Reserve Bank Deputy Governor Subir Gokarn has said there is a need to "dematerialise" gold like any other financial product to reduce its physical imports, the rise of which has been blamed for the high current account deficit that is feared to touch new record high this year. "It (high gold imports) is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing," Gokarn told the last day of the two-day annual Bancon in Pune on 25 November. The current account deficit or CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of USD 21 billion on the back of rising oil and gold imports. Read: RBI Bars Financing Of Gold Purchases Reeling out the high gold import data, Gokarn said a working group headed by KUB Rao of RBI will shortly be coming out with its report on the ways to deal with the problem arising from high gold imports on macroeconomic front in the form of balance of payments. He said while global gold output has stayed stable at around 4,000 tonne per year, the domestic consumption of the yellow metal has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices. "More expensive gold is being imported in larger quantities which is compounding the troubles," he said. As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2 per cent in the year, the Reserve Bank has unveiled a slew of curbs on gold purchase and financing. Last fiscal, there was a 39 per cent rise in gold imports and in gross terms, it constituted for 80 per cent of the current account deficit, which reached an all-time high of 4.2 per cent, Gokarn said, adding the net gold imports constitute for 1.8-2.4 per cent of GDP. This spike in gold demand was in spite of the record price rally that the metal witnessed last fiscal. It can be noted that in April the RBI brought down the loan to value or LTV that gold loan companies like Muthoot Finance or Manappuram Finance could offer just 60 per cent of the market value, from a high of 85-90 per cent. In the 30 October credit policy, the RBI also banned banks from funding gold buying by gold loan companies and NBFCs. (PTI)
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The smell of paint fills the room of a bygone Victorian-style government building, the headquarters of the deputy superintendent of police (DSP) of Perundurai town, in Tamil Nadu’s Erode district. An angry crowd surrounds the building, demanding immediate redress. It has gathered to file a complaint against a person in whose business many had invested. The business: emu farming. Amounts invested: Rs 50,000 to several lakh. The business proposition: raise emus and sell their eggs back to the promoter and, in return, receive a monthly income. The dream: tap into a large market for emu eggs and emu meat to make a fast buck. Current situation: monthly income stopped after a few months and farmers have been left to care for hundreds of flightless birds.From the looks of it, it was just another Ponzi scheme — named after American conman Charles Ponzi — which promised investors big returns based on a constant flow of new investors. A few investors who received high returns reinvested the money in the business, which was then used to lure another set of investors. “Not one person knew where the birds came from and what they were being used for,” says K. Gunasekaran, DSP of Perundarai. The companies that were involved in the scam, namely Susee, Suvi, Queen, Nidhi, N.S. Agro, Baby, T.V.S. Emu and Alamu, have had their farms confiscated by the Tamil Nadu government. The government now plans to sell the assets of these companies and pay back investors. Tamil Nadu is not the only state where people have been duped with promises of quick returns. Travel north to Punjab, Haryana and Rajasthan, and you hear similar stories. The emu, a cousin of the ostrich, has been the cause of several people losing their hard-earned money. Take, for instance, the case of Mandeep Singh who, along with his partner, started Shubham Emu Farm in Haryana’s Sonepat district a couple of years ago with an investment of nearly Rs 30 lakh. “We have recovered a part of the money that we initially invested but the problem is that with new farms reaching saturation point, there is no end market for the emus and no new customers,” says Singh. CAGED IN: Emu farmers such as Mandeep Singh from Haryana (top) and V. Masila Mani in Tamil Nadu feel broadening the market in India will help people like themThe ‘end market’ he is referring to is the market for meat, which Singh initially thought was huge. “People in India are used to chicken; no one wants emu meat,” he explains. Says Vinod Chaudhary, who runs an emu farm in Rajasthan: “There are no volumes in bird culling. Whatever eggs we have sold have been to new farms.” But with farmers realising that there isn’t much of a market for emus, there has been a fall in the price of eggs as well. “With the fall in demand, prices have also depreciated. The eggs that we sold at Rs 8,000 a pair last year are being sold at Rs 500 at present,” says Choudhary.Farmers have also seen the prices of the birds plummet. Birds that were bought for Rs 35,000-50,000 a pair some years ago are now being sold for Rs 5,500-15,000 a pair. However, even as farmers in Punjab, Haryana and Rajasthan are cutting their losses and trying to move out of the business, newer markets are opening up in Uttarakhand, Uttar Pradesh and Himachal Pradesh. In fact, the smarter of the lot who are in the process of shutting shop are selling their birds to unsuspecting farmers in these states for Rs 35,000-40,000 