The government has increased the farm loan waiver package to Rs 716.80 billon from Rs 600 billion announced in the union budget.
The headline inflation rate rose to a 44-month-high of 8.10 per cent in the week ended May 17 from 7.82 per cent a week ago, according to data released by the government today. Inflation can further worsen if the government goes ahead with an oil price hike.
With prices showing no signs cooling down, the Reserve Bank of India is expected to continue tight monetary policy stance. This mean banks will not be able lower interest rates to spur growth.
Credit growth has not picked up in the first quarter of the current financial year.The hike in the borrowing limits for external commercial borrowing has also been viewed as negative because the corporate sector will now borrow more from overseas market where rates are lower, said Ravi Sankar, an analyst with Religare Securities.
Auto: Under siege
An impending auto fuel price hike along with high inflation will continue to dampen automobile counters next week.The government may hike the auto fuel prices by Saturday to bail out state-run oil retailing companies which are reeling under mounting losses.
"Automobile sales are already suffering due to high interest rates. Any steep hike in petrol or diesel prices will further hurt sales," an analyst said.
India's crude oil basket rose $2.11 per barrel to $126.04 on Thursday.
The increase in the cash reserve ratio has kept investors at bay due to fears that interest rates for auto loans may be hiked once banks start feeling the pinch.
Auto loan rates rose to around 15 per cent from 10-11 per cent in 2006. Car loans are available anywhere between 14 per cent and 15.5 per cent (private banks), while the two-wheeler loans are hovering around the 13.5 per cent mark.
Steel: Set to shine
The shares of steel companies are likely to post gains next week on gross domestic growth projection of about 8.50 per cent for the year ended March, analysts said.
"The growth of the steel industry has been traditionally linked to GDP growth. A growth of 8.50 per cent, although lower than last year's (9.6 per cent), is good enough to keep the steel sector buoyant," an analyst with a foreign brokerage said.
Investors seem unfazed by the moratorium on steel prices as demand remains robust and global prices are firm.
The steel prices in India are trading at a discount of over Rs 8,000 a tonne and this gap is likely to widen further in the months to come.
