on micro level initiatives to improve efficiency rather than broad macro initiatives. These micro reforms – often called ‘silent’ reforms – are aimed at improving the ease of doing business in India and would gather pace in next few months, says Standard Chartered in a research note.
The report says, "The government has introduced further macro reforms since the Bharatiya Janata Party (BJP), which leads the NDA, won two important state elections in October. The process is likely to gather pace as we head into the winter session of parliament starting on 24 November. In line with our expectations, initiatives so far include an emphasis on reviving stalled projects, a commitment to fiscal consolidation via further deregulation of fuel prices, the reduction of red tape, further opening of the economy by liberalising foreign direct investment (FDI) rules, and short-term measures to improve food supply."
"Progress on labour reforms, the relaxation of procedurally complex environmental rules, and the removal of bottlenecks in the energy sector have exceeded our expectations. We think the government is on the right track and the role of silent reforms in improving India’s productivity should not be ignored. Such reforms could push India’s GDP growth to around 6% (from below 5% in FY14, year ended March 2014), with a lag. However, the government needs to accelerate unfinished reforms in order to increase growth potential further," StanChart said.
The focus of Modi government has been on micro-level policy changes to reduce bottlenecks and improve efficiency. These changes have taken place in several areas – reducing bureaucratic red tape, providing increased clarity on laws and regulations, introducing large-scale digitisation of government functions, and relaxing environmental and labour rules. StanChart said, "We think these silent reforms are important in improving the ease of doing business in India. However, the economy still faces cyclical and structural headwinds, and the impact of these reforms on economic growth might be felt only with a lag."
The pace of reforms has picked up since the BJP won two state elections in October. The Modi government has taken several steps to address bottlenecks in energy sector and is likely preparing to introduce a series of measures in the winter session of parliament. In particular, StanChart said, it would be keenly watching progress on the GST, banking/financial services reforms, and changes to the land acquisition bill. The government is also trying to relax rules on FDI norms in sectors such as in defence, railways and construction to attract new foreign investors.
"The policy action taken so far has been broadly in line with our expectations, and we are hopeful that macro reforms will continue until the budget announcement in February. Sustained reformist intent could keep asset markets buoyant and keep investors patient as they await a growth recovery," the report concluded.
These banks have lost their licenses and are mismanaged by politicians. Is this the minimum government and maximum governance that Narendra Modi had promised?
The Narendra Modi government has decided to infuse Rs2,375.42 crore to revive 23 unlicensed district central cooperative banks (DCCBs). These 23 DCCBs, include 16 from Uttar Pradesh, three each from Maharashtra and Jammu & Kashmir and one from West Bengal. Last year about 45 cooperative banks, including these 23 were facing action from Reserve Bank of India (RBI) for not maintaining minimum capital and reserve requirements. The question, therefore, is why the government is keen to infuse taxpayers money in to these banks, which are struggling due to poor financial management and in many cases, suffering from misappropriation of funds? Notably, many of them are directly or indirectly controlled by politicians.
These banks have deposits base of about Rs6,839 crore and loan book of around Rs3,774 crore. However, their financial situation is not adequate for them to get licenses from the banking regulator. Once these banks are revived with the infusion of new funds, they would become eligible to get license.
In fact, last year the Prakash Bakshi Committee appointed by RBI even recommended to consolidate some very small CCBs. It had said, "The Committee has also estimated that about 58 CCBs would generally not be able to mobilise the required capital, or their business sizes are so small that they would not be sustainable in the long run and would have to be therefore consolidated with other CCBs. The Committee recommends that broad parameters for attempting such consolidations should be a minimum business level Rs200 crore for the consolidated CCB and achieving CRAR of 7% by 2014-15 and 9% by 2016-17 with a concrete action plan for contributing any additional capital that may be required."
During 2011 and 2012, the RBI and NABARD implemented a roadmap for issue of licences to unlicensed StCBs and CCBs in a non-disruptive manner, with an intention to complete the licensing agenda by end of March 2012. After considering NABARD’s recommendations for issuance of licences based on inspection or quick scrutiny, 41 out of 370 CCBs were found to be unable to meet the licensing criteria by end-March 2012. RBI, therefore, allowed time up to 30 September 2012 for concrete steps to be taken by these 41 banks and the respective state governments for meeting the licensing parameters. Based on the capital infusion and other support provided by the states, NABARD recommended for issuance of licence to 15 banks and the balance 26 CCBs, however, did not meet the criteria by the set date 30 September 2012. Further, six StCBs and 23 CCBs, which had been granted licence by RBI earlier were found to be not able to maintain the 4% CRAR as on 31 March 2012.