a pair. How long it will take for the new lot of farmers to realise that they have been duped is anybody’s guess. Meanwhile, they continue to buy mating pairs and raise chicks in the hope that they will sell the meat to restaurants and the oil to pharmaceutical companies.Behind The Fence Across the country several people have suffered after investing money in a bird which had no underlying demand. The only assumption of a derivative reward was that some day these birds could be culled for their meat, with the skin being used as leather and the fat sold to pharma companies. But the ancillary industries did not exist and no one thought they were needed in the short run. This resulted in fly-by-night operators making a quick buck and disappearing, leaving behind angry farmers and thousands of flightless birds. Those who still have the birds are releasing them into the wild as it is expensive to maintain them. The feed alone costs between Rs 25 and Rs 30 per bird per day. Another Rs 100 per day is needed to hire a person to look after the birds. An unnecessarily hasty step, according to S.K. Maini, a member of Hyderabad-based Emu Farmers Welfare Association (EFWA). “Emu is a bird that can be slaughtered and eaten. It defies logic that farmers would release the bird into the wild, given the fact that it makes more sense to just cull the bird,” says Maini. However, his logic does not wash with farmers stuck with the birds. Take for instance L. Raghavan (name changed), who is a personal assistant in Coimbatore’s police department, but hails from Erode. Raghavan invested Rs 3 lakh in five mating pairs and hired a couple of men to manage the 2,500-sq. ft. shed that houses them. “The emu farmer offered me Rs 15,000 per month as maintenance charges and also gave me the feed for the birds with the promise of buying the eggs in the breeding season,” says Raghavan. But within six months, the money stopped coming, and the birds began laying eggs. Soon, he had a 100 eggs and they began to hatch. Now Raghavan has 80 chicks that are already 3 feet tall and are a drain on his pocket. The farmer who enticed him with the promise of buying back the chicks and the eggs has disappeared. If Raghavan cannot sell the meat, he will probably release the birds. break-page-breakKumar Vel, another farmer from Tamil Nadu, says, “These birds were my life. But the scam in Erode has dashed my hopes of taking care of them. I cannot afford to keep them as pets. There is no money in selling the eggs. I have had the birds for seven years and am attached to them. But I have to kill them or sell them.”While the emu has resulted in the downfall of several farmers, there are a few who continue to harbour hope. V. Rangaswamy, the pioneer of emu farming in Tamil Nadu, managed to create an ecosystem of contract farming by asking local farmers to buy two or three mating pairs from him and then sell back the eggs to him. Rangaswamy culled the birds and sold the meat to local restaurants as exotic meat. To promote its consumption, he tom-tommed the zero-fat in the meat in hotels. Rangaswamy managed to sell emu fat to an exporter for Rs 2,500 a kg and also made money by selling the birds in Andhra Pradesh, where there was a vibrant market for emus. But all that was before the scam. Now he has 200 birds, and waits for things to change. “I have been readying a plan to set up a food processing plant. I know I can make it work,” he says.V. Masila Mani is a 25-year-old textile businessman who also runs a 2,000-bird emu farm spread across 60 acres in Tamil Nadu’s Karur district. He says that for emu farming to be commercially viable someone must set up the infrastructure for collecting the birds, regulating the market and providing the farmers with a food industry linkage. “Our biggest market is Andhra Pradesh. The bird’s by-products do have a business proposition there but we need time for the business to scale up,” says Mani, managing partner of MMT Emu Farms. The AndhrapreneursAndhra Pradesh has close to 2,500 emu farmers — the largest in any state in India. While there are no official estimates for the number of emu farmers in the country, they are expected to be between 5,000 and 8,000. That’s a large number of farmers and an even larger number of birds for a market which as of now is non-existent. The farmers in the state say that emu oil or fat can be sold to pharma companies and soap factories because of its permeability and moisturising properties. Research is being conducted to ascertain the benefits of emu oil at the Indiana University School of Medicine in the US. But nobody knows how it fits into the Indian context. The meat is expensive and sells at Rs 400 a kg, the fat has no market here, and the leather industry cannot conceive of any use for the bird’s skin. In spite of all this, the emu farmers in Andhra Pradesh are optimistic. “People need to be educated about the benefits of emu farming and the scam in Tamil Nadu is unfortunate,” says Vijay Kumar, general secretary of EFWA. In Andhra Pradesh there are plans to set up at least three processing plants. One such plan, from AP Emu Processors, involves setting up a plant in Vijayawada with an investment of Rs 10 crore. The plant will extract oil from 100 culled birds a day, to be sold in the US. BW was unable to talk to the promoter of AP Emu Processors.According to EFWA’s Maini, the end market is burgeoning. He argues that in just Hyderabad’s vicinity, at least 25 culling units have been set up. “Each one of these units is at