The decisions by the CWC and the UPA came after hectic consultations for the last over a week on creation of the 29th state of the country that will have a geographical area of 10 of the 23 districts of undivided Andhra Pradesh
Brushing aside opposition after dithering for nearly four years, the Congress and the UPA coalition on Tuesday unanimously endorsed creation of a separate Telangana state from out of Andhra Pradesh.
“It is resolved to request the Central government to make steps in accordance with the Constitution to form a separate state of Telangana ...within a definite timeframe,” said a resolution of the Congress Working Committee (CWC), the highest policy-making body of the party, after over an hour-long meeting.
The Congress also decided to recommend to the government that Hyderabad be made the joint capital of the newly-proposed state and the other regions—Rayalaseema and Coastal Andhra—for a period of 10 years.
The momentous decisions by the CWC and the UPA came after hectic consultations for the last over a week on creation of the 29th state of the country that will have a geographical area of 10 of the 23 districts of undivided Andhra Pradesh.
Tuesday’s decision also brings to fruition the announcement made by the then home minister P Chidambaram on 9 December 2009 for creation of Telangana.
Contrary to speculation that the new state could be named Rayala Telangana, including a couple of districts of Rayalaseema, the districts that will be part of the new state will be Adilabad, Karimnagar, Khammam, Mahaboobnagar, Medak, Nalgonda, Nizamabad, Rangareddy and Warangal besides Hyderabad.
At the moment the idea is to have 10 districts in Telangana but it will be for the Group of Ministers to consider demands for inclusion of more areas, AICC General Secretary Digvijay Singh, in charge of Andhra Pradesh affairs in Congress, told a press conference after the CWC meeting.
Out of 42 Lok Sabha seats and 294 Assembly seats in Andhra Pradesh, Telangana is likely to have 17 Lok Sabha seats and 119 Assembly seats.
At the CWC meeting, the prime minister said the decision to create a separate Telangana would help entire Andhra region.
Gandhi, who is also the UPA chairperson, gave a historical perspective on the issue to the CWC meeting in which Digvijay Singh moved the resolution. It was adopted unanimously.
Like last weekend, when indications emerged that the Congress was veering towards formation of Telangana, ministers and MPs belonging to the non-Telangana regions made last ditch efforts to convince Congress president Sonia Gandhi and Prime Minister Manmohan Singh to have a rethink on the issue.
Andhra state, the first entity formed on linguistic basis, was created in 1953 from out of the erstwhile Madras Presidency with Kurnool as the capital. With the passing of the States Reorganisation Act, 1956, there was a merger of Hyderabad state and Andhra state to be called Andhra Pradesh from 1 November 1956. Andhra Pradesh now has a population of over 8.5 crore.
The 2009 announcement, taken at the height of an indefinite fast by TRS leader K Chandrashekhar Rao, had ignited street protests in the non-Telangana regions and opposition from ministers, MLAs and leaders from within the party that forced the central government and the Congress leadership to put the issue on hold.
The Centre held rounds of meetings with all parties from the state and set up a Commission under the chairmanship for Supreme Court Judge Justice Srikrishna, which had given a report suggesting various solutions.
Chief minister Kiran Kumar Reddy, who was opposed to the division of Andhra Pradesh and was said to be thinking in terms of resigning, was called for consultations. He attended the UPA meeting.
However, he dismissed reports of resignation as ‘rumours’. Similarly, Congress ministers in the Union government and the MPs gave enough indications that they would follow the party line.
Only a close above 5,820 on the Nifty tomorrow will be the first sign of a reversal in downtrend
Indian benchmarks closed with losses of over 1.2% as the RBI cut the GDP growth forecast for the current fiscal to 5.5% and decided not to change its monetary policy. The National Stock Exchange reported a turnover of 58.95 crore shares and advance-decline ratio of 311:1023.
The market opened flat on a mixed note as investors remained cautious ahead of the Reserve Bank of India’s (RBI) quarterly review of the monetary policy. Hinting at status quo on policy rates, the RBI on Monday said its focus is to stabilise rupee and made a case for calibrated action to contain the current account deficit, which is a major reason for the steep fall in currency.
The Nifty resumed trade at 5,836, up four points from its previous close and the Sensex started the day, down 15 points. The benchmarks inched higher on buying in select blue-chip shares amid volatile trade in the initial session. But selling in realty, fast moving consumer goods (FMCG) and power stocks led the indices to their lows a short while later.
