Key benchmark indices registered small losses after the Reserve Bank of India (RBI) surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 and said that it is only by bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way. Market men were expecting the RBI to leave the repo rate unchanged after inflationmeasured by both wholesale and retail pricesshowed signs of easing last month, helped by lower food prices. The barometer index, the S&P BSE Sensex, hit six-week closing low. The 50-unit CNX Nifty registered its lowest closing level in more than 8-1/2 weeks. The Sensex lost 23.94 points or 0.12%, up close to 130 points from the day's low and off about 110 points from the day's high. The market was volatile as the Sensex alternately swung between positive and negative zone during the day. The market breadth, indicating the overall health of the market, was negative.
Indian stocks fell for the third day in a row today, 28 January 2014. From a recent high of 21373.66 on 23 January 2014, the Sensex has declined 690.15 points or 3.22% in three trading sessions. The Sensex has fallen 487.17 points or 2.3% in this month so far (till 28 January 2014). From a record high of 21,483.74 on 9 December 2013, the Sensex has declined 800.23 points or 3.72%. From a 52-week low of 17,448.71 on 28 August 2013, the Sensex has risen 3,234.80 points or 18.53%.
Coming back to today's trade, index heavyweight and cigarette major ITC gained in volatile trade. Maruti Suzuki India tumbled in volatile trade after the company said at the time of announcing Q3 December 2013 result during market hours that the company's board has approved implementing the expansion project in Gujarat through a 100% subsidiary of Suzuki Motor Corporation, Japan. Realty stocks gained in volatile trade after Reserve Bank of India (RBI) Governor Dr. Raghuram Rajan said after the central bank's surprise hike in repo rate that once inflation comes down to comfortable levels, the RBI would have some room to cut rates.
Shares of steel companies and iron ore miners were mostly higher the government on Monday, 27 January 2014, announced the imposition of 5% duty on the export of iron ore pellets. Jindal Steel & Power (JSPL) rose after the company reported strong Q3 December 2013 results on sequential basis. JSW Steel rose after the company reported turnaround Q3 result during trading hours today, 28 January 2014. Idea Cellular declined after reporting fall in bottom line in Q3 December 2013 on sequential basis.
Key benchmark indices edged higher in early trade on firm Asian stocks. Key benchmark indices trimmed gains after hitting fresh intraday high in morning trade. Volatility ruled the roost in mid-morning trade as the key benchmark indices reversed intraday gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14. The Sensex and the 50-unit CNX Nifty, both, hit their lowest level in more than 8-1/2 weeks. The RBI made the monetary policy announcement at 11:00 IST. Key benchmark indices languished in red in early afternoon trade. The Sensex trimmed losses in afternoon trade. Key benchmark indices moved into positive zone from negative zone in mid-afternoon trade as European markets edged higher in early trade there. Key benchmark indices once again slipped into the red later.
Foreign institutional investors (FIIs) sold shares worth a net Rs 1280.20 crore into the secondary equity markets on Monday, 27 January 2014, as per the data from the Securities & Exchange Board of India (Sebi).
The market may remain volatile in the near future as traders roll over positions in the futures & options (F&O) segment from the near month January 2014 series to February 2014 series. The January 2014 F&O contracts expire on Thursday, 30 January 2014.
The S&P BSE Sensex lost 23.94 points or 0.12% to settle at 20,683.51, its lowest closing level since 17 December 2013. The index lost 153.17 points at the day's low of 20,554.28 in mid-morning trade, its lowest level since 28 November 2013. The index gained 87.90 points at the day's high of 20,795.35 in mid-morning trade.
The 50-unit CNX Nifty shed 9.60 points or 0.16% to settle at 6,126.25, its lowest closing level since 28 November 2013. The index hit a low of 6,085.95 and a high of 6,163.60 in intraday trade.
The BSE Mid-Cap index shed 0.01%. The Small-Cap index rose 0.25%. Both these indices outperformed the Sensex.