present culling about 15 birds daily. There is a retail market for the meat,” he adds. TALL ORDER: Kumar Vel from Tamil Nadu says he has to kill his birds or sell them as he cannot afford to keep them as pets (Shanawaaz)Some farmers too are making attempts to create a market for emu meat in local villages and towns. In Prakasam district, C. Venkat Reddy and his brother Srinivas have brought 2,000 small farmers together to promote emu farming in the region. “The problem with our industry is that we do not have one large player who can champion our cause such as Suguna Chicken or Venkys,” says Reddy, owner of Balaji Farms in Darsi, which houses over 300 emus. He insists emus are low maintenance, resistant to disease and offer a definite alternative income to farmers. The Reddy brothers have been asking emu farmers to hold a meat mela, where they would cull one bird a week to promote consumption within the village or town. Ecological RiskWhether such attempts to create a market for emu meat will succeed, only time will tell. Meanwhile, it is estimated that there are close to 2 million emus in India and their ecological impact is yet to be measured. “The business cannot be commercialised no matter what they do as there is no market anywhere in the world for emu meat, eggs and oil. Therefore, the only option is to immediately stop breeding them and destroy the eggs, keep the animals for their lifespan and then stop. This is not an industry appropriate for India. Even Australia has not been able to make a success of emu farming; so, it definitely will not work here. The farmers will lose all their money no matter what happens, so it should be called to a halt right now,” says Maneka Gandhi, Member of Parliament and environmentalist. BIRD TRAPModus operandi of emu schemes in Tamil NaduPay Rs 1 lakh for five breeding pairs in the beginningGet Rs 10,000 as maintenance cost on a monthly basisPay Rs 5 lakh for spot on waiting listPay a premium for immediate deliveryInvestors’ money used to pay monthly maintenance charges to emu ownersAbout 50,000 farmers cough up money in seven multimarketing schemesFree cars given to those who brought in more investorsOnce enrolled, investor stops getting monthly maintenanceWhile emus are native to Australia, the Indian emus’ parentage can be traced to Texas, US, where they were raised as pets. They were brought to India in the early 1990s. Emus are herbivorous. According to environmentalists and ecologists, the emus may become naturalised and breed freely in the wild. However, in the absence of predators, an increased population of emus could become a hazard to farmers as they may destroy crops just the way wild boars and antelopes do in various parts of the country. “The fact that we have killed our tigers and cheetahs means there is no stopping a species that reproduces quickly. Farmers should therefore not release these birds into the wild because this could well be the next environmental hazard,” says Yogesh Gokhale, a fellow at environment think tank Teri (The Energy and Resources Institute). “Ultimately, it will come to a cull — no one can stop it unless we ask animal lovers and people with large estates and farmhouses to adopt some birds as pets,” says Gandhi.bweditor(at)abp(dot)in(This story was published in Businessworld Issue Dated 03-12-2012)
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Domestic politics will increasingly drive the fate of the Indian rupee, much like the Japanese yen or the euro, HSBC says in a note. HSBC says its base case scenario is for the government to maintain its reform agenda, but warns the parliamentary process is "fraught with downside risks." "This debate will be a litmus test for the INR and the reform process," HSBC writes. "If we were to a see a reversal of some of these recent reforms, it would undoubtedly put increasing weakening pressure on the INR." HSBC expects "strong upward pressure" on the USD/INR should the reform process falter, but for the pair to retrace its recent gains should the government gain traction with its policies. (Reuters)
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The International Monetary Fund on 4 December' 2012 unveiled principles for how countries should manage international capital flows, agreeing that some measures to limit an influx of capital can be useful but should be targeted, transparent and temporary. Emerging markets have blamed loose monetary policies in rich nations for spurring destabilizing flows of hot money, and the IMF is trying to forge a consensus on when it makes sense for nations to resort to capital curbs. The IMF emphasized it new "institutional view" was not mandatory and said whether or not a country follows them would have no bearing on IMF financing decisions. The IMF broke from its long-held position that regulating capital flows was bad in 2010. Since then, it has tried to forge rules of the road for capital flows management, but its membership is divided over what those rules should be. Among the principles, the IMF recommended that capital flow measures should not substitute for macroeconomic adjustment; in certain circumstances curbs can be useful when underlying macroeconomic conditions are highly uncertain; measures are useful to safeguard financial stability when surges contribute to systemic risks; and countries should make sure their policies do not harm others. Investment flows can help countries develop and grow, but they can also drive up inflation and exchange rates. In addition, a sudden