Mumbai: After raising its key policy rate — the Repo rate by 25 basis points in June, it could well be a close call this time around for the Monetary Policy Committee (MPC) of the Reserve Bank of India in the bi-monthly policy review on August 1 with opinion divided over whether to raise interest rates or to leave it unchanged.
A section of the financial markets and analysts say that there may not be much urgency in delivering back to back rate hikes when the policy stance is still neutral. Given the lack of clarity regarding inflationary and fiscal risks, the RBI is likely to persist with the neutral stance of the monetary policy to signal that the timing and magnitude of upcoming rate hikes would be data dependent, analysts said.
If the RBI stance is changed to withdrawal of accommodation, it may be perceived as a signal of a series of impending rate hikes. This could lead to a rise in bond yields, while contributing to a pullback of the rupee which is now showing volatile movements. With the stock markets moving Northwards, foreign investors who sold around Rs 60000 crore in the April to June, have made marginal purchases.
However, others, including rating firm ICRA say: with mixed cues regarding the extent of inflationary and fiscal risks, and the momentum of economic growth, the MPC would adopt a cautious stance and increase the repo rate to 6.50 per cent in the August review. The rise in core inflation is the real worry of policymakers.
Lakshmi Iyer, Chief Investment Officer, Kotak Mutual Fund, said: “The August MPC decision could be a close call. Consumer inflation for June was lower than expected. Crude oil prices have been largely range-bound. There also seems uncertainty on how the global trade war could potentially unfold. In such a scenario, the MPC could afford to do a ‘wait and watch’ at this juncture and consider more data points before a rate action.” From the market perspective, bond yields already seem to have discounted another rate hike and hence yields are at elevated levels.
The relief is that the August policy comes with a breather on the inflation front as the expected inch up to inflation in June has not materialised with a print of 5 per cent against expectation of 5.4 per cent. Monsoon also recovered sharply in July and international oil prices have corrected by 5 per cent since last policy in June and the currency is now moving in a narrow range.
The case against status quo could be on two counts. First, higher core inflation seems to have peaked at 6 per cent as per the base case scenario. Second, the sharp hike in MSP prices of close to 15 per cent against last four year average of 4 per cent could impact inflation. As the average inflation for FY 2019 could be 4.75 per cent against 3.8 per cent last fiscal, there is room for 25 bps hike in rates either pre-emptively now or in October, beyond that oil prices should drive the reaction function of the policy makers, said Kunal Shah, Debt Fund Manager, Kotak Life Insurance.
Naresh Takkar, Managing Director and Group CEO, ICRA, said, “while the cuts in rates of the GST on various items may modestly subdue inflation, they would add to fiscal concerns. Moreover, the uptick in the core-CPI inflation in June 2018 and the risks associated with the trend of expenditure announcements by state governments, suggest that the MPC may opt for a pre-emptive rate hike in August 2018.”
“Depending on the impact of inflationary and fiscal risks on the inflation outlook, the MPC may raise the repo rate by 25-50 bps in the last three-quarters of FY2019. However, it may retain the neutral stance of the monetary policy instead of a shift to withdrawal of accommodation, to signal that the timing and extent of future rate hikes would remain data dependent,” Takkar said.
According to Crisil, though food inflation decelerated, what took the number higher was firming up of fuel and core inflation. The MPC had hiked its policy rate by 25 bps in June envisaging exactly such pressure. Crisil said sustained rise in core inflation would worry the MPC and may require one more rate hike down the road. Core inflation is becoming broad-based with almost all categories such as health, recreation and amusement and education showing a rising trend.
Sensex sheds 298.82 to close at 38,811; Nifty shrinks to 11,650
Mumbai: The benchmark BSE Sensex erased early gains to end 299 points lower Thursday as investors booked profits after stocks soared to record highs after BJP’s strong showing in the Lok Sabha polls.
Sensex and NSE Nifty went on to record highs even as Lok Sabha election results showed that PM Modi-led NDA leading on over 300 seats. However after the euphoria during the morning session, Sensex shed 298.82 to close at 38,811 and Nifty shrank to 11,650 on the closing bell.
