The BSE Sensex fell around 400 points and the Nifty slumped over 100 points on Wednesday, 21 August. The Bank Nifty was off highs, and was down 0.5 per cent after earlier rising as much as 5.93 per cent after the RBI eased cash and bond holding rules for banks late on Tuesday. The rupee on the other hand, hit a fresh all-time low, trading around 64.40 per dollar as heavy dollar buying from large state-run banks along with demand from custodian banks hurt the local currency on Wednesday. The partially convertible rupee was trading at 64.30/40 per dollar, after hitting a record low of 64.40 and down around 1.7 percent on the day. Traders said there was no signs of RBI's intervention in the spot market so far during the session. Book value or net worth of state-owned banks would become more opaque after the Reserve Bank of India eased bond holding rules, Morgan Stanley said in a report on Tuesday. State Bank of India is down 1.2 per cent after earlier rising as much as 5.5 per cent, while ICICI Bank Ltd is down almost 2.4 per cent, also retracing intra-day gains. Falls also track lower global shares on concerns that minutes of the US Federal Reserve's July policy meeting may add to suspicions it will soon pare back on stimulus. Market Reacted Well To RBI MeasuresEarlier, snapping a three-day downmove, the Bombay Stock Exchange (BSE) benchmark Sensex Wednesday jumped by 321 points in early trade, led by rally in banks and capital goods stocks, on the back of overnight steps taken by Reserve Bank of India (RBI) to ease liquidity. The RBI said late on Tuesday it will buy Rs 8,000 crore of bonds on Friday and will pare down its cash management bill sales as its target of pushing up the overnight rate to the central bank's emergency funding rate of 10.25 per cent had been achieved. The RBI relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses. While banks had previously been asked to cut their hold-to-maturity bond holdings gradually to 23 per cent of deposits, the RBI on Tuesday allowed banks to retain them at 24.5 per cent of deposits. The 30-share barometer surged by 321.66 points, or 1.76 per cent, to 18,567.70, aided by buying in beaten down bluechip stocks. The index had lost over 1,121 points in the previous three sessions. Similarly, the wide-based National Stock Exchange index Nifty recovered 80.85 points, or 1.50 per cent, to 5,482.30. Brokers said sentiments turned better after the RBI yesterday (20 Aug) announced a fresh set of liquidity easing steps amid rupee falling past 64 mark. The banking sector index led the recovered by gaining 5.53 per cent to 11,092.12 points as stocks of SBI were up by 5.07 per cent to Rs 1,632.20, ICICI Bank by 3.34 per cent to Rs 857.25, and HDFC Bank by 5.25 per cent to Rs 614.90. Meanwhile, in other Asian markets, Hong Kong's Hang Seng index fell by 1.01 per cent, while Japan's Nikkei shed 0.79 per cent in the early trade. Ahead of release of crucial minutes of the Fed meeting held in July, the US Dow Jones Industrial Average ended 0.05 per cent lower in Tuesday's trade.(Agencies)
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National Aluminium plans to raise its alumina exports by 40 per cent to 1.4 million tonnes this fiscal year, its production chief said, helping the country increase its dollar inflow amid a plunge in the rupee. Asia's third-largest economy is looking to boost exports and lower imports of commodities such as gold to arrest a steep fall in the rupee, which sank to its lowest on Tuesday. The fall in the rupee has helped National Aluminium, better known as Nalco, raise its exports, said S.S. Mohapatra, the production director of the state-owned company. The overseas shipments of Nalco, India's largest exporter of alumina, could raise about $400 million based on current prices. "Our earnings will be proportionate to the rise of dollar," Mohapatra told Reuters, adding that Nalco was India's third-largest foreign exchange earning company last fiscal year. The weakness in the rupee, which makes Indian products more competitive and inflates sales in the local currency, has also prompted steel companies such as state-owned Steel Authority of India and Jindal Steel and Power to raise exports. Nalco plans to raise its alumina output by about 19 per cent to 2.15 million tonnes for the fiscal year ending March 2014. Its output of aluminium, produced by smelting alumina, would be about 300,000 tonnes, out of which about 35-40 per cent would be exported, Mohapatra said. (Reuters)
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Government bonds rallied and the rupee was marginally stronger on Wednesday after the RBI said late on Tuesday it will buy bonds and eased bond-holding rules for banks to ease tight cash conditions. The rupee recovered by 10 paise to 63.15 against the US dollar in early trade after RBI announced measures to curb volatility and ease liquidity situation. Forex dealers said besides dollar selling by exporters, the Reserve Bank yesterday announced a slew of measures to ease liquidity, including Rs 8,000 crore bond buyback, to ensure adequate credit flow to the productive sectors of the economy, which also supported the rupee. They said, dollar's weakness against euro overseas also helped the domestic currency. Also Read: RBI Eases Tight Money Policy The rupee had ended 12 paise lower at 63.25 after hitting a fresh low of 64.13 against the US dollar in the previous session. The BSE benchmark index Sensex rose sharply by 321.66 points, or 1.76 per cent, to 18,567.70 in early trade. The benchmark 10-year bond yield fell as much as 69 basis points to 8.21 per cent. It was last trading at 8.28 per cent. Interest rate swaps were also sharply down. The five-year OIS was down 60 basis points at 8.35 per cent, while the one-year was down 44 bps at 9.45 pct, traders said.(Agencies)