investor withdrawal can be destabilizing. Countries from Brazil to Indonesia, South Korea, Peru and Thailand have all imposed controls to limit inflows since 2009, while a few countries like Argentina, Iceland and Ukraine have sought to stem large or sudden capital outflows. "Directors agreed that in certain circumstances, capital flows can be useful and appropriate," the IMF said. "These circumstances include situations in which the room for macroeconomic policy adjustment is limited, or appropriate policies take undue time to be effective. "Directors stressed the (capital flow management measures) should not substitute for warranted macroeconomic adjustment." Hot-Button IssueCapital flow management remains a hot-button topic, with several emerging economies arguing the principles are too rigid. Emerging economies, like Brazil, have criticized theUS Federal Reserve for its ultra-loose monetary policy, warning that the easy money meant to boost the US recovery is pouring into their economies, raising the risk of inflation and asset bubbles and choking exports by driving their currencies up. Brazil has argued that governments must have the flexibility and discretion to adopt policies they consider necessary to offset the type of aggressive monetary policies advanced economies have pursued since the financial crisis struck. "The IMF is eager to adopt a prescriptive approach and to advise countries on how to liberalize and manage capital flows. However, the institution's track record in this area is far from stellar," said Paulo Nogueira Batista, IMF executive director for Brazil and 10 other countries in Latin America and Asia. "The ongoing crisis has yet to have a full impact on the way the IMF considers capital flows," Nogueira Batista said. "The extent of the damage that large and volatile flows can cause to recipient countries has not been sufficiently recognized." Nogueira Batista said the IMF staff mostly played down the responsibility of major advanced countries in destabilizing surges in capital flows. "The Fund has barely explored the effects of advanced countries' monetary, financial and other policies on capital flows -- the so-called push factors," he argued. "There is a lack of evenhandedness." An Indian finance ministry official said each country knows best how to control its inflows and outflows, and that these policies should not be based on recommendations from the IMF. "This talk of capital controls came about because of loose monetary policies by Europe and the U.S.," the official said. "When they set about bringing in those monetary policies, they did not care about the spillover effects it would have on the rest of the global. And now the IMF wants us, in a way, to clean up," the official added. Vivek Arora, assistant director for the IMF's Strategy, Policy and Review Department, said capital flows had increased significantly in recent years and a clear mandate was needed to guide countries' decisions on any controls. "We intend for the view to be flexible, it is not set in stone," he told a conference call. "The paper is not intended to lay down a doctrine or to set in place a view once and for all. On the contrary it represents our thinking at this time." In a board statement, the IMF said most directors agreed that capital flow measures should be used only in crisis situations or when a crisis is imminent, and in combination with sound macroeconomic policies and financial regulation. It said countries that are the source of the capital flows and those that are recipients of the money both have a responsibility to ensure their policies are not disruptive. The IMF said any effort to control capital flows should not discriminate between money being brought in by residents and money from outsiders. Some IMF directors disagreed. "While most directors expressed a preference for avoiding discrimination between residents and non-residents, a few directors emphasized that when failure to differentiate between residents and non-residents would render the policy ineffective, residency-based measures may be justified," the IMF board said.(Reuters)
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Moody's said its outlook on the Indian banking system over the next 12 months to 18 months remains negative due to a challenging operating environment which is likely to pressure banks' profits. "This environment is characterised by slow economic growth, high inflation, high interest rates, and a weak local currency," Vineet Gupta, a Moody's vice president and senior analyst said in a statement released on 4 December. "We expect these factors to lead to a further deterioration in asset quality, an increase in provisioning costs, and a fall in profitability," he added. The Indian economy grew by 5.3 per cent in the September quarter and is on track for its slowest growth in a decade for the fiscal year that ends in March. Moody's expects the high level of loan growth, at about 15 per cent annually, to continue outstripping internal capital generation, posing a challenge for Indian banks to maintain capitalization at current levels, with some banks facing a need to raise new capital externally. It was not immediately clear what precisely the agency was referring to as external capital. The ratings agency also said loan classification, especially regarding restructured loans, as well as provisioning requirement practices in India is weak. "Loan classification and provisioning requirements mask the extent of the banks' asset quality and