The S&P BSE Realty index (up 1.08%), the S&P BSE Capital Goods index (up 0.27%), the S&P BSE Power index (down 0.05%), the BSE PSU index (down 0.05%), the S&P BSE Oil & Gas index (up 0.1%), the S&P BSE Metal index (up 1.72%) the S&P BSE Consumer Durables index (up 0.13%), the S&P BSE FMCG index (up 0.4%), the S&P BSE Consumer Durables index (up 0.13%), and the S&P BSE Auto index (up 0.16%) outperformed the Sensex.
The S&P BSE Healthcare index (down 0.79%), the S&P BSE Bankex index (down 0.3%), the S&P BSE IT index (down 1.06%) and the S&P BSE Teck index (down 1.06%), underperformed the Sensex.
The total turnover on BSE amounted to Rs 2438 crore, higher than Rs 1867 crore on Monday, 27 January 2014.
The market breadth, indicating the overall health of the market, was negative. On BSE, 1,272 shares dropped and 1,263 shares rose. A total of 154 shares were unchanged.
Among the 30-share Sensex pack, 17 stocks declined and rest of them gained.
Index heavyweight and cigarette major ITC rose 0.94% to Rs 327.50, with the stock regaining positive zone in volatile trade. The stock hit high of Rs 328.45 and low of Rs 319.15.
Shares of steel companies and iron ore miners were mostly higher after the government on Monday, 27 January 2014, announced the imposition of 5% duty on the export of iron ore pellets. India's steel producers last month requested a duty of iron ore pellets to safeguard domestic supplies.
Sesa Sterlite gained 2.2% ahead of its Q3 results today, 28 January 2014.
Tata Steel rose 3.45%.
Steel Authority of India rose 0.74%. NMDC shed 0.84%.
Jindal Steel & Power (JSPL) rose 1.93%. The company's consolidated net profit jumped 23% to Rs 559.21 crore 8% growth in turnover to Rs 5377.37 crore in Q3 December 2013 over Q2 September 2013. Earnings before interest, taxation, depreciation and amortization (EBITDA) rose 17% to Rs 1700.69 crore in Q3 December 2013 over Q2 September 2013. The company announced the results during trading hours today, 28 January 2014.
JSW Steel rose 1.41% after the company reported a consolidated net profit of Rs 466.49 crore in Q3 December 2013 as against net loss of Rs 73.70 crore in Q3 December 2012. The Q3 result was announced during trading hours today, 28 January 2014.
JSW Steel's consolidated total income rose 53.29% to Rs 13637.21 crore in Q3 December 2013 over Q3 December 2012.
JSW Steel said that the Q3 December 2013 results are after giving effect to the scheme of amalgamation and arrangement (scheme) between the company and JSW ISPAT Steel and others, which became effective 1 June 2013 with appointed date of 1 July 2012. Hence, the current quarter figures are not strictly comparable with that of Q3 December 2012 as the effect of implementation of the scheme is included in the current quarter figures, JSW Steel said in a statement.
During the quarter, JSW Steel said it has achieved highest ever crude steel production (3.19 million tonne, 52% YoY growth), highest ever consolidated gross turnover of Rs 14357 crore, highest ever consolidated exports of 1 million tonne (accounting for about 60% of India's overall steel exports) and highest ever consolidated EBITDA of Rs 2409 crore. Amidst a challenging operating environment marked by muted domestic demand growth, the company has achieved 100% of its production and sales volume guidance for FY 2014 (on a pro-rated basis), the company said in a statement.
On the status of ongoing projects, JSW Steel said that the implementation of ongoing projects like continuous annealing line and galvanizing line of CRM-2 at Vijayanagar, Electrical steel complex at Vijayanagar, and pellet plant and coke oven plant at Dolvi is in progress and is likely to complete as per schedule.
With regard to the future business outlook, JSW Steel said that the global economic recovery is likely to gather pace in calendar year (CY) 2014 - as reflected by improving fundamentals and upgrades to consensus growth forecasts for developed markets, while emerging economies continue to face moderation in expected growth rates.