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Stating that the current economic scenario is similar to 1991-92 crisis, foreign brokerage Barclays today said credit growth of banks will slow down to 10-11 per cent levels, just like it did during the crisis in early 90s. "The current macro context and consequently the monetary policy challenges are similar to those in FY1992," it said in a note. Barclays drew a slew of parallels between the ongoing economic scenario and the one during the dark period of 1991-92, like a sharp GDP slowdown, strained external account and sticky inflation. It can be noted that growth has fallen to a decade low of 5 per cent in FY13, the current account deficit is at a record high of 4.8 per cent, while the headline inflation also surged to 5.79 per cent due to the rupee depreciation, after showing ebbing for three months. Top economic policymakers, including Prime Minister Manmohan Singh, who ushered in the reforms in 1991 as a result of the crisis, have been repeatedly asserting that the scenario at present is not the same as 1991. It added that in 1991-92, capital spending and credit growth were weak, and hence, going to the bond markets was an unattractive option for banks. "If the FY92 scenario is repeated, credit growth could drop to 10-11 per cent," it said, conceding that this is contrary to the current focus on credit growth getting constrained because of weak deposit growth. Barclays said given their inflexible cost structures, public sector banks would get impacted because of this while others like Yes Bank and Indusind Bank, which are witnessing a string of growth in operating expenses because of network investments will also be hit. "A prolonged slowdown in credit growth would put pressure on the cost to income ratios of banks that have an inflexible cost base," it said.(PTI)
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Under attack over missing files relating to coal block allocation, the government on Tuesday, 20 August, said in the Rajya Sabha that the issue was being looked into and no stone would be left unturned in tracing the missing documents sought by CBI.The Opposition forced three adjournments before lunch over the issue, asking coal minister Sriprakash Jaiswal to recuse himself from replying and demanding that Prime Minister Manmohan Singh should make a statement.They said "propriety" demands Jaiswal should abstain as the missing files reportedly relate to a beneficiary of coal block allocation who is linked to the minister.Jaiswal sought to mollify the Opposition as he said he was ready to face any punishment if found guilty of the allegations.At the same time, he asked Leader of the Opposition Arun Jaitley as to what punishment he would undergo if the case was otherwise."All efforts are being made to locate documents which are not readily available...My Ministry would leave no stone unturned in tracing and providing the documents sought by the CBI," he said, adding a total of 769 files and documents running into 1.5 lakh pages have been handed over to the investigating agency.Raising the issue earlier, Jaitley said there are media reports that one of the beneficiaries of the coal block allocation was some body with whom the Coal Minister was related."If files relating to that allocation are missing, should he be making a statement on those files. I want to know from the chair that on account of this conflict of interest, should he make the statement...If not direct, it is a case of indirect involvement," said Jaitley."Propriety demands that the minister should voluntarily not speak...it should be the Prime Minister who should speak," said Najma Heptulla (BJP), asking the chair to give a ruling in this regard.Ravi Shankar Prasad (BJP) said the Minister should "at least voluntarily recuse himself" from replying to the query on missing files.Supporting the demand, Sitaram Yechury (CPI-M) said, "The House must know how these files are missing. It is appropriate that the minister then incharge should make the statement how the files went missing." Replying to the opposition attack, Jaiswal conceded that some files are missing and hence an inter-ministerial committee headed by an additional secretary has been set up to look into the issue and any action will be taken only after its report."The mandate given to the committee is to examine and review non-availability of files/documents and suggest appropriate action," he said, adding the committee has held two meetings and documents are being located.Amid slogan shouting by BJP, Jaiswal said some documents belonging to a period prior to 2004 are missing and alleged who had the interest in getting the files to pre-2004 period missing while pointing the needle of suspicion at NDA regime.Earlier Jaitley alleged that "files don't disappear, they are made to disappear" and said, "the files contain evidences of arbitrary allotments...the evidence of crime are in those files...if files disappear, the possibility of their escaping the punishment for a crime is obviously there." He said destruction of evidence in a case being probed by CBI and monitored by Supreme Court is in itself a crime. "Has the minister registered any FIR? Have you taken any legal recourse," he asked.There was uproar by the entire Opposition when Derek O'Brien (TMC) quoted a Congress spokesperson as saying, "the files are being re-written" and BJP raised slogans of "shame, shame".Questioning the minister, Jaitley said, "Will you please tell us the list of those companies whose files have been made to miss or disappear...who are these people who are the beneficiaries."Yechury also questioned Jaiswal if any FIR has been registered for the missing files, but the minister said a committee has been set up in this regard and any action will follow after its report.Seeking to know how the files went missing, Yechury asked why the files were not sought from the CAG which had conducted a complete audit of the ministry that led to the coal scam.Jaitley made a specific query if no file pertaining to post-2004 period was missing, but the Minister said this information was with CBI, leading to uproar.He said the files did not go missing in 2004 but in 2013 during the time when Jaiswal was the minister.The minister said if there was information about theft or destroying of files, an FIR would have been registered, but said since