capital challenges," Gupta said. Moody's, however, continues to assume a high probability of systemic support by the government which has already announced its plans for capital infusions into some state-run banks. The government will decide in the next few weeks how much additional capital will be injected into state banks after determining most such lenders will need additional funds, Finance Minister P. Chidambaram said in mid-November. However, the combined injection of capital will not exceed the 150 billion rupees provided in the budget for the fiscal year ending in March 2013, Chidambaram added. Banking shares rose on Monday after TV channels reported the government will take a decision on capital infusion this week. The banking index was up 0.13 per cent on 4 December, roughly in line with the broader market. "If needed, Moody's believes that the government would provide extraordinary support in the form of unsecured loans and/or capital injections to both the public and the rated private banks," it said in the report. (Reuters)
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Around 24 lakh students took loans for education with banks having an outstanding amount of Rs 52,000 crore, Union Finance Minister P. Chidambaram said on 2 December, as he asked banks to lend more money for this purpose. The finance minister also asserted that his ministry was committed to the education loan programme of the banks. "24 lakh students in India have borrowed loan for education and the outstanding amount with the banks is to the tune of Rs 52,000 crore," he said. Chidambaram was speaking at a function in Mohali after formally inaugurating the Indian School of Business (ISB) campus here. The banks had Rs 27,000 crore outstanding on education loans as of March 2009, Rs 35,850 crore as of March 2010 and Rs 41,340 crore such loans as of March 2011, as per the data from the Reserve Bank. Urging the young talent to contribute in building India, Chidambaram asked those who have spent some years abroad to return and help meet challenges faced by their own country. "After 11, 12 months your (students) temptation is to migrate to USA or elsewhere in the world...it is a legitimate desire...Indian human resources will find opportunities all over the world...seize these opprtunities...spend few years...but please remember that there is no other place in the world which can challenge you (students) like India." "Spend a few years wherever you feel whether in USA, Europe, Latin America, East Asia or Africa, but please remember it is only India and no other place that can challenge you (students)," he said. He asked the young talent to ask themselves a few questions as to in which other country of the world does one need to add 1,00,000 MW of power, construct thousands of kms of roads, bring drinking water and sanitation to over 700 million of people. "The greatest challenge is to build India," he said referring to the brain drain. "At some stage or the other return back and help build India...challenge is not only in business but elsewhere too," he said. He also expressed concern over "limited world class institutions" in the country. "We have one institution of world class in Science, a couple in engineering and technology, one in Mathematics and one in international studies," he said, adding that the country need to build world class institutions. (PTI)
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The government plans to sell 10 per cent of its stake in Nuclear Power Corporation of India Ltd (NPCIL) through an initial public offering (IPO) that will list the company on the stock exchanges.At book value, the sale will fetch the government about Rs 2,500 crore but the actual realisation can be much higher depending on the pricing and timing of the issue.The Department of Disinvestment in the Ministry of Finance circulated a draft note seeking comments from concerned ministries on divestment of 10 per cent out of Government's 100 per cent shareholding in the company, sources privy to the development said.After comments of concerned ministries are received, the issue will be put up before the Cabinet Committee on Economic Affairs (CCEA) for approval.The issue is unlikely before the next fiscal as the company has to first split its share and appoint four independent directors on its board to meet SEBI's listing requirement.NPCIL has a paid up equity capital of Rs 10,174.33 crore comprising of 10.17 crore shares each having a face value of Rs 1000. Prior to the divestment, the shares will be split to bring down the face value to Rs 10.Post split, 101.74 crore share of Rs 10 each or 10 per cent government shareholding, will be divested in domestic market, they said.NPCIL had reported a net profit of Rs 1,906 crore on a turnover of Rs 7,914 core in 2011-12. It had a networth of Rs 25,428 crore.Sources said a 5 per cent price discount on the upper end of the price band may be allowed for the retail investors in the proposed IPO of NPCIL. The IPO will provide reservation to employees of NPCIL.(PTI)