JSW Steel said that with steel exports surging on the back of improving demand in developed markets and Rupee depreciation enhancing export competitiveness of Indian steel mills, India turned into a net steel exporter in Q3 December 2013.
With expected commencement of investments in industrial and infrastructure projects post general elections, Indian steel demand is expected to improve in FY 2015, JSW Steel said in a statement.
Among other metal stocks, Hindalco Industries (up 2.16%), National Aluminum Company (up 1.14%) and Hindustan Copper (up 0.16%) gained. Hindustan Zinc fell 0.43%.
Bharti Airtel declined 0.24%. The company said after market hours that the board of directors of the company at its meeting held on 28 January 2014 has approved the changes in its top management. Mr. Manoj Kohli will become Chairman of Bharti Airtel International (Netherlands) B.V. that owns telecom operations in Africa, relinquishing the position of Managing Director & CEO (International) in Bharti Airtel. Mr. Manoj Kohli will continue on the Board of Bharti Airtel as Non-executive Director.
Mr. Christian de Faria has been appointed as the Managing Director and CEO (Africa) of Bharti Airtel International (Netherlands) B.V. and will assume full operational responsibility of the company's operations across 17 African geographies. Mr. Gopal Vittal has been appointed as the Managing Director and CEO (India & South Asia) and will also be responsible for Bangladesh and Sri Lanka operations.
Idea Cellular lost 4.61% after net profit declined 0.07% to Rs 398.10 crore on 4.64% growth in total revenue to Rs 6610.50 crore in Q3 December 2013 over Q2 September 2013. The Q3 result was announced after market hours on Monday, 27 January 2014.
Idea Cellular's EBITDA (earnings before interest, taxation, depreciation and amortization) rose 4.04% to Rs 1813.50 crore in Q3 December 2013 over Q2 September 2013. EBITDA margin declined to 27.4% in Q3 December 2013, from 27.6% in Q2 September 2013.
Idea Cellular's net profit jumped 108.32% to Rs 398.10 crore on 17.8% growth in total revenue to Rs 6610.50 crore in Q3 December 2013 over Q3 December 2012.
On a consolidated basis, Idea Cellular's net profit rose 4.49% to Rs 467.70 crore on 4.58% growth in total revenue to Rs 6613.10 crore in Q3 December 2013 over Q2 September 2013. EBITDA rose 4.27% to Rs 2055.70 crore in Q3 December 2013 over Q2 September 2013. EBITDA margin stood at 31.1% in Q3 December 2013, lower than 31.2% in Q2 September 2013.
Ideal Cellular's consolidated net profit jumped 104.6% to Rs 467.70 crore on 18% growth in total revenue to Rs 6613.10 crore in Q3 December 2013 over Q3 December 2012. EBITDA surged 39.5% to Rs 2055.70 crore in Q3 December 2013 over Q3 December 2012. EBITDA margin on YoY basis improved 4.7% to 31.1% in Q3 December 2013.
The growing consumer demand and brand affinity, expanding infrastructure and strong cash flows of Idea reaffirms the company's ability to remain on course with its stated mission of consistent, competitive, responsible and profitable growth and meet all volatile, uncertain, complex and ambiguous developments, as it consolidates its market standing both in mobile voice and data market, Idea Cellular said in a statement.
Realty stocks gained in volatile trade after Reserve Bank of India (RBI) Governor Dr. Raghuram Rajan said after the central bank's surprise hike in repo rate that once inflation comes down to comfortable levels, the RBI would have some room to cut rates. Purchases of both residential and commercial property are largely driven by finance.
DLF (up 0.96%), Indiabulls Real Estate (up 0.62%), Oberoi Realty (up 1.9%), HDIL (up 6.09%) and Unitech (up 2.85%) gained.
Capital goods pivotals reversed intraday losses. Bhel (up 1.11%) and L&T (up 0.45%) gained.