During the day, the Sensex hit the 40,000 mark while the Nifty crossed the 12,000-level for the first time ever. However, the indices succumbed to profit booking towards the fag-end of the session.
The 30-share Sensex tumbled 298.82 points, or 0.76 per cent, to close at 38,811.39. Similarly, the broader NSE Nifty settled 80.85 points, or 0.69 per cent, lower at 11,657.05.
IndusInd Bank was the biggest gainer in the Sensex pack, rallying 5.23 per cent, followed by Hero MotoCorp, Coal India, Yes Bank, PowerGrid, ICICI Bank, HCL Tech, L&T, Kotak Bank and Bharti Airtel, rising up to 1.56 per cent. On the other hand, Vedanta, ITC, Tata Motors, HDFC twins, Bajaj Finance, Sun Pharma, Tata Steel, TCS, ONGC and Infosys fell up to 5.53 per cent.
Riding on a massive Modi wave sweeping through most parts of India, the BJP was set to return to power Thursday as it led in 298 seats while the Congress trailed far behind with 52, according to trends released by the Election Commission for all 542 seats that went to polls.
“Markets were initially enthused to see the election results falling in line with the exit polls. However, the run up to the D-day was so sharp that it turned out to be a sell on news phenomenon,” said Devang Mehta, Head – Equity Advisory, Centrum Wealth Management.
Participants would now be keen to know the future course of action for bringing the economy back on track, solution to the liquidity situation, the union budget, onset and progress of monsoon in June and most importantly the earnings trajectory, he added.
According to traders, weak cues from other global markets and a depreciating rupee also weighed on investor sentiment. The rupee depreciated 37 paise to 70.04 against the US dollar in afternoon trade. Globally, bourses in Asia ended in the red.
Indices in Europe were also trading on a negative note in early deals. Brent crude, the global oil benchmark, was trading 1.79 per cent lower at USD 69.72 per barrel.
Silver up on increased offtake; gold steady
New Delhi: Silver prices rallied by Rs 200 to Rs 37,400 per kg in the national capital on Thursday, while gold held steady, according to the All India Sarafa Association.
Traders said silver prices rose on pick-up in offtake by industrial units and coin makers at the local spot market. Globally, spot gold was trading marginally higher at USD 1,276 an ounce, while silver was slightly up at USD 14.53 an ounce in New York.
In the national capital, gold of 99.9 per cent and 99.5 per cent purity dropped by Rs 10 each to Rs 32,670 per ten 10 gram and Rs 32,500 per 10 gram. Sovereign gold, however, held steady at Rs 26,500 per eight gram.
Silver ready surged Rs 200 to Rs 37,400 per kg, while weekly-based delivery fell by Rs 66 to Rs 36,234 per kg. Silver coins held flat at Rs 79,000 for buying and Rs 80,000 for selling of 100 pieces.
India PC mkt declines 8.3 per cent to 2.15 mn units in Jan-Mar qarter
New Delhi: Personal Computer (PC) shipment in India fell by 8.3 per cent in the January-March quarter of 2019 to 2.15 million units, registering a year-on-year decline for the third consecutive quarter, according to research firm International Data Corporation (IDC).
Besides, big commercial deals, market remained weak due to weak consumer demand, high inventory from previous quarters, and supply issues for Intel chips.
Shipments in the consumer segment saw a 26.5 per cent dip in the said quarter compared to the year-ago period. The commercial PC market saw a total shipment of 1.35 million units in the said quarter, a growth of 7.3 per cent over last year.
“The announcement of central elections on March 10, 2019 resulted in the model code of conduct coming into immediate effect further resulting in a delay in execution of government projects and impacting the commercial segment,” IDC said in a statement.
However, IDC expects the overall PC market in India to witness a growth in the second quarter. The commercial market is expected to pick up post new government formation in May, while the consumer market is expected to pick up largely driven by back to school campaign by vendors and online sales.
HP maintained its leadership position with an overall market share of 28.1 per cent in the first quarter of 2019, followed by Dell (25.9 per cent), Lenovo (25.2 per cent) and Acer (11.7 per cent).
The notebook PC (laptop) category accounted for 61.4 per cent of the shipment and witnessed a 9.8 per cent year-on-year decline.