RBI expects CPI Inflation at 5.8% in January 2016

In the monetary policy statement of April 2015, the Reserve Bank said that it would strive to reach the mid-point of the inflation band by the end of fiscal 2017-18.

RBI Governor Raghuram Rajan in his speech said that the January 2016 target of 6 per cent inflation is likely to be achieved. In the monetary policy statement of April 2015, the Reserve Bank said that it would strive to reach the mid-point of the inflation band by the end of fiscal 2017-18. Therefore, the focus should now shift to bringing inflation to around 5 per cent by the end of fiscal 2016-17. 

In this context, the weakening of global activity since our last review suggests that commodity prices will remain contained for a while. Still-low industrial capacity utilisation indicates more domestic demand is needed to substitute for weakening global demand in order that the domestic investment cycle picks up. The coming Pay Commission Report could add substantial fiscal stimulus to domestic demand, but the government has reaffirmed its desire to respect its fiscal targets and improve the quality of its spending. Under these circumstances, monetary policy has to be accommodative to the extent possible, given its inflation goals, while recognizing that continuing policy implementation, structural reforms and corporate actions leading to higher productivity will be the primary impetus for sustainable growth. Furthermore, investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow. Therefore, the Reserve Bank has front-loaded policy action by a reduction in the policy rate by 50 basis points. 

Given our year-ahead projections of inflation, this ensures one year expected Treasury bill real interest rates of about 1.5-2.0 per cent, which are appropriate for this stage of the recovery.

16. While the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed. The Reserve Bank will continue to be vigilant for signs that monetary policy adjustments are needed to keep the economy on the target disinflationary path.

RBI cuts FY16 GDP growth target to 7.4%

RBI Governor Raghuram Rajan in his speech said that the modest pick-up in the growth momentum in the first half of 2015-16 benefited from soft commodity prices, disinflation, comfortable liquidity conditions, some de-clogging of stalled projects, and higher capital expenditure by the central government.

RBI Governor Raghuram Rajan in his speech said that the modest pick-up in the growth momentum in the first half of 2015-16 benefited from soft commodity prices, disinflation, comfortable liquidity conditions, some de-clogging of stalled projects, and higher capital expenditure by the central government. Underlying economic activity, however, remains weak on account of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity. 

With global growth and trade slower than initial expectations, a continuing lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning business confidence, output growth projected for 2015-16 is marked down slightly to 7.4 per cent from 7.6 per cent earlier.

Concurrent indicators also suggest that the new GDP series shows higher growth than would the old series, which necessitates recalibrating old measures of potential output and the output gap to the new series.

Sensex, Nifty in green post RBI policy

The BSE Mid-cap Index is trading down 1.17% at 10,450 whereas BSE Small-cap Index is trading down 0.94% at 10,814.

Acceding to the growing voices for a rate cut from the Indian industry at large and perhaps exceeding their expectations, Reserve Bank of India, in its fourth bi-monthly monetary policy of the current fiscal, has cut the repo rate by 50  basis points to 6.75%, its lowest since May 2011. The cash reserve ratio (CRR), currently at 4 per cent, expectedly was kept the same.

At 11:05 AM, the S&P BSE Sensex is trading at 25,598 down 19 points, while NSE Nifty is trading at 7,816 up 20 points.

The BSE Mid-cap Index is trading down 1.17% at 10,450 whereas BSE Small-cap Index is trading down 0.94% at 10,814.

Some buying activity is seen in IT sector, while banking, auto, pharma, oil&gas, capital goods and realty sectors are showing weakness on BSE.

BHEL, Infosys, Coal India and TCS are among the gainers, whereas Vedanta, Hindalco, ICICI Bank, Axis Bank, Tata Steel and Bharti Airtel are losing sheen on BSE.

The India VIX (Volatility) index rose nearly 6% to 23.06.

A total of 10 stocks registered a fresh 52-week high in trades today, while 43 stocks touched a new 52-week low on the NSE.

Rajan plays Santa, cuts repo rate by 50 basis points to 6.75%

Reserve Bank of India, in its fourth bi-monthly monetary policy of the current fiscal, has cut the repo rate by 50 basis points to 6.75%, its lowest since May 2011. The cash reserve ratio (CRR), currently at 4 per cent, expectedly was kept the same.

