New direction to the markets?

The RBI Q3 Monetary policy 2012-2013 is out. Here is a snapshot:

Repo Rate

It has been decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 per cent to 7.75 per cent with immediate effect.

Reverse Repo Rate

The reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, stands adjusted to 6.75 per cent with immediate effect.

Marginal Standing Facility (MSF) Rate

The Marginal Standing Facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, stands adjusted to 8.75 per cent with immediate effect.

Bank Rate

The Bank Rate stands adjusted to 8.75 per cent with immediate effect.

Cash Reserve Ratio

It has been decided to reduce the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.25 per cent to 4.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning February 9, 2013. As a result of this reduction in the CRR, around 180 billion of primary liquidity will be injected into the banking system.

Guidance

With headline inflation likely to have peaked and non-food manufactured products inflation declining steadily over the last few months, there is an increasing likelihood of inflation remaining range bound around current levels going into 2013-14. This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks. The above policy guidance will, however, be conditioned by the evolving growth inflation dynamic and the management of risks from twin deficits.

Expected Outcomes

The policy actions and the guidance in this Statement given are expected to:

i) support growth by encouraging investment;

ii) continue to anchor medium-term inflation expectations on the basis of a credible commitment to low and stable inflation; and

iii) improve liquidity conditions to support credit flow.

Time for my Comments now

As expected, there was a small tweaking of 25bp in CRR, BR, Repo, Reverse Repo et all. More money available to banks, liquidity infused but where is the off take?? Especially given the scenario that bigger banks, though professing to pushing up credit off takes to MSMEs, are still not visible on the radar, doing it. The large corporates though seem to enjoy this. And so are the Home loan and Car Loan customers (Car Loans). But even the low interest rates that Banks like SBI are offering to the Personal Segment customers, doesn’t seem not to prop up the respective industries. The Car companies seem to be in a swing, going up one month and down the next, using old tricks like reminding the customers about the impending hike in car prices which do not seem to come at all. The Realty sector seems to be hit harder, what with all the major banks stalling credits to them and coupled with the customer disinterest (or is it purchasing power?) it has stifled the Builder lobby, who now seem to resorting to reducing prices to induce buyers and reduce their inventories that they had built up over the years in the hope of better days. Then, is the liquidity only to bail out a few banks that were borrowing at higher rates in the Repo market? Let me try to deconstruct this.

So what does this INR 180 billion of increased liquidity lead to? For one, it gives a minor fillip to those banks that are short on the liquidity front, the markets next and specifically the interest rate sensitive stocks that will benefit a little, followed by a reversal to the pre Q3 Policy positions. Then, it is the turn of RBI, who will claim they have done the best to help the situation and that it is the Banks that need to now lead the way.

And what do the Banks do then? Firstly, reduce interest rates on loans, though which market segments, needs to be seen. I guess it’s going to be the Personal segment that will get the nod, followed by the SME segment. But then, are the banks as willing to lend to the SME segment as freely as they do to the Personal segment? Because the past record (and I am talking about the Bigger Public sector Banks over the past 12 months or so) is not that encouraging. And then, for those Banks that are slightly tight with their funds, are they going to decrease their loan interest rates? So, then if this is not going to happen, then what to do with the excess liquidity that some of the banks will have? Simple, disinterest people from keeping money with them by decreasing interest rates on deposits by 50bp or more over longer term maturities. As for the banks tight with liquidity, it is going to be a Sword of Damocles. Neither here nor there but only with certain level of relief.

The loser? The small investor who will get lesser worth for the money with the Bank, and my guess is that the already thin differential that they get after factoring in the TDS and the inflation, will get into negative territory, if not yet happened.

The gainers? The Banks. They get to keep the mollah (i.e. be risk averse) and increase their spreads by a few basis points by leveraging the drop in deposit interest rates. Other gainers? The Personal segment borrowers who get better interest rates on loans and better deals on their houses and cars. And then there are the large corporates that get to enjoy the lowering of the bank rates and the consequent shift downwards in their already low credit interest rates. So is it a new direction to the markets? Your guess is as good as mine.

Fingers crossed.

Amen



All is Well

Wow, its been over four years since I have last written here....... But look, nothing much has changed. The great Indian Tamasha continues. Only the boundaries have been redrawn a little. Sensex has finally made it back to 20k. Nifty is inching towards its old glory. The Government has made it to its 2nd Avatar and is doing a good job of it of late. And I am back on this page. And I have a reader in you. So seems things are more or less OK. All is well.

The world has also seen its shares of turmoils and seems things are getting better. Heard someone in the know how (thats what all of us call people who seem to be knowing a bit more than us....isn't it?) ............Forgot what I was talking about.......oh yes, heard someone talking just a few days back that the Eurozone seems to be stabilizing a bit, and that the Eurozone risks are abating (whatever that means.......remember the Eurozone has over the last 18 months eaten off whatever recovery the world was making post the Mortgages Recession (I tend to call it that, you may call it whatever you wish)). Ok Ok.....so you mean to say that the trigger was in US. Agreed. It was the Mortgages Recession and originated in the US, but they did a good job of it by stabilizing themselves and getting out of it more or less. What you see today is the just out of the jungle US. Dont worry. There are no worrying signs left. What? Fiscal Cliff?? Now you see, if you dont have problems, how are you going to be busy solving them? Chill. Just another issue to tackle.

Enough for a restart. Will assess the markets again later. for now, thanks for reading it and wait for more if you are not already bored.

From Darkness to Light

The Political equation is solved. The N-deal is on the execution path. Oil is stabilising near 125. Inflation has been arrested below 12 (though it still remains a threat). So, good news?? Well, add a few bad ones.....The expected quarter percentage rate hike by RBI on the 29th of July and its cause....the stabilised but still high inflation. The blasts in Bangalore and Ahmedabad. The demons of darkness have done it again.