this was a case of missing files a Committee has been formed.Earlier, asking the chair to seek a direction on who should make a statement on the issue, Najma Heptulla (BJP) cited her own example when she in the chair had given a ruling asking Ram Jethmalani not to speak on the stock scam as he was the retainer of Harshad Mehta's assets at the time.Deputy chairman PJ Kurien, however, said the chair cannot direct the government to ask a specific minister to make a statement. The chair cannot presume any member or Minister to be guilty based on newspaper reports, saying if government wants it can make a statement.Prasad said when the coal scam surfaced, the Prime Minister and others had repeatedly assured that proper investigation would be conducted."It is a serious issue. If there would be resistance, then we will be constrained to presume that there is something fishy," said Prasad on why Jaiswal is insisting to make a statement on the issue. (PTI)
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Attributing rupee fall to widening current account deficit (CAD), Moody's said, depreciating value of the domestic currency is likely to inflate the fuel subsidy bill, weaken the credit quality of oil companies and put pressure on the fiscal deficit."Despite previous price liberalisation in the petroleum sector, the subsidy bill is likely to rise due to depreciation, thus widening the government's deficit, which is also under pressure from slower revenue growth", said Moody's Investors Service in an e-mail reply.The depreciation of the rupee, it said, reflects the wider CAD as well as lower net capital inflows.Continuing its slide, the rupee breached 64-mark against dollar on Tuesday, 20 August, by falling 98 paise to trade at record low of 64.11 on persistent dollar demand in the early trade."We believe the currency will remain under pressure until the current account deficit narrows meaningfully, or capital inflows accelerate due to an improving growth outlook," Moody's said.Meanwhile, a report by the rating agency said that the rupee fall will weaken the credit quality of state-owned oil marketing and upstream oil companies during the current fiscal if the government continues to ask them to share a higher fuel subsidy burden as it did in April-June."We now expect fuel subsidies for FY 2014 at Rs 1.4-1.5 lakh crore, up from the Rs 1.3 lakh crore expected in June 2013," said Vikas Halan, Moody's Vice President and Senior Analyst.The report cites the ongoing depreciation of the Indian rupee and the rising crude oil prices as the reasons for the upward revision of its fuel subsidy estimate for 2013-14."If the government continues with the same subsidy-sharing formula, as in April-June quarter, then the credit quality of the state-owned oil companies will weaken further," Halan added.(PTI)
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India raised the cap on foreign direct investment in asset reconstruction companies (ARC) to 74 percent from 49 percent, the Reserve Bank of India (RBI) said on Monday, 19 August, another measure to attract capital inflows to support a sagging rupee.The foreign investment limit of 74 per cent in the company will include both foreign direct investment and foreign institutional investment with a single portfolio investor not allowed to exceed 10 per cent of paid-up capital in the ARC, the RBI said.(Reuters)
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Moody's on Monday, 19 August, reiterated its stable outlook on India's Baa3 sovereign rating, Bloomberg cited analyst Atsi Sheth.India's rating is supported by low levels of overseas government debt and adequate reserves for balance of payments needs in the near term, Sheth said in an email to Bloomberg. "The rating is also supported by domestic savings rate," it added.India's sovereign rating is at the lowest investment grade level. Moody's said that it will continue to asses the country's foreign exchange reserves adequacy. "India has adequate reserves for near-term BoP payments," it said.According to Moody's, flows are unlikely to accelerate unless growth outlook improves. "Fiscal policy is the weakest aspect of Indian economy," it said.Earlier in the day, in an interview with ET Now, Sheth said, "India has had certain amount of capital controls before and will likely continue to have capital controls into the future. Indian authorities have been very clear that capital account liberalisation is something they will address with caution.""In our view, India has always had capital controls. The measures announced recently were indeed adjustments in the amounts of controls. So depending on what your own view is, you can interpret it as new capital controls or an adjustment of capital controls. But the fact is that there were capital controls before, there will be capital controls now and the amount of control is what is being adjusted now," she added."In my view, what is affecting the attractiveness of the country as an investment destination are two factors. One is the growth outlook that we are seeing coming in and the second factor is the policy environment," Sheth said."We saw over the last year a flurry of announcements which have been seen positively by some because they open the doors to investment in certain sectors and they liberalise regulation in certain other sectors. But the net result of all those announcements has still not reflected in the growth. There is still uncertainty as to what next will come from the government that will really propel an improvement in the investment outlook.""Until there is some clarity that the government is going to take measures that will actually lead to private investors making direct investments, the attractiveness of India as an investment destination will remain subdued," she added.Earlier today, The rupee fell past 63 per dollar to a record low on sustained dollar demand from state-run and foreign banks.The rupee closed at 63.13 to a dollar, down 2.4 per cent on the day. The currency closed trading on Friday at 61.65/66 (not 61.55/56).
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