RBI likely to go for rate cut in Q2 2012: Nomura

“We expect the RBI to start cutting policy rates in Q2 2012, as growth is likely to deteriorate in the next few quarters,” global credit rating and research firm Nomura said

New Delhi: Inflation in India is likely to moderate as per the Reserve Bank of India’s (RBI) projection while the growth is expected to fall, prompting the apex bank to start interest rate cuts from the second quarter (Q2) of 2012, reports PTI quoting global credit rating and research firm Nomura.

“We share the view on the near-term inflation trajectory with the RBI and believe that the rate-hiking cycle is over,” Nomura said in its latest issue of ‘Asia Economic Alert’.

Falling economic growth numbers may also prompt RBI to go for rate cuts, it added.

“We expect the RBI to start cutting policy rates in Q2 2012, as growth is likely to deteriorate in the next few quarters,” Nomura said.

In its mid-quarterly economic review earlier this month, RBI hinted at rate cuts in future. It had increased rates 13 times since March 2010 to tame inflation.

The central bank kept its key policy rates unchanged during the last review. It retained its year-end inflation projection at 7%, while stating that it will make a formal assessment of its inflation projections for 2011-12 in the third quarter review in January.

“From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth,” the RBI had said.

The overall inflation has been above the 9% mark since December last year. However, food inflation fell to a four-year low of 1.81% as on 10th December.

The central bank also said that deceleration in growth is contributing to a decline in inflation momentum, helped by softening food prices.

Economic growth in the July-September quarter slumped to a 6.9% —lowest in over two years, as against 8.8% in the same quarter of the 2010-11 fiscal.

Besides, industrial production entered the negative zone in October and contracted 5.1%.

RBI had also said that there is a downside risk to its projection of 7.6% growth for 2011-12 on account of the global slowdown and domestic issues.


Currency derivatives lose momentum; USE hit hardest

As per the market regulator SEBI’s latest monthly bulletin, the one-month turnover of currency derivatives at the NS) declined by 33% to Rs2,73,114 crore in October. The decline was larger for rival MCX-SX at 37.1%, but the losses were much higher at 63.5% at the USE, the third player in the segment, for the same month

New Delhi: The currency derivatives trading, once touted as the Indian capital market’s next big thing, seems to be bleeding business and the newest kid on the block, the United Stock Exchange (USE), is taking the maximum hit, reports PTI.

As per the market regulator Securities and Exchange Board of India (SEBI’s) latest monthly bulletin, the one-month turnover of currency derivatives at the National Stock Exchange (NSE) declined by 33% to Rs2,73,114 crore in October.

The decline was larger for rival MCX-SX at 37.1%, but the losses were much higher at 63.5% at the USE, the third player in the segment, for the same month, SEBI data shows.

NSE was the first exchange to foray into this segment in August 2008, followed by Bombay Stock Exchange (BSE) and MCX-SX in October that year.

While BSE stopped all its operations in the currency derivatives segment in April 2010, the USE entered this market in September 2010. The BSE is a major shareholder in the USE.

The decline at USE appears much sharper, when seen in the context of the exchange’s initial period trade volumes.

The USE had launched its trading on 20 September 2010 with opening-day volume of 9.88 million contracts, a world record for the first-day trading at a new exchange.

Thereafter, the month-on-month volume grew for quite a few months, but has declined sharply in the recent past.

The USE clocked a record-high trade of over Rs45,000 crore on its first day, but its daily trade value was just Rs264.46 crore in the last trading session on 23rd December.

The monthly trade volumes have also declined sharply in the past four months, which has come as a big surprise for the market players as the USE remains the only exchange not charging any transaction fees on currency derivatives trade.

The two rival exchanges, NSE and MCX-SX, started levying transaction charges on currency derivatives in August.

Incidentally, the USE volumes have been declining sharply since that month, thus defying the theory of zero transaction fee regime being good for this nascent-stage segment.

There are no official words, but speculations are rife that the decline in the USE’s trade volumes was because of an ongoing SEBI probe into the state of affairs at the bourse.