At present, there are 92,000 primary agricultural credit societies (PACS), 371 DCCBs with 13,000 branches and 32 state cooperative banks (StCBs) with more than 1,000 branches across the country. However, poor performance of cooperatives in the country calls into question their viability and sustainability.
According to RBI, mounting losses, growing non-performing assets (NPAs) and poor resource base are factors contributing to the decline in the performance of the cooperatives at the grass-root level. Speaking at an orientation programme in Mumbai last week, Dr Deepali Pant Joshi, executive director of RBI, had said, "The institutions at the lower/ middle level mostly depend on the higher agencies for financial support, i.e. PACS have to borrow from DCCBs and Central cooperative banks, in turn, have to borrow from the apex banks. There is thus, a chain of dependency at all levels of the cooperative credit structure for resources from the outside. If one institution underperforms, it affects the entire chain."
RBI had relaxed the criteria for licensing of rural cooperative banks stipulating CRAR of just 4%. However, the central bank felt that StCBs and DCCBs cannot continue to operate in the banking environment with such a low capital base. It then introduced the concept of capital to risk weighted assets ratio (CRAR) in December 2007 and advised these banks to disclose the level of CRAR every year as ‘notes on accounts’ to their balance sheets.
To strengthen capital structure of state and central cooperative banks, RBI later decided to prescribe a minimum CRAR and asked these banks to achieve or maintain a minimum CRAR of 7% on an ongoing basis from 31 March 2015 and 9% with effect from 31 March 2017.
According to a report submitted by RBI appointed Expert Committee to examine Three Tier Short Term Cooperative Credit Structure (ST CCS), about 238 CCBs already have a CRAR of 7% or more, and two-third of them would be able to meet additional capital requirements and sustain CRAR of at least 7% by 2014-15 and of 9% by 2016-17. "However, a large number of CCBs and some StCBs do not have adequate capital to meet even the relaxed licensing norm of 4% CRAR. The Committee recommends that 31 March 2013 may be set as the deadline for these banks to mobilise the required capital either internally or from any other external source so as to achieve 4% CRAR failing which RBI should take the necessary regulatory action," the report submitted in January 2013 says.
The Committee, headed by Prakash Bakshi estimated that 209 CCBs of the 370 CCBs will have to mobilise, as an aggregate, Rs4,024 crore by 2014-15 and Rs6,498 crore by 2016-17 to achieve CRAR of 7% and 9% respectively. Bank-wise, these amounts range from as low as Rs1.84 lakh to Rs282 crore. The Committee has estimated that about 151 CCBs should be able to mobilise the required capital from their members by asking the members to contribute amounts ranging from Rs2 to Rs4,000 over four years.
In 1966, non-scheduled cooperative banks were prescribed cash reserve ratio (CRR) of 3% and statutory liquidity ratio (SLR) of 25%, which remained unchanged for several decades. Pursuant to the amendments to the Banking Regulation Act, 1949 (AACS), CRR and SLR for all cooperative banks were brought on par with scheduled commercial banks from the fortnight beginning 12 July 2014.
On 5 June 2014, RBI asked StCBs and DCCBs to increase CRR to 4% from 3% and bring down SLR to 22.5% from 25%. The central bank gave time until 31 March 2015 to these lenders to start maintaining SLR assets.
The government had said, to implement the fund infusion scheme, a tripartite agreement in the form of memorandum of understanding (MoU), stipulating conditionalities and deliverables, will be signed between the Central Government, concerned State Governments and NABARD. During the implementation of the Scheme, operations of these 23 unlicensed DCCBs would be closely monitored by NABARD and RBI, so that they meet the licensing requirement within the time frame as prescribed in the Scheme.
Here is list of the places where the DCCBs are located:
Uttar Pradesh: 1. Deoria 2. Bahraich 3. Siddharth Nagar 4. Sultanpur 5. Jaunpur 6. Hardoi 7. Basti 8. Ballia 9. Azamgarh 10. Gorakhpur 11. Fatehpur 12. Sitapur 13. Varanasi 14. Allahabad 15. Ghazipur and 16. Faizabad
Maharashtra: 17. Buldhana 18. Nagpur 19. Wardha
Jammu & Kashmir: 20. Baramullah 21. Anantnag 22. Jammu
West Bengal: 23. Birbhum
The question is even if these 23 lenders are infused with funds to meet the RBI criteria for CRAR, how will the government make sure that these banks survive without further funding from taxpayers, especially since politicians will continue to exploit them?