RBI hints at another hike in policy rates to tame inflation

The RBI in its Macroeconomic and Monetary Developments Report said it will have to continue the thrust on tight monetary stance till there is "clear evidence of inflation trending close to a level within RBI's comfort zone"

Mumbai: The Reserve Bank of India (RBI) on Monday gave strong hints of another hike in its key interest rates at the policy review on Tuesday, saying that high inflation requires further monetary tightening, slowdown in growth notwithstanding, reports PTI.

"The unfinished task of taming inflation warrants continuation of anti-inflationary monetary stance, (though) the downside risks to growth have increased," RBI said in its Macroeconomic and Monetary Developments Report released on the eve of the first quarter review of the credit policy on Tuesday.

The RBI said it will have to continue the thrust on tight monetary stance till there is "clear evidence of inflation trending close to a level within RBI's comfort zone".

The headline inflation stood at 9.44% for June. The central bank has set an inflation target of 6% for the fiscal-end.

During the past 15 months, the central bank has raised 10 times its key policy rates-repo or the short-term lending rate, and reverse repo at which it borrows from banks-by 425 basis points. The repo is at 7.5% now while the reverse repo stands at 6.5%.

Stating that the monsoon, global commodity prices and the Eurozone crisis have the potential to alter growth path and inflation level, the RBI said, "A significant departure of monsoon from 'normal', a collapse of global commodity price bubble and Eurozone debt crisis assuming full-blown proportion" can alter both growth as well as inflation forecasts.

The rising inflationary trend in advanced economies poses a threat to increasing price rise in domestic front as well, the central bank said.

Pointing out that the industrial activity moderated in the first quarter of the fiscal, RBI said a similar trend is likely to continue in the July-September quarter, too.

The central bank, however, retained its economic growth forecast for the current fiscal at around 8%. A report by RBI-sponsored professional forecasters, however, scaled down GDP growth to 7.9% from earlier projection of 8.2%.

The report expressed the hope that a slight moderation in monsoon may not radically alter the agriculture output.

Noting that manufacturing activity has become more broad-based on the back of the acceleration in factory output across last fiscal, the RBI said subdued growth in certain core industries like electricity, cement and natural gas is a drag on overall industrial growth.


RIL Q1 net rises 17% on higher refining margins

RIL earned $10.3 for turning every barrel of crude oil into petroleum products or fuel as opposed to $7.3 per barrel gross refining margin in Q1 of 2010-11 fiscal

New Delhi: Reliance Industries (RIL) today reported a 16.7% rise in net profit Rs5,661 crore April-June quarter this fiscal compared to Rs4,851 crore in the same period the previous year, RIL said in a statement. The company attributed the increase to higher refining margins, reports PTI.

RIL, which operates the world's largest refining complex at Jamnagar in Gujarat, said it earned $10.3 for turning every barrel of crude oil into petroleum products or fuel as opposed to $7.3 per barrel gross refining margin in Q1 of 2010-11 fiscal.

Turnover was up 37.2% to Rs83,689 crore while exports jumped 57.5% to Rs51,737 crore.

RIL chairman and managing director Mukesh D Ambani said: "The growth in earnings was driven by strong refining margins and sustained performance in the petrochemicals business. Our cash flows give us the unparalleled opportunity to allocate capital to higher-margin resource plays in leading markets around the world."

"We remain committed towards investing in India and have commenced the investment program in the petrochemical business," he added.

Basic earnings per share (EPS) for the quarter ended 30 June 2011 was Rs17.30 ($ 0.4) against Rs14.80 for the corresponding period of the previous year.

For the quarter ended 30 June 2011, production from the KG-D6 block was 1.41 million barrels of crude oil and 156.2 BCF of natural gas, reduction of 41% and 18% respectively as compared to Q1 FY10-11. Production of gas condensate was 0.21 million barrels, a growth of 81.6 % over the previous year.


Taurus plans to launch Taurus Banking & Financial Services Fund

This new fund offer is an open-ended equity sector scheme, with its focus on the banking & financial sector, which has been delivering good returns lately

Taurus Mutual Fund has filed an offer document with SEBI (the Securities and Exchange Board of India) to launch Taurus Banking & Financial Services Fund, an open-ended sectoral equity scheme. The new fund offer (NFO) is priced at Rs10 per unit.

Entry load is nil but there is an exit load of 1.00% if an investor exits or switches out of the Fund before one year. After one year, there is no exit load charge. There are two options available under the Plan of the scheme-growth and dividend payout. If dividend payable under the dividend payout option is less than Rs250, then the dividend would be compulsorily reinvested in the reinvestment sub-option of the scheme. The minimum application amount for first purchase during NFO & ongoing offer is Rs5,000 and in multiples of Rs1,000 thereafter, while for additional purchase, the minimum application amount is Rs1,000 and in multiples of Rs1,000 thereof. Sadanand Shetty is the fund manager for this scheme.

Sector funds' performance is linked to the fortune of the sector. If the sector is doing really well, they outperform the market for that period. The contrary too holds true. The banking sector performs well when there is an overall growth in the economy. Economic growth results in an increase in corporate credit offtake. Also, the retail loan segment does well in a growing economy as people tend to borrow more to finance their homes, cars and so on. This is also the most popular sectoral fund category. But the stocks of this sector also suffer when the Reserve Bank of India's policies are perceived to slow down banks' business.

Currently, the banking sector is doing well with the BSE Bankex index giving a compounded return of 24% in the past 5 years. But we never know when it will start declining, just as it happened to the infrastructure sector, which is one of the worst-performing sectors now.

For lay investors, a diversified equity mutual fund is more suitable. These funds typically, will have some exposure to all sectors, especially the ones that are doing well on the stock market. Since identifying the right sector is virtually the key to stock market success, focusing on winning sectors seems an obviously good strategy.

The asset allocation of the scheme will be in such a way that the objective of the schemes to generate capital appreciation will be met, but with minimum risk through investments in a portfolio of equity and equity-related instruments of banking, financial and non-banking financial companies. Hence schemes would allocate 75% to 100% of assets in equity & equity-related instruments of companies belonging to the banking & financial services sector and the scheme may also use debt & money market instruments to allocate 0% to 25% of its assets.

The performance of the scheme will be standardised against the BSE Bankex index.


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