The final picture is thus prepared. And the fallout?? Markets to remain subdued for the day. Expect negative returns from the market though mostly on the basis of global cues and the F&O market. Bank quarterly results are also coming out and don't seem very enthusiastic. Overall, maybe the markets will see a soft decline in the range of 1-2 pct with a far greater impact in the Bankex. F&O though should provide the ray of hope in the coming days. "The present is murky alright, but the future seems bright".

Two steps forward and one step back?

One step forward and two back. That was the mood till a month ago. And then came a spate of good news. Oil, the government, global cues......and in a flash the mood changed from pessimism to optimism (two steps forward). But as any market expert would tell you, such flashy optimism can be dangerous too, and thats what happened in the BSE and the Nifty yesterday. All cues, global and local looked positive, except maybe the inflation and the propensity to take profits. And what happened was exactly the latter. The markets opened positive on the back of the cues but heavy profit booking led it down down and out.

And to add salt to the wounds, what we have today is all negative cues globally, except perhaps the few local positives (if you read them as that) of inflation getting arrested below 12, optimism in the energy sector, and a hope things will smoothen out soon. Look out for both indices searching for clues to go up. Volatility should prevail but in taking the markets to lower levels. Overall, should ossicilate in the -2.5 to +0.5% for both markets (One step back). Further cues would be had when Europe opens for trade, but dare I say it may be a negative cue from the Eurozone? (look out for a further decline by day end) And shall I call it two steps forward and one step back? Maybe I should.

The mood is up

The BSE and Nifty yesterday reacted swiftly to the news of the government saving itself (never mind if it couldnt save its soul.....cause for the financial world, the cause and effect is more important than the process of change that brings forth the result). That the crude strengthened itself in the sub 128 (now sub 125) its peer markets world over a further impetus, can be gauged from the fact that after a long time, there has been a close with an upswing rather than a decline. The volume in the market has gone up to 95,000 crores, a figure we were dreaming to achieve just a week ago. FIs also for a change, have gone ahead and invested than cash out on the mood of the market. The expected Banking reforms bill was also in part responsible for the Bankex moving up.

Looking ahead for the day, though the sentiments are up, there can be some cashing in on a positive market for those positions created in the nadir. Then there is the inflation data for the week and expected to creep up and top 12 pct. The expected quarter pct rate hike by RBI next week should also create a minor dampner, though the long awaited positive in the market should brush aside all in its path. Asia is high, global sentiments are back on track, and yes, you have the oil below 125 now as another positive, though it impacts nobody as well as it does the oil companies. BSE above 15,200 seems to be a given, so is Nifty above 4,550 (if you go by the trends of the past few days) with a small down trend as today is the F&O expiry day may also impact the markets, but then as I said yesterday, lets enjoy the mood for now.

Bear End Game ??

So, is everything finally coming in place? The government finally managed to save itself. Oil managed to reach a 6 week low. The US market seems to be gearing up for an upsurge lately. And Asian markets are giving a thumbs up today. To add to all of this, if you notice the trend of our own markets lately, they seem to be suggesting towards a small bull ralley. The reason I say "small" is because I am still wary there may be a few corrections before we can say with a surety that the bear phase has abated. That the world economic scenario looks a bit rosy is no consolation for the fact that things like inflation and consumer sentiments are still low and likely to go down further. Add to it the fact that the sub prime woes are not completely gone ( remember, almost all big US banks have declared huge write downs and have come out with massive losses).

I had yesterday stated that "A few positions made today also maye be erased in a sell off tommorow". Well, it seems that the positions have changed a little overnight. Yes there will most definately be a good amount of sell off but given the changed scenario, there will be far greater buying in the markets today. Expect the BSE to do a 14,700 plus for the day and the Nifty at 4,350-4,380 with a possibility of the nifty just about making it to 4,400 while the BSE may also see similar jump towards 14,800 for a brief while. The stock of the day? of course, PSUs, Oil, Banks, and yes Realty. The dampners of the day? IT probably, solely because the rupee is expected to strengthen today to about 42.40-42.50 range. The End game may see a lot of the intra day positions being unwound, leading to a small decline, but will not be able to hurt the overall positive sentiment of the market.

So, is the bear phase over?? Not yet I believe, but let us leave that debate for the future and enjoy the day.

Mixed signals from the Asian markets, a near negative one from the Dow ( despite better than expected results by financial firms for the quarter) and the political impasse at the centre (India, I mean) bode no good for a market that in the recent past has been amongst the most beaten ones the world over. All said and done, my personal thoughts are that the UPA government at the centre should get a near comfortable majority (maybe around 8-10 votes) and that should propel the markets up. Though the vote will happen possibly late in the evening, a clear picture seems to be emerging as to the fate of the government.

Taking all the above into account, I believe, there may be a good bit of buying effort today not only on the deliveries side but also in the F&O segment too. A few positions made today also maye be erased in a sell off tommorow, in the wake of a positive vote at the centre.

The BSE shold today move for a 14,000 plus scenario and stabilise in the 14,100 to 14,200 region by the day end. Volatility in the markets though is not ruled out ( Not a day to enter the market I would think). The Nifty is seen in a 4,180 to 4,240 range with a likelyhood of both markets making it even higher if the UPA is seen making a comfortable victory. The stocks of the day should be the Banking, metals, PSUs and the fertilizer scrips. The logic solely resting on the assumption of the government staying. Though, the RBI's July 29 date for the rate hike is nearing and may impact sentiments in the bankex somewhat, it will in all likelyhood take a backseat for the day.