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Modi govt cuts gross market borrowings by Rs 700 billion for FY19

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Mumbai :Armed with augmented resources from small savings, the government will cut gross market borrowings by Rs 700 billion for 2018-19 to finance its fiscal deficit, which is expected to remain within the targeted 3.3 per cent of gross domestic product (GDP).
The move, along with measures of the Reserve Bank of India (RBI), is expected to ease pressure on bond yields and liquidity. For the second half, the government will mop up Rs 2.47 trillion as market borrowings, which will include issuances of inflation-linked bonds. While the target of net market borrowing will be retained, that for buybacks will be reduced.
“The gross borrowing programme for the second half is now only Rs 2.47 trillion. In the first half, our borrowing programme was Rs 2.88 trillion,” Economic Affairs Secretary Subhash Garg told reporters after fixing the calendar for the second half after consultation with the RBI. The government had budgeted mopping up Rs 6.06 trillion in FY19, but will now raise Rs 5.35 trillion (Rs 2.88 trillion in the first half and Rs 2.47 trillion in the second half). Reduced buyback and increased resources from small savings will make up for the lower market borrowing. “Since our fiscal deficit is not being affected, we have decided to continue with the net borrowing programme as it is. However, we had some re-think on the buyback programme. Also, we expect some more funds to flow from small savings,” Garg said. Earlier, the government had said it would reduce buyback by Rs 250 billion and raise an additional Rs 250 billion from small savings in FY19. This had been raised by Rs 200 billion, for the whole of which the buyback would be reduced further, sources said. Icra Chief Economist Aditi Nayar said the 10-year bond yield was expected to range between 8.0 and 8.1 per cent in the near term. Currently, it is in the range 8.02-8.03 per cent.
“With uncertainty regarding the size of H2 market borrowings out of the way, the outlook for inflation risks such as crude oil prices, rupee value, the pipeline of open market operations as well as emerging information on the balance of various fiscal risks would guide bond yields,” she said. The government will borrow Rs 110 billion a week until the start of November. “And thereafter, we will borrow Rs 120 billion as was the case in the first half. We will end the year’s borrowing programme on March 8,” Garg said.
graph There will be 21 auctions. The government will introduce inflation-indexed bonds during the second half this year. “Since this is a new instrument, we expect one or two issues to be made in the current half year,” Garg said. The government is not looking at financing the fiscal deficit from any source other than net market borrowings, buybacks and small savings. As such, either there will be no cash management bills or they may be for a very short time, Garg said.“Our borrowing programme is sufficient for our fiscal needs. We also decided that ways and means advances would be Rs 350 billion only in the second half. And in March, it will be kept only at Rs 250 billion,” the economic affairs secretary said.
The bond market is surprised at the cut in borrowing because it was expecting a reduction of Rs 500 billion for the full year, as announced by Garg in March. “The borrowing number of Rs 2.47 billion is positive. This reflects the government’s comfort with revenues,” said Harihar Krishnamurthy, head of treasury, First Rand Bank.
Jayesh Mehta, head of treasury, Bank of America Merrill Lynch, said the market would rally on Monday but it would also be cautious as the RBI monetary policy is scheduled next week. “If the rate hike is only 25 basis points, the market will be bullish and sustain 7.75 per cent,” said Mehta. The bond market has not much reason to complain because the government is sticking to its fiscal deficit target, and the RBI is infusing liquidity of at least Rs 2 trillion into the system. “The RBI move to ease liquidity via LCR (liquidity coverage ratio) easing, two successive OMOs, and the resumption of government spending have eased market liquidity considerably,” Krishnamurthy said, adding he expected the 10-year bond yields to test and breach of 8 per cent on Monday. The 10-year bond yields closed at 8.02 per cent .


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India to surpass China to become 2nd largest oil demand centre in 2019

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New Delhi: India will surpass China to become the second largest oil demand growth centre globally in 2019 on back of buoyant auto fuel and LPG consumption, research and consultancy group Wood Mackenzie said on Tuesday.