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In 2009, European Central Bank (ECB) President jean-Claude Trichet, defending the ECB’s monetary policy said “We have only one needle in our compass”. The Reserve Bank of India’s (RBI) persistence in not cutting policy interest rates in its second quarter review of monetary policy on 30 October appears to reflect the same feeling. While most economists and experts appear to believe that the RBI’s near-exclusive focus on inflation control in formulating monetary policy is the right thing to do in the present circumstances, inflation itself shows no signs of coming down. In fact, the central bank’s policy statement revises the projected inflation at end-March 2013 upwards to 7.5 per cent from its earlier estimate of 7 per cent. So here is the question: can a quarter percentage point (25 basis points, or bps) cut in the repo rate — the rate at which banks borrow from the RBI — make the inflation outlook much worse than it already is? Several experts argue that a rate cut could actually help kick-start capital expenditure (capex) spending and herald an economic growth revival. It is an argument that appears to fall on deaf ears, however. Instead, the RBI chose to cut the cash reserve ratio or CRR by 25 bps; that will release about Rs 17,500 crore into the banking system and ease the tight liquidity conditions; that might boost consumer spending during the festive season, but is unlikely to trigger significant capex on investment growth; it will however, improve banks’ net interest margins, that are important for improved earnings. Reactions to the policy statement highlight the differences between the finance ministry and the central bank about the appropriate prescription to revive growth and the timing of policy action. The RBI believes more tangible evidence is necessary on tightening fiscal expenditure before monetary policy can be loosened; the finance minister believes his statements of intent are quite clear and unambiguous, so the RBI can actually cut rates. To be fair, RBI Governor Duvvuri Subbarao did indicate the increased probability of a rate cut in the first quarter of 2013; the big question is, however: will that be too little too late?(This story was published in Businessworld Issue Dated 12-11-2012)
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Gyan Harlalka, managing director & head sales, RBS India was surprised by the RBI's decision to slash cash reserve ratio (CRR) rates by 25 basis points (bps) to 4.25 per cent. He had been expecting a 25 bps cut in repo rates. He feels RBI is still worried about inflation and continued high fiscal deficit and that’s the reason why the central bank didn’t bite the bullet. However he expects them to cut rates by at least 25 bps by March 2013. Meanwhile the market reacted negatively with the 10-year G-Sec yield after trading at 8.11 per cent before the monetary policy ended the day at 8.18 per cent, losing close to 50 paise (7 bps) in a day. Harlalka expects the 10 year G-Sec to remain in range of 8.10-8.20 per cent, but his advice to investors will be to buy bonds, especially 5-10 year paper as its more liquid.Excerpts:What are your initial reactions to the policy? Was it a surprise to you with the central bank cutting CRR?Yes we were surprised with cut in CRR. On the contrary we were expecting a 25 bps cut in repo rates which didn’t materialise. RBI continues to give more weightage to inflation which has been quite sticky. It seems the RBI is waiting to see the impact of recent policy measures by the government as well as future responses to growth. With liquidity likely to remain under pressure, the CRR cut is more in line with market expectation. The 50 bps CRR cut in April 2012 by the RBI was in anticipation of government action on the fiscal and policy fronts. In your view why is the central bank delaying cutting rates? What is your view on the Indian economy and market? Do you see growth being hampered?The sticky inflation and the continued high fiscal deficit are probably the reasons for the same. The economy seems to be stablising with growth in the 5.5-6-per cent range. The growth seems to have bottomed out at current level. However, the upward movement in growth is expected to be gradual. Do you think RBI will bite the bullet in March 2013? And why?A lot depends on inflation, which will be guided by commodity and food prices. If they soften, we should see action by the RBI. But yes we expect to see RBI cutting rates by March 2013, by at least 25 bps.What is your outlook for the Indian Bond market? The G-Sec climbed higher with no rate cut. Where do you see the G-Sec yield in the coming 3 months? Do you think it is good time to buy G-Sec (what would be the tenure) and why?With the rate cut not materialising nor any guidance for the same, 10 year G-Sec are expected to remain in the 8.10-8.20 per cent range with minor breaches on both side. We are of the view that bonds are good buys on upticks, with 8.20-8.25 per cent good levels to go long. With growth and inflation stablising at current level, RBI will ease sooner or later. What is your advice to your clients? Which instruments will you advice them to invest going ahead and of what tenure?At this juncture when growth seems to have slowed down and stabilising in the 5.5-6.00 per cent range, debt instruments present a good investment opportunity, especially the 5-10 year mid segment.What is your take on the corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure?Corporate spreads over government securities are currently very low due to sluggish demand from the industry. Corporate bonds remain attractive from directional perspective rather than spread compression perspective. Meanwhile we are a buyer in corporate bonds, in the 5 year bucket which is liquid.What is your take on the Indian currency? Where do you see it going by March 2013?We see a gradual appreciation trend with lot of volatility and around 52.50 levels by March 2013.