Acceding to the growing voices for a rate cut from the Indian industry at large and perhaps exceeding their expectations, Reserve Bank of India, in its fourth bi-monthly monetary policy of the current fiscal, has cut the repo rate by 50  basis points to 6.75%, its lowest since May 2011. The cash reserve ratio (CRR), currently at 4 per cent, expectedly was kept the same.
 
The RBI said in its statement that since the third bi-monthly statement of August 2015, global growth has moderated, especially in emerging market economies (EMEs), global trade has deteriorated further and downside risks to growth have increased. In the United States, industrial production slowed as capital spending in the energy sector was cut back and exports contracted, weighed down by the strength of the US dollar. Consumer spending stayed buoyant, however, amidst steadily improving labour market conditions. In the Euro area, a fragile recovery strengthened, supported by domestic consumption, less slack in the labour market and improving financial conditions engendered by ultra-accommodative monetary policy.
 
Due to a consistent downtrend in the consumer inflation in the recent months, the conditions were right for the rate cut. The earlier monetary policy statement from RBI had reiterated that the interest rate trajectory will be influenced by inflationary scenario, transmission of policy action and exogenous variable of US Fed policy. India’s retail inflation for August slowed to 3.66%, when compared with the reading of 3.69% during the prior month. Earlier, the government reported that wholesale prices contracted for the tenth consecutive month. WPI inflation for August was reported at -4.95%.
 
A Reuters poll last week had majority of economists rooting for the rate cut. However, since the monsoons have not been kind and have fallen below their long-term average, a pause in expected in any further rate cut. 

Bank Nifty slips 2.3% ahead of RBI policy

The Bank Nifty has slumped 2.3% to 16,702, and the PSU Bank index has tumbled nearly 3.4% to131.

Banking stocks have fallen all eyes are set at the RBI fourth bi-monthly monetary policy review for the year 2015-16 scheduled today at 11 AM.

The Bank Nifty has slumped 2.3% to 16,702, and the PSU Bank index has tumbled nearly 3.4% to131.

PNB has tanked 3.5 percent at Rs. 169.

Syndicate Bank, Andhra Bank, Orient Bank, SBI, Union Bank and Canara Bank are all down over 3 percent each.

Meanwhile, the Sensex has crashed 307 points to 25,309.

World Bank to give US$30bn aid to Railways: Suresh Prabhu

The Minister was talking to reporters in New Delhi on the 11th edition of International Railway Equipment Exhibition (IREE), scheduled from 14-16th October at Pragati Maidan

The World Bank has promised US$30bn financial assistance to the Indian Railways, Union Railways Minister Suresh Prabhu said on Monday.

Prabhu also said that the proposed station development project will attract ~US$20bn in phases.

The Minister was talking to reporters in New Delhi on the 11th edition of International Railway Equipment Exhibition (IREE), scheduled from 14-16th October at Pragati Maidan.

Maintaining that funds will not be a problem for completing infrastructural projects for the Railways, Prabhu said that the capital expenditure for FY16 will surpass the budget estimates.

Almost 89% of the budget announcements have been fulfilled, he said.

The Railway Minister also said that the Railways has envisaged an ambitious programme of electrifying ~10,000 km of railway lines in the next five years.

Discussions with Japan and South Korea have progressed to build water-less, odour-less toilets in trains, Prabhu said.
He also said that Google has offered cooperation to set up WiFi connectivity at railway stations and platforms.

L&T Construction bags orders worth Rs.15.09 billion; stock flat

The company has bagged orders worth Rs. 15.09 billion so far this month.  Larsen & Toubro Infotech Limited, a subsidiary of Larsen & Toubro Limited, has filed its draft red herring prospectus with the SEBI in order to undertake an initial public offering of its Equity Shares (the Issue).

Larsen & Toubro Ltd is currently trading at Rs. 1424, down by 0.41% from its previous closing of Rs. 1430.1 on the BSE.

The company has bagged orders worth Rs. 15.09 billion so far this month.  Larsen & Toubro Infotech Limited, a subsidiary of Larsen & Toubro Limited, has filed its draft red herring prospectus with the SEBI in order to undertake an initial public offering of its Equity Shares (the Issue).

The scrip opened at Rs. 1424.9 and has touched a high and low of Rs. 1429.5 and Rs. 1413.15 respectively. So far 99426(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs. 133093.97 crore.