In a report, Wood Mackenzie said India’s oil demand growth recovered strongly in 2018, overcoming the aftermath of the implementation of Goods and Services Tax (GST) and demonetisation, and contributed 14 per cent of the global demand growth or 2,45,000 barrels per day.

“We forecast oil demand to grow at the same level in 2019. This will result in India becoming the second largest demand growth centre globally in 2019, behind the US but ahead of China. Transport fuels – gasoline and diesel – and residential LPG will continue to be the two main drivers of oil demand growth,” it said.

 

According to the US Energy Information Administration (EIA), India is currently ranked behind the United States and China as the world’s third-largest oil consumer. It consumed 206.2 million tonnes (over 4 million bpd) in the 2017-18 fiscal year.

During April-December, consumption of petroleum products has been 157.4 million tonnes, up 2.5 per cent over year-ago period.

Last August, oil cartel OPEC projected India’s oil demand to rise by 5.8 million barrels per day (bpd) by 2040, accounting for about 40 per cent of the overall increase in global demand during the period.

Mackenzie said diesel, the most consumed fuel in the country, is projected to grow by 6.4 per cent or 1,12,000 bpd year-on-year in 2019 compared with 93,000 bpd in 2018.

This was because of “buoyant commercial vehicle sales facilitated by sustained infrastructure growth, and increasing demand from the construction, logistics, e-commerce and consumer goods sectors,” it said.

Also, the push will come from a demand-based approach instead of a tax-based approach in the logistics sector, following the implementation of the GST, which has led to the removal of inter-state taxes. “This is a structural shift, resulting in increased demand for heavy and medium-duty trucks to achieve economies of scale and operational efficiency.”

More importantly, general elections in May will lead to increased travel activity for campaigning and implementation of infrastructure projects, which will bolster demand in the first half of 2019, Mackenzie said.

 

“Key risks ensue as crude price volatility is expected to persist. Historically, short-term gasoline demand has been relatively inelastic to retail prices in developing economies such as India. Even though higher retail prices affect consumer sentiment for new vehicle purchases, we believe this trend will continue with income effects driving the demand, subduing the price effects,” it said.

LPG demand growth will remain robust in 2019 at 5 per cent (40,000 bpd) although it is lower than the 56,000 bpd growth achieved in 2018. “The number of new household LPG customers continued to surge, driven by the Ujjwala scheme to promote clean cooking fuel in rural areas. That said, there is a largely untapped market, as around 50 million households remain deprived of LPG,” it said.

On the use of electric vehicles, it said only 2,60,000 EVs have hit Indian roads, majority being two-wheelers.

“Electric car sales, for instance, declined by 40 per cent to a mere 1,200 units in the financial year 2018 over the financial year 2017, while electric two-wheeler sales rose 138 per cent to 54,800 units during the same period. In contrast, China had a stock of 1.8 million EVs and 258 million e-bikes at the end of 2018,” it said.

This year, it said, will be an important year as the final version of the National Auto Policy and the second phase of the FAME scheme will be released.

“The question is the timing – will it be before or after the elections? Will the Modi government change tack if it is not re-elected? Will this ambiguity continues to deter wider adoption? Automakers seem to have realised that EV adoption is not a question of ‘if’. For instance, Maruti Suzuki, the largest automaker in India, will launch an electric version of one of its best-selling entry-segment cars – the Wagon R – in Q1 2019,” Mackenzie said.

Another key challenge will be stakeholder management and coordination across the different ministries, government bodies and industry participants while the policy is formalised.

Stating that two-wheelers will dominate the electric mobility landscape in the personal transport sector, it said India offers huge potential for automakers as car ownership levels are very low (23 per 1,000 capita).

Rising income levels will increase car ownership and most global automakers are closely watching this lucrative market. At the same time, two-wheelers should not be ignored – with current ownership six times larger than four-wheelers.