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India's central bank left interest rates unchanged but cut the cash reserve ratio for banks and indicated it may ease monetary policy further in the March quarter, although inflation remains a near-term concern. While the decision to leave the policy repo rate unchanged at 8 per cent was in line with forecasts in a recent Reuters poll, expectations for a rate cut had grown after India's finance minister on Monday outlined a plan to trim the country's hefty fiscal deficit. "As inflation eases further, there will be an opportunity for monetary policy to act in conjunction with fiscal and other measures to mitigate the growth risks and take the economy to a sustained higher growth trajectory," RBI Governor Duvvuri Subbarao wrote in his quarterly policy review.Read: RBI Holds Rate, Cuts CRRRadhika Rao, Economist, Forecast PTE, Singapore"RBI stood by its tough anti-inflation rhetoric by opting not to lower the key policy rate though preferred to trim the CRR as a step to lower funding costs and possible compromise. A rate cut in the face of jump in September WPI, sharp upward revision to historical numbers and recent rebound in the proxy core inflation measure, might have put the bank's inflation-fighting credibility at risk. Notably there appears to be some sort of policy guidance, as RBI expects inflation to ease in Q4 2013, priming the markets to lower expectations of an imminent rate cut. We maintain our call for 50 bps more cuts by end-FY13."Shubhada Rao, Chief Economist, YES Bank, Mumbai"The policy is in line with our revised outlook post yesterday's fiscal consolidation plan. While current inflation is worrisome, going forward, it could provide some comfort. The stance of monetary policy is shifting towards supporting growth and maintaining comfortable liquidity to provide for the credit needs of the economy.And, as the government measures continue to unfold, we believe the RBI will continue to support growth with a rate cut. We're still expecting 50 bp rate cut during Jan-March, with inflation likely to peak in December."Kilol Pandya, Head OF Fixed Income, Daiwa Mutual Fund, Mumbai "I was expecting a 50 basis points cut in the CRR. The policy is in line with what the RBI has been saying. While it has raised the inflation projection and cut growth estimates, it has held out hope for a rate cut in the next calendar year. I expect the 10-year yield to hold in the 8-8.25 per cent range."Jagannadham Thunuguntla, Strategist, Global Securities, New Delhi"For the central bank, inflation is the main anchoring point and that has been the case all along. I don't think they will do much in the next couple of quarters as inflation is not going to come down any time soon. Now they are coming closer to the reality in terms of the GDP growth."Dariusz Kowalczyk, Senior Economist & Strategist, Credit Agricole CIB, Hong Kong"Such outcome is in line with consensus, but there was a strong minority expecting a rate cut, so its lack should move markets: hit the INR (growth will take longer to rebound with high rates) and trigger paying flows on the INR OIS curve (it could steepen as gains in long end should be larger given that short end should be somewhat anchored via improvement of liquidity after CRR cut)."A. Prasanna, Economist, ICICI Securities, Primary Dealership Ltd, Mumbai "Market was positioned for a rate cut, but a cut in CRR delays the beginning of open market operations (OMOs). There's a positive that RBI has said there's a likelihood of easing in the Jan-March quarter. Looks like RBI wants inflation to peak out before cutting rates so we shouldn't expect anything in December. We expect a 50 basis points cut during Jan-March."Deven Choksey, MD & CEO, KR Choksey, Mumbai"If a CRR cut is not backed by a rate cut it doesn't make sense and this is unlikely to be reviewed before December. By sending more liquidity into the system the RBI is trying to ask banks to take the pressure. The excess liquidity will go towards projects, banks will be pressurised to lend but buyers might not feel confident about spending after borrowing at high rates. You have to allow expenditure to take place in the system so there is infrastructure development which will kick-start the economy."
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