The BSE group 'A' stock of face value Rs. 2 has touched a 52 week high of Rs. 1892.95 on 04-Mar-2015 and a 52 week low of Rs. 1400 on 08-Oct-2014. Last one week high and low of the scrip stood at Rs. 1562.95 and Rs. 1425 respectively.

The promoters holding in the company stood at 0 % while Institutions and Non-Institutions held 55.68 % and 41.93 % respectively.

The stock is currently trading above its 100 DMA.

Volkswagen scandal will send costly ripples through auto industry

VW has long burnished a reputation for producing fuel-efficient and environmentally friendly cars. But because of a trade-off in diesel cars between fuel efficiency and actual emissions, the company used a “defeat device” to cheat emissions tests, deceiving both regulators and consumers.

Volkswagen CEO Martin Winterkorn paid the price of losing his job after last week’s revelation that software designed to circumvent emission testing was installed on as many as 500,000 “clean diesel” vehicles sold in the US and as many as 11 million worldwide.
 
VW has long burnished a reputation for producing fuel-efficient and environmentally friendly cars. But because of a trade-off in diesel cars between fuel efficiency and actual emissions, the company used a “defeat device” to cheat emissions tests, deceiving both regulators and consumers.
 
Criminal and civil courts in multiple countries for years will be sorting whether Winterkorn is simply falling on his sword or bears more direct responsibility. One thing for certain is that when the total cost is determined, Winterkorn and Volkswagen are not the only ones who will bear the burden of its employees' actions.
 
The ripples will spread far beyond its headquarters in Wolfsburg, Germany, and the price tag borne by customers and suppliers could be staggering.
 
Costs to VW and its customers
 
The company stands to lose billions of dollars in the US alone as a result of this deception, with EPA fines of as much as US$37,500 per car potentially tallying $18 billion. The liability in regulatory fines could grow much larger as other regulators around the world get involved.
 
Volkswagen has itself set aside almost $8 billion for recalls, and its market value has already plunged almost $28 billion (about 30%). This puts a conservative estimate of the cost to Volkswagen and its shareholders in the vicinity of at least $54 billion given fines outside the US and lost sales that result from the scandal.
 
To the extent that consumers extrapolate Volkswagen’s breach of their trust beyond its “clean diesel” models, the impact on future sales could be devastating.
 
VW’s customers will likely end up losing out too, potentially through lost resale value.
 
Diesel technology has long held a fuel economy advantage over gasoline engines, yet older ones were much dirtier, emitting 500 parts per million of sulfur, a key source of particulate emissions. “Clean diesel” engines of the last decade are designed to emit 97% less sulfur emissions, and yet still get as much as 30% better fuel economy than comparable gasoline-powered engines. This gave the cars both a “green” image and a fuel efficient one as well.
 
This led customers to pay more for a diesel car. But without that expected fuel efficiency, VW owners of “clean diesel” vehicles will incur lost resale value as high as $5,000 per vehicle. Adding up all the cars affected, that puts the potential loss in the neighborhood of $55 billion.
 
Class actions suits may recover some of that, but it’s not likely. In 1987, for example, Suzuki Samurai was a popular small on- and off-road vehicle selling at a premium to the manufacturer’s suggested retail price because of their popularity. When they were found to have an unsafe potential for rollover, resale value plummeted as much as 30% (I know, I had one!). While class action suits sought to recover the owner value of $2,000-$3,500, courts ultimately rejected class action claims to recover those consumer losses.
 
What’s at stake for rest of the auto industry
 
Auto suppliers, too, will feel some pain. In today’s auto industry, best practice for supply chain management (SCM) includes just in time (JIT)delivery of parts to the auto manufacturers. A company like VW also buys the majority of each part from a single supplier.
 
Common sense (and a popular cliche) has long dictated that when faced with uncertainty, you “don’t put all your eggs in one basket.” The auto industry’s mantra, in light of SCM and JIT, might be summed up as: “do put your eggs in one basket, but make sure it’s a darn good basket!”
 
But that has a cost. In 1996 and again in 1998, a few thousand workers at key GM part suppliers decided to strike, resulting in almost 500,000 workers being laid off across the industry in a matter of only a few days.
 
In the 1996 incident, virtually all the GM assembly plants had put their demand for brakes in the “basket” of that single plant. As the assembly plants that used the brakes had to stop making cars, they stopped buying parts from their other first-tier suppliers (wheels, engines, fenders, etc). Then those suppliers stopped buying parts from their own suppliers (spark plugs, engine blocks, rubber), and they in turn stopped buying from their suppliers, and so on.
 