Earlier in October, TS Narayanasami had quit as the managing director of the USE, and the industry sources had attributed his resignation to the differences he had with some other senior management personnel and certain promoters.

The differences are said to have been over the levy of transaction charges, among other issues.

Also, there have been reports about a conflict of interest and a possible breach of fair-trade practices at the USE due to one of its largest shareholders, Jaypee Capital, also being a major trader on the exchange.

The reports had said that about 80% of trade volumes were coming from Jaypee Capital alone.

Industry sources say that the trade volumes might have declined because of Jaypee Capital limiting its exposure due to the SEBI probe.


Volatile upmove ahead: Weekly Market Report

Nifty should make higher lows to reach 4,805

Adverse macro-economic indicators indicating a slowdown, put pressure on the markets in the week. Looking at the dismal performance of various sectors, the depreciation in the value of the rupee and high inflation, the Reserve Bank of India (RBI) plans to revise downwards its growth forecast for the current fiscal in its quarterly policy review next month. However, investors took support from the positive global signals resulting in the market closing higher for the week.

The Sensex settled at 15,739, up 247 points (2%) while the Nifty gained 62 points (1%) to close the week at 4,714. If the Nifty manages to make a higher low, it may touch 4,805, or else it may fall to the level of 4,670.

Domestic concerns and weak Asian markets dragged the indices lower on Monday. Political developments at the Centre resulted in the market closing with a deep cut on Tuesday. Snapping its five-day decline, the market closed with handsome gains on Wednesday on a late rally.

Brisk buying in the second half of trade helped the benchmarks close higher for the second straight day on Thursday. The market closed with a 0.50% loss on Friday on concerns that the GDP growth in the current fiscal will be lower than the RBI’s forecast of 7.6%.

In the sectoral space, the BSE Oil & Gas index and BSE Fast Moving Consumer Goods index, both gained 3%, while BSE Capital Goods declined 3% and BSE Metals fell 2%.

The top Sensex gainers were Tata Motors, ICICI Bank (up 7% each), HDFC, Mahindra & Mahindra (up 6% each) and HDFC Bank (up 5%). The key losers on the index were Jaiprakash Associates (down 9%), Larsen & Toubro, Jindal Steel & Power (down 6% each), Tata Steel (down 5%) and Hero MotoCorp (down 4%).

Tata Motors, SAIL, ICICI Bank, Cairn India (up 7%) and Ranbaxy Laboratories (up 6%) were the key gainers on the Nifty. JP Associates (down 9%), L&T, Jindal Steel & Power, HCL Technologies and IDFC (down 6% each) ended up as top losers in the week.

The RBI said the Indian economy is likely to grow below its projection of 7.6% this fiscal, and is likely to revise downward the forecast in its policy review next month. In October, it had cut the GDP growth forecast for 2011-12 to 7.6%, from 8% earlier.

There are risks to inflation, RBI governor D Subbarao said, adding that high oil prices and the sudden depreciation in rupee pose challenges for the economy.

Food inflation fell sharply to a near four-year low of 1.81% for the week ended 10th December from 4.35% in the previous week. The latest number is the lowest rate of food inflation since the week ended 9 February 2008, when it stood at 2.26%.

“There is the strong base effect, on top of a normal monsoon and good harvest. I believe the moderate rate will continue for at least a month or two and we can expect its impact in the December headline inflation numbers also,” Crisil chief economist DK Joshi said.

However, putting forth a conservative view, Deloitte Haskin & Sells director Anis Chakravarty said, “Both the high base and good production is responsible for moderation in food inflation numbers. However, it is too early to say if this will sustain. We should wait and watch till at least early February before coming to a firm conclusion."

On the international front, better-than-expected economic indicates supported a four-day rally in US stocks Gauges on employment, consumer confidence and housing starts were positive, setting aside concerns about the Eurozone crisis for the time being.

Meanwhile, Europe’s recently created regulator, the European System Risk Board (ESRB) on Thursday warned that the strength of the financial system needed to be improved and called for banks to shore up their balance sheets. In a related development, Standard & Poor’s is expected to announce its report on debt ratings for 15 Eurozone nations next month.


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