“We believe that two-wheelers are the more effective option given their utility in intra-city travel, less need for public charging infrastructure and availability of battery technology. Two-wheelers will eventually leapfrog four-wheelers towards the goal of a greener and sustainable mobility future,” it added.

 

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Sensex snaps 5-day winning streak on weak global cues, profit-booking

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Mumbai: The domestic equity market took a breather on Tuesday after a five-day rising spree as investors booked profits in metal, financials and auto counters, amid weak cues from international markets after IMF lowered its global growth projections for 2019 and 2020.

The 30-share BSE Sensex dropped 134.32 points to end at 36,444.64, while the broader NSE Nifty finished 39.10 points lower at 10,922.75.

Participants were seen taking money off the table after the recent rally, even as the wider sentiment remained positive, underpinned by better-than-expected Q3 earnings by several bluechips.

 

The BSE Sensex, after resuming higher at 36,649.92, advanced to 36,650.47 on buying by domestic institutional investors (DIIs) as well as retail participants. However, market quickly slipped into the negative zone as investors chose lock in gains in recent outperformers, dragging down the key benchmark to a low of 36,282.93 before ending at 36,444.64 down 134.32 points, or 0.37 per cent.

The gauge had rallied over 725 points in the previous five sessions. Likewise, the 50-stock NSE barometer Nifty finished 39.10 points, or 0.36 per cent, down at 10,922.75 after hitting the day’s high of 10,949.80 and a low of 10,864.15.

Brokers said investors turned cautious and preferred to log profits in recent gainers, dragging down key indices.

“The market tracked other Asian markets following IMF’s weak forecasts of global growth prospects,” said Paras Bothra, President, Equity Research, Ashika Group.

“While India’s economic forecasts were retained, concerns were raised over the difficulties in containing the fiscal deficit. Continued weakness in the rupee favoured IT and Pharma stocks while majority of other sectors were under pressure,” he added.

The IMF lowered its global growth projections for 2019 and 2020 to 3.5 per cent and 3.6 per cent respectively, citing slowdown in several advanced economies around the world more rapidly than previously anticipated.

Meanwhile, India is projected to grow at 7.5 per cent in 2019 and 7.7 per cent in 2020, an impressive over one percentage point ahead of China’s estimated growth of 6.2 per cent in these two years, the IMF said Monday, attributing the pick up to the lower oil prices and a slower pace of monetary tightening.

The International Monetary Fund in its January World Economy Outlook update on Monday said India would remain the fastest growing major economies of the world.

 

Foreign portfolio investors (FPIs) continued their selling activity on domestic bourses here. They sold shares worth a net Rs 299.79 crore, while domestic institutional investors (DIIs) made purchases to the tune of Rs 520.80 crore on Monday, provisional data showed.

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Gold extends gains on jewellers’ buying

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New Delhi: Gold firmed up by Rs 125 to Rs 33,325 per 10 grams on Tuesday, largely on the back of sustained wedding season buying by jewellers even as it weakened to near three-week lows overseas.

Silver, however, turned weak due to reduced offtake by coin makers and consuming industries and lost Rs 250 to Rs 39,850 per kg.

Persistent buying by local jewellers, triggered by the ongoing wedding season, kept gold prices higher, bullion traders said.

 

Globally, gold fell 0.13 per cent to USD 1,278.90 an ounce in New York as a firmer dollar made bullion more expensive for buyers using other currencies. Silver also eased by 0.46 per cent to USD 15.26 an ounce.

In the national capital, gold of 99.9 per cent and 99.5 per cent purity advanced by Rs 125 each to Rs 33,325 and Rs 32,175 per 10 grams, respectively.

The yellow metal had gained Rs 40 on Monday. Sovereign, however, remained unaltered at Rs 25,500 per piece of eight grams on scattered enquiries.

In contrast, silver ready prices dropped by Rs 250 to Rs 39,850 per kg and weekly-based delivery slipped by Rs 264 to Rs 38,876 per kg.

Silver coins, however, were unchanged at Rs 77,000 for buying and Rs 78,000 for selling of 100 pieces.

 

 

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