The market perked up as the RBI, in its policy review, kept key rates unchanged and reiterated that the recent measures to tighten liquidity would be rolled back “in a calibrated manner as stability is restored in the forex market”. The benchmarks hit their highs shortly after the central bank assured investors that liquidity curbs would be eased. The Nifty rose to 5,861 and the Sensex climbed to 19,673 at their respective highs.
However, the gains were short-lived as the indices soon began a downward journey weighed down by selling in PSU, realty, power and FMCG sectors. The market expanded its losses in noon trade as selling continued unabated.
The benchmarks continued their southward journey in late trade as the rupee breached the 60 per dollar mark in noon trade. The rupee was quoting at Rs60.07 a dollar compared with previous close of Rs59.41 per dollar around 2.00pm.
The indices touched their lows at the fag-end of the trading session with the Nifty falling to 5,748 and the Sensex going down to 19,329. The Nifty settled 77 points (1.31%) down at 5,755 and the Sensex finished at 19,348, a decline of 245 points (1.25%).
The broader indices too settled lower. The BSE Mid-cap index fell 1.96% and the BSE Small-cap index fell 1.98%.
BSE IT (up 0.91%) was the sole sectoral gainer. The major losers were BSE Oil & Gas (down 3.89%); BSE Realty (down 3.60%); BSE Power (down 3.35%); BSE PSU (down 3.11%) and BSE Auto (down 2.06%).
Out of the 30 stocks on the Sensex, eight stocks settled higher. The main gainers were Wipro (up 2.75%); Jindal Steel (up 1.45%); Infosys (up 1.20%);
Larsen & Toubro (up 0.97%) and Sun Pharma (up 0.92%). The main losers were ONGC (down 5.64%); Hindalco Inds (down 4.64%); Tata Motors (down 3.94%); Bharti Airtel (down 3.76%) and Bajaj Auto (down 3.40%).
The top two A Group gainers on the BSE were— Neyveli Lignite (up 6.33%) and Mahindra & Mahindra Financial Services (up 4.42%).
The top two A Group losers on the BSE were— Jaiprakash Power (down 15.77%) and Havells India (down 12.60%).
The top two B Group gainers on the BSE were— Panasonic Appliances (up 19.93%) and GEI Industrial Systems (up 19.88%).
The top two B Group losers on the BSE were— Vakrangee Softwares (down 19.98%) and Geometric (down 19.96%).
Of the 50 stocks on the Nifty, nine ended in the in the green. The major gainers were IDFC (up 2.53%); Jindal Steel (up 1.95%); HCL Technologies (up 1.58%); Sun Pharma (up 1.36%) and Larsen & Toubro (up 1.05%). The main losers were BPCL (down 8.90%); Reliance Infrastructure (down 7.09%); DLF (down 7.09%); Ranbaxy (down 6.44%) and ONGC (down 5.91%).
Markets in Asia closed mostly higher on China’s fund infusion measures to boost liquidity and a weaker yen which improved the prospects for Japanese exporters.
The Shanghai Composite advanced 0.70%; the Hang Seng rose 0.48%; the Jakarta Composite gained 0.61%; the Nikkei 225 surged 1.53%; the Straits Times rose 0.26%; the Seoul Composite climbed 0.90% and the Taiwan Weighted settled 0.98% higher. On the other hand, the KLSE Composite fell 0.21%.
At the time of writing, the key European markets were trading with minor gains and the US stock futures were in the positive.
Back home, institutional investors, foreign and domestic, were net sellers in the equities segment on Monday. While FIIs sold stocks totalling Rs231.77 crore, domestic investors offloaded shares amounting to Rs101.25 crore.
Pratibha Industries has bagged a Rs 205 crore contract for a water supply project from Public Health Engineering Department, Jaipur. The contract has been awarded for water supply scheme to 161 villages of Phagi Tehsil in Jaipur under Bisalpur Dudu Phagi Water Supply Project. The contract is scheduled to be completed in 30 months from date of commencement. It includes one year defect liability and 10 years operation and maintenance of the system. The stock rose 3.06% to close at Rs23.60 on the NSE.