Oil India dropped 0.82%. The company said during market hours that the board of directors of the company at its meeting held today, 28 January 2014, has declared interim dividend of Rs 11 per share (i.e. 110%) for the year ending 31 March 2014. The dividend is payable on and from 5 February 2014. Payment will be completed on and before 25 February 2014.
Pharma stocks were mixed. Cipla (down 1.3%), Lupin (down 2.22%), and Sun Pharmaceutical Industries (down 2.44%) dropped.
Dr Reddy's Laboratories rose 0.55%.
Ranbaxy Laboratories rose 2.39% to Rs 317.65, with the stock recovering on bargain hunting after recent steep slide triggered by the US drug regulator banning the company's Toansa facility in India from importing drugs to the US.
Shares of Ranbaxy Laboratories had declined 25.62% in two trading sessions to settle at Rs 310.25 on Monday, 27 January 2014 from a recent high of Rs 417.15 on 23 January 2014, after the company on 24 January 2014 announced that the US Food and Drug Administration (USFDA) notified the company that it is prohibited from manufacturing and distributing active pharmaceutical ingredients (APIs) from its facility in Toansa, India, for FDA-regulated drug products.
The Toansa facility is now subject to certain terms of a consent decree of permanent injunction entered against Ranbaxy in January 2012, Ranbaxy said in a statement.
Subsequent to the Form 483 issued in early January 2014, Ranbaxy voluntarily and proactively suspended shipments of API from this facility to the US market when it received the inspection findings. Ranbaxy said that the management is disappointed with the recent FDA action and would like to apologize to all its stakeholders in for the inconvenience caused by the suspension of shipment. Arun Sawhney, CEO and Managing Director of Ranbaxy said that this development is clearly unacceptable and an appropriate management action will be taken upon completion of the internal investigation.
Ranbaxy further said that the company is committed to highest standard of patient safety and quality, and shall constantly endeavour to strengthen its systems and processes. Ranbaxy will cooperate with the FDA and shall comply with the Consent Decree in both the letter and spirit, it said.
Cadila Healthcare fell 0.05%. The company after market hours on Monday, 27 January 2014, announced that the company has recently completed portfolio and strategy review of its business and has decided to exit from its business in Japan, which is through 100% subsidiary company.
IPCA Laboratories rose 3.89% to Rs 798.30 after hitting a record high of Rs 802 in intraday trade. The company's net profit rose 58% to Rs 139.12 crore on 19% increase in total income to Rs 838.37 crore in Q3 December 2013 over Q3 December 2012. The company announced the result during trading hours today, 28 January 2014.
IPCA Laboratories' EBITDA (earnings before interest, taxes, depreciation and amortization) rose 37% to Rs 217.34 crore in Q3 December 2013 over Q3 December 2012. EBITDA margin stood at 26.09% in Q3 December 2013, higher than 22.59% in Q3 December 2012.
IT stocks declined on weak US economic data. US is the biggest outsourcing market for the Indian IT firms.
Infosys (down 1.49%), Tata Consultancy Services (TCS) (down 0.78%), Wipro (down 0.49%), Tech Mahindra (down 1.41%) and HCL Technologies (down 0.49%) fell.
Bank stocks were mixed after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14.
Among private bank stocks, AXIS Bank (down 3.28%) and HDFC Bank (down 0.68%) dropped. Kotak Mahindra Bank rose 0.34%.
ICICI Bank rose 0.9%. The bank announces its Q3 result tomorrow, 29 January 2014.
IndusInd Bank fell 1.45%. The private sector bank before market hours today, 28 January 2014, said the Reserve Bank of India (RBI) has approved the re-appointment of Mr. Romesh Sobti as Managing Director and CEO of IndusInd Bank for a period of one year from 1 February 2014 to 31 January 2015. IndusInd Bank said that the board of directors intends to represent to RBI for approval of the term of three years, viz.1 February 2014 to 31 January 2017, as earlier approved by the board of directors.