Nomura says the Indian rupee is fundamentally poised to weaken, however, with the RBI keen on defending the currency, further measures to tighten liquidity and potentially even a repo rate hike cannot be ruled out
The Reserve Bank of India (RBI) left the repo rate and the cash reserve ratio unchanged at 7.25% and 4.00%, respectively, in line with the consensus and expectations. "Because of the uncertainty on the timing of the reversal of these measures and implications of higher overnight rates, we see limited reasons to believe that front-end rates will reverse any time soon. In fact, we think Mumbai inter-bank offer rate (MIBOR) and overnight call fixings will continue to track the marginal standing facility (MSF) rate at 10.25% and, therefore, even if front-end rates move lower initially on dovish interpretations of the RBI, they are unlikely to stay lower," said Nomura Financial Advisory and Securities (India) Pvt Ltd, in a report.
Nomura said, there were no surprises in the RBI statements from a rates market perspective. If anything, the RBI explicitly suggested in its guidance that it is looking at rolling back the liquidity tightening measures in a calibrated manner, when the rupee stabilises.
The key statement in RBI guidance was "the recent liquidity tightening measures by the Reserve Bank are aimed at checking undue volatility in the foreign exchange market and will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling monetary policy to revert to supporting growth with continuing vigil on inflation."
"Though explicit mention of rollback qualifies for a less hawkish than market ‘feared’, we think it is too open a statement to get excited on the dovish side, as it doesn’t provide any timeline on the rollback of tightening measures," Nomura said.
The RBI revised down its GDP growth projection to 5.5% y-o-y in FY14 (year ending March 2014) from 5.7% earlier due to tepid global growth and persistent weakness in industrial activity. The RBI modified its WPI inflation projection - it expects WPI inflation of 5% by March 2014 as compared with around 5.5% y-o-y during FY14.
In Nomura's view, the policy game-plan is as follows...
The RBI's tight liquidity stance should help stabilise the currency. The government will use this 'window of opportunity' to announce reforms to narrow the current account deficit. As the currency stabilises the RBI will reverse these liquidity-tightening measures and start cutting rates to support growth. Indeed, the RBI has mentioned multiple times, both in yesterday's macroeconomic report and today's policy document that the current tightening measures are temporary and the government should use the breathing space provided by the RBI measures to announce structural reforms. So what can be the likely government response?
Nomura says in its view, the government is likely considering multiple options to garner dollars such as tapping non-resident Indian (NRI) deposits, swap lines with other countries, sovereign bond issuance. Additionally, import duties on consumer goods and luxury items may be imposed. If gold imports remain high, then further quantitative restrictions may be imposed.
While the RBI has guided that these measures are temporary, there is no guarantee that depreciation pressures will end within that timeframe. Concerns over (US) Fed quantitative easing (QE) tapering and slowing emerging market (EM) growth mean investors remain cautious on EMs, hence external financing difficulties may continue for much longer, Nomura said.
"Alternatively, the government's policy response during the next few months may not satisfy investors that fundamental/sustainable solutions are being put in place. In this situation, rupee may continue to weaken. However, the longer the depreciation pressure continues, the longer the tightening measures will need to remain in place and the greater the stress on domestic balance sheets of banks and corporates, leading to higher credit risk. Or the RBI will have to let the currency adjust in line with fundamentals, once the 'temporary' phase expires", it said
"In fact, by sending confusing signals in today's policy on whether it is trying to defend the currency (tighter policy) or wanting to support growth (looser policy), there is a growing risk that the rupee will depreciate and the RBI will need to enact further measures to tighten liquidity, potentially having to hike the repo rate. We assign a 20% probability," the report said.
According to Nomura, the Indian economy and policymakers are caught between a rock and a hard place. "In our view, rather than artificially trying to draw a line in the sand on the currency at the cost of creating a domestic credit crisis, policymakers should allow a gradual currency depreciation and the government needs to significantly tighten its fiscal belt and announce real reforms rather than band aid solutions. We remain negative on India's economic outlook over the next nine months due to deteriorating external finances, feedback effects from a weak rupee and likely policy responses, a poor growth outlook and the election cycle."
"In our baseline scenario (we attach a 70% likelihood), we expect repo rates to remain on hold this fiscal year and GDP growth at a below-consensus 5.0% y-o-y in FY14, the same as in FY13, despite better agriculture growth. We pencil in 75bp of cumulative repo rate cuts in FY15," Nomura added.