State Bank of India rose 0.09%.
Corporation Bank fell 1.09% on turning ex-dividend today, 28 January 2014, for the interim dividend of Rs 4.50 per share for the year ending 31 March 2014.
Vijaya Bank declined 1.45% on turning ex-dividend today, 28 January 2014, for the interim dividend of Re 1 per share for the year ending 31 March 2014.
RBI governor Dr. Raghuram G. Rajan today, 28 January 2014, said that the enhanced framework for resolution of distressed assets will be operational by 1 April 2014.
Auto stocks were mixed after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.
Tata Motors rose 2.43%, with the stock recovering after Monday's steep slide. Shares of Tata Motors had lost 6.13% on Monday, 27 January 2014, after the company announced the demise of its Managing Director, Karl Slym.
M&M rose 0.71%. Ashok Leyland shed 0.3%.
Maruti Suzuki India (MSIL) tumbled in volatile trade after the company said at the time of announcing Q3 December 2013 result during market hours that the company's board has approved implementing the expansion project in Gujarat through a 100% subsidiary of Suzuki Motor Corporation, Japan. The stock lost 9.28% at Rs 1,543.40. The stock hit a high of Rs 1750.10 and low of Rs 1541.25.
The board of MSIL had, on 29 October 2011, approved the purchase of land in Mehsana district of Gujarat for further expansion of manufacturing facilities. Following this decision, MSIL acquired approximately 640 acres of land in Becharaji and approximately 550 acres in Vithalapur. The expansion of facilities was kept on hold due to market conditions.
MSIL said its board recently received a proposal from Suzuki Motor Corporation (SMC) for implementing the expansion project through a 100% Suzuki subsidiary. The Suzuki subsidiary would always remain a 100% Suzuki owned company, MSIL said. MSIL said its board, today, 28 January 2014, decided that the time was now appropriate to expand production facilities in Gujarat. The board approved implementing the expansion through a 100% Suzuki subsidiary because it would result in substantial financial benefits to MSIL, and its minority shareholders, MSIL said in a statement. MSIL would enter into a contract with this subsidiary company under which all production in the subsidiary company would be in accordance with the requirements of MSIL, and the vehicles would be sold to MSIL. The Suzuki subsidiary would not sell vehicles to anybody else.
The price of the vehicles to MSIL would include only the cost of production actually incurred by the subsidiary plus just adequate cash (net of all tax) to cover incremental capital expenditure requirements. The return on this investment for SMC would be realized only through the growth and expansion of MSIL's business, the company said.
MSIL said that the company would financially benefit from the interest earnings resulting from not investing its money in this project directly. It would also benefit because the vehicles would be sold to MSIL by the Suzuki subsidiary without any return on capital employed. MSIL would be able to avoid all risk inherent in any investment. MSIL would also retain the option of investing its own funds for strengthening its marketing network, product development, R&D and any other opportunity of growth or building strength for market leadership.
MSIL would render all required assistance to the subsidiary company for implementing this project on an arms' length basis. The land for the project would be leased by MSIL to the subsidiary company to establish the production and related facilities. The rent would be determined on an arms' length basis, the company said.
MSIL's net profit rose 35.9% to Rs 681.10 crore on 3% fall in net sales (net of excise) to Rs 10619.70 crore in Q3 December 2013 over Q3 December 2012. The Q3 result was announced during market hours today, 28 January 2014. Higher localization, favorable foreign exchange and cost reduction initiatives by the company contributed significantly to the growth in bottom line in Q3 December 2013, Maruti Suzuki India.
Maruti Suzuki India's total sales fell 4.4% to 2.88 lakh units Q3 December 2013 over Q3 December 2012. Exports dropped 38.6% to 19,966 units in Q3 December 2013 over Q3 December 2012. Maruti said that the company's market share in domestic market stood 42.8% in Q3 December 2013, registering a gain of 2.5% from Q3 December 2012.
Most shares of two wheeler companies rose. Bajaj Auto (up 1.69%) and TVS Motor Company (up 1.04%) gained. Hero MotoCorp fell 0.44%.
Munjal Auto Industries spurted 7.81% after net profit jumped 49.6% to Rs 13.49 crore on 24.5% growth in net sales to Rs 216.13 crore in Q3 December 2013 over Q3 December 2012. The Q3 result was announced after market hours on Monday, 27 January 2014.
Escorts rose 2.85% after net profit rose 61.9% to Rs 45.56 crore on 12.5% rise in net sales to Rs 1154.45 crore in the quarter ended December 2013 over the quarter ended December 2012. The company announced the result at the fag end of the trading session on Monday, 27 January 2014.
Escorts said the company has extended its financial year by 6 months i.e. up to 31 March 2014 as approved by the board of directors in their meeting held on 2 October 2013. The board had approved the company to extend its financial year to align with the April-March fiscal calendar. Accordingly, financial year 2012-13 will close on 31 March 2014.
Despite a challenging economic environment that included delay in approval of projects, the construction equipment volume rose sequentially by 11.5% to 737 units in the quarter ended December 2013 as compared to 661 in the quarter ended September 2013, the company said.
NTPC fell 0.58% ahead of its Q3 results today, 28 January 2014. Meanwhile, NTPC during market hours today, 28 January 2014, said that the company has entered into a term loan facility with the Japan Bank for International Cooperation (JBIC) and Sumitomo Mitsui Banking Corporation (SMBC) for $350 million to finance the supplies and services from Japan as well as India for the Kudgi Super Thermal Power Project Stage-I (3x800 MW). The facility has a door to door maturity of about 15 years.
NTPC has also entered into a fixed interest rate facility with the Japan Bank for International Cooperation (JBIC) and Sumitomo Mistui Banking Corporation (SMBC) for 8,021 million Japanese yen to finance the renovation and modernization of gas turbines at its Auraiya Gas Power Station. The facility has a door to door maturity of over 12 years.
Lanco Industries rose 1.66% after the company reported a net profit of Rs 8.83 crore in Q3 December 2013 as against net loss of Rs 9.11 crore in Q3 December 2012. Lanco Industries' net sales rose 23.4% to Rs 256.76 crore in Q3 December 2013 over Q3 December 2012. The Q3 result was announced after market hours on Monday, 27 January 2014.
Just Dial tumbled 12.59%. The company's net profit rose 86.4% to Rs 29.75 crore on 25.91% increase in total income from operations to Rs 119.86 crore in Q3 December 2013 over Q3 December 2012. The result was announced after market hours on Monday, 27 January 2014.
Just Dial's net profit rose 3.80% to Rs 29.75 crore on 6.39% increase in total income from operations to Rs 119.86 crore in Q3 December 2013 over Q2 September 2013.
Profit from operations before other income, finance costs and exceptional items fell 5.52% to Rs 29.09 crore in Q3 December 2013 over Q2 September 2013.
Mr. V.S.S. Mani, MD & CEO, Just Dial said: "We witnessed another quarter of good revenue growth and margin expansion. We have launched a number of new products in the 'Search Plus' services and have begun the process of engagement with our SME partners for those services. With other 'Search Plus' products in the pipeline, we intend to cover almost a whole range of day to day tasks that users conduct and provide them with a seamless search and transaction experience on a single platform."
Cash and investments totaled to Rs 608 crore as at 31 December 2013 as compared to Rs 476 crore as at 31 December 2012.
The services agreement dated 29 March 2011, between the company and Just Dial Global Private (JDGPL), under which the company provides support services, including infrastructure facilities and functional workstations, to JDGPL is due for expiry on 14 February 2014. The board of directors considered and approved renewal of the services agreement between the company and JDGPL, subject to prior approval of the Central Government.
Indian government bond prices rose after Reserve Bank of India (RBI) Governor Dr. Raghuram Rajan said after the central bank's surprise hike in repo rate that once inflation comes down to comfortable levels, the RBI would have some room to cut rates. He made the comments at a post-policy press conference. The yield on 10-year benchmark federal paper, 8.83% GS 2023, was hovering at 8.749%, lower than its close of 8.7651% on Monday, 27 January 2014. Bond yield and bond prices move in opposite direction. Bond supply will return after a two-week break with the RBI announcing Rs 14000-crore debt sale for Friday, 31 January 2014. The RBI surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014.
In the foreign exchange market, the rupee edged higher against the dollar the Reserve Bank of India (RBI) said that the recent resumption of portfolio flows, both equity and debt, alongside the pick-up in FDI and external commercial borrowings that is underway should help finance the current account deficit comfortably during the current financial year. The partially convertible rupee was hovering at 62.505, compared with its close of 63.10/11 on Monday, 27 January 2014. The RBI said that foreign exchange reserves have been rebuilt since September 2013 and that oil marketing companies have been buying foreign exchange in the market to repay the Reserve Bank of India when their swaps come due. Despite a significantly more comfortable external position than in the summer of 2013, both fiscal and monetary authorities need to continue their efforts at macroeconomic stabilisation, the RBI said.
The Reserve Bank of India (RBI) surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. Consequently, the reverse repo rate under the LAF stands adjusted at 7% and the marginal standing facility (MSF) rate and the Bank Rate at 9%, the RBI said. The central bank kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liability (NDTL).
While retail inflation measured by the consumer price index (CPI) declined significantly on account of the anticipated disinflation in vegetable and fruit prices, it remains elevated at close to double digits, the RBI said. Moreover, inflation excluding food and fuel has also been high, especially in respect of services, indicative of wage pressures and other second round effects. In terms of the wholesale price index (WPI), headline inflation eased to a four-month low in December on the back of a sharp decline in vegetable and fruit prices. Non-food manufactured products (NFMP) inflation, however, rose in December on an uptick in prices of chemicals, non-metallic minerals and paper products. Hardening prices of services and key intermediates seen in conjunction with rising bank credit, increase in order books, pick-up in capacity utilisation and the decline in inventories of raw materials and finished goods in relation to sales suggests that aggregate demand pressures are still imparting an upside to overall inflation. The RBI said that it is critical to address these risks to the inflation outlook resolutely in order to stabilise and anchor inflation expectations, even while recognizing that the economy is weak and substantial fiscal tightening is likely in Q4 March 2014.
In the Mid-Quarter Review on 18 December 2013, the policy decision was to wait for more data before acting. With the subsequent substantial fall in food prices, especially of vegetables, headline inflation has fallen significantly. Some of these effects will continue into the next round of data readings, the RBI said. CPI inflation excluding food and fuel has, however, remained flat and WPI inflation excluding food and fuel has risen, the central bank said in a statement.
The Dr. Urjit Patel Committee has indicated a "glide path" for disinflation that sets an objective of below 8% CPI inflation by January 2015 and below 6% CPI inflation by January 2016. The Reserve Bank of India's baseline projections set out in the accompanying Review of Macroeconomic and Monetary Developments for Q3 of 2013-14 indicate that over the ensuing 12-month horizon, and with the current policy stance, there are upside risks to the central forecast of 8% CPI inflation, the RBI said. An increase in the policy rate will not only be consistent with the guidance given in the Mid-Quarter Review but also will set the economy securely on the recommended disinflationary path, the RBI said. The extent and direction of further policy steps will be data dependent, though if the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture, the central bank said in a statement. RBI Governor Dr. Raghuram Rajan said in a statement that if inflation eases at a pace that is faster than the RBI currently anticipates and if that reduction is expected to be sustained, the Reserve Bank of India will have room to become more accommodative.
If policy actions succeed in delivering the desired inflation outcome, real GDP growth can be expected to firm up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15, with risks balanced around the central estimate of 5.5 per cent, the RBI said. A pick-up in investment in an environment in which external demand continues to be supportive of export performance could impart an upside to this forecast, the RBI said.
The Reserve Bank is engaged in active management of liquidity to offset frictional and structural pressures so that there is adequate credit flow to the supply side of the economy, the central bank said.
Despite a significantly more comfortable external position than in the summer of 2013, both fiscal and monetary authorities need to continue their efforts at macroeconomic stabilisation, the RBI said.
Since the Mid-Quarter Review of December 2013, the global recovery is gaining traction, led by the strengthening of the US economy, but it is still uneven and subdued in the Euro area and Japan, and a slowdown in China seems to be underway, the RBI said. Notwithstanding the boost from stronger external demand, uncertainty continues to surround the prospects for some emerging economies, with domestic fragilities getting accentuated. Financial market contagion is a clear potential risk, the RBI said.
The RBI said that some loss of momentum of growth in India is expected in Q3 December 2013, despite a strong pick-up in rabi sowing. Industrial activity remains in contractionary mode, mainly on account of manufacturing, which declined for the second month in succession during Q3. Consumption demand continues to weaken and lacklustre capital goods production points to stalled investment demand. Fiscal tightening through Q3 and Q4 is likely to exacerbate the weakness in aggregate demand. Lead indicators of services suggest a subdued outlook, barring some pick-up in transport and communication activity.
Governor Dr. Rajan said that elevated levels of inflation erode household budgets and constrict the purchasing power of consumers. This, in turn, discourages investment and weakens growth. High inflation weakens the rupee, he said. Inflation is also a tax that is grossly inequitable, falling hardest on the very poor, Dr. Rajan said. It is only by bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way, Dr. Rajan said. The so-called trade-off between inflation and growth is a false trade-off in the long run, he said. "It is possible to bring inflation under control without a substantial sacrifice of short term growth, provided we do what is necessary, and are patient," Dr. Rajan said in a statement.
European stocks edged higher on Tuesday, 28 January 2014, as miners rose after a broker upgrade and banks recovered from recent sharp losses. Key benchmark indices in UK, France and Germany were up 0.41% to 0.8%.
Asian stocks rose on Tuesday, 28 January 2014, before the Federal Reserve meets to discuss a further reduction in stimulus. Key benchmark indices in Taiwan, Indonesia, Singapore, South Korea and China rose by 0.26% to 0.66%. Key benchmark indices in Hong Kong, Japan and Taiwan fell 0.07% to 1.58%.
Profit at China's industrial companies increased 6 percent in December from a year earlier, after rising 9.7 percent in the previous month, the National Bureau of Statistics said today, 28 January 2014.
Thailand's manufacturing production decreased 6.2 percent in December from a year earlier, according to a report today, 28 January 2014.
Trading in US index futures indicated that the Dow could advance 87 points at the opening bell on Tuesday, 28 January 2014. US stocks edged lower in a volatile session on Monday, 27 January 2014, as worries over emerging-markets currencies unsettled investors. Stocks began the day on a higher note following upbeat results from Caterpillar, but fell after home sales data showed a larger drop in December than anticipated.
Sales of new single-family homes fell in December, but the whole of 2013 saw the highest sales level in five years, the US government reported Monday, 27 January 2014. Sales of new single-family homes dropped 7% in December due to harsh winter weather. The median price of new homes ticked up in December and for 2013, the median price hit $265,800, up 8.4% from the prior year, the strongest annual growth since 2005.
A two-day monetary policy meeting of the Federal Open Market Committee (FOMC) begins today, 28 January 2014. Federal Reserve officials have been scrutinizing US economic data to determine the timing and pace of reductions to asset purchases. The central bank decided at its December gathering to begin cutting its monthly bond buying by $10 billion to $75 billion.
In Turkey, the country's central bank on Monday, 27 January 2014, said it will "take the necessary policy measures for price stability" at a meeting on Tuesday, 28 January 2014. The announcement came after the currency's decline.
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