The implications of the increased trust in the “basket” go both ways. Now that all VW sales could be dramatically affected, the subsequent sales of their suppliers and supplier’s suppliers could be affected as well. The increased reliance on single-source suppliers and lean inventory levels throughout the supply chain only increases the speed and relative severity of this impact on suppliers.
 
Most automakers outsource (or spend with suppliers) about 80% of the vehicle sticker price. Volkswagen sold about 10 million vehicles in 2014. Assuming an average sticker price of $30,000, VW reaped $300 billion in revenue.
 
If the 80% figure holds, its first-tier suppliers have $240 billion in revenue at stake. But assume that those suppliers spend 80% of their revenue with second-tier suppliers, the total impact could reach $432 billion. As this keeps building down the supply chain, the potential losses could be staggering were VW to implode.
 
While a complete implosion of VW is not likely, no one thought 3,000 striking workers in Dayton could idle 500,000 workers in a week’s time in 1996 either.
 
Who really pays the ultimate price
 
Winterkorn paid a high personal cost. VW and their shareholders will in all likelihood pay a very high monetary price for this breach of trust as well, especially if the fallout grows beyond the “clean diesel” models and consumers find it hard to trust the VW brand.
 
But unless the company does fall apart, eventually its stock will likely rebound, consumer trust will probably return and fines by the EPA and other regulators may be reduced and turn out to be less damaging than current estimates suggest.
 
The many others who put their trust in VW may not be so lucky, especially the 11 million people who owned the affected models, whose potential cost could easily match or exceed the direct hit to VW. And a recovery of much of that loss isn’t likely.
 
Meanwhile, suppliers with a significant business link to VW will be hit hard as will the companies that supply them. Some of the impact will be softened when other car makers pick up the demand fleeing VW, but their supply chains were not likely expecting this either. They will bear the extra costs of ramping up production.
 
All in all, it’s important to remember that Volkswagen’s deception will affect more than just its balance sheet, and many people stand a good chance of losing their job as a result of unethical employees and poor corporate governance. Let’s hope that those responsible for assessing fines and assigning culpability remember that.

I will continue to be USL Chairman: Vijay Mallya

According to a deal with Diageo in November 2012, Mallya was to continue as USL chairman for the next five years.

Vijay Mallya on Monday said that he would continue to be the chairman of United Spirits Ltd. (USL).

“I still hold a significant portion of stake in USL and will chair the forthcoming AGM of the company,” Mallya told shareholders at the AGM of United Breweries Holdings Ltd. (UBHL).

Through his group companies Mallya holds 4.09% in USL, while in his individual capacity he owns only a 0.01% stake.

Diageo holds a majority stake of 54.78% in USL.

In April this year, Diageo had asked Mallya to resign from the USL Board following allegations of fund diversion from USL to UB Group entities. But, Mallya has rejected the demand for his resignation.

According to a deal with Diageo in November 2012, Mallya was to continue as USL chairman for the next five years.

However, USL later said that its Board had lost confidence in Mallya continuing in his role as a director and Chairman, and therefore the company's Board had asked Mallya to resign.

It may be recalled that USL is yet to file its annual report for the fiscal year 2014-15 with the stock exchanges.

RBI should ease rates after September meeting: RK Gurumurthy, Lakshmi Vilas Bank

RK Gurumurthy of Lakshmi Vilas Bank shared his opinions on what market is expecting from RBI in September policy meet. According to him, the inflation is well within the trajectory of RBI; therefore, it should think about a rate cut.

RK Gurumurthy of Lakshmi Vilas Bank shared his opinions on what market is expecting from RBI in September policy meet. According to him, the inflation is well within the trajectory of RBI; therefore, it should think about a rate cut.

Currency Trend In India

In Gurumurthy's opinion, the rupee is not as strong against the dollar as it was three months ago. Given that RBI, the meeting is scheduled on September 29 and quarter ending pressure is there in the market, the currency trend isn't looking good at this moment. There are high chances that rupee might remain weak against the dollar for the next couple of weeks.

RBI's Role In Liquidity Management

With FII's withdrawing funds from the Indian market, the liquidity seems to be going downward; however, Gurumurthy thinks that the liquidity is not completely negative at this moment. It's been a mixed situation for the last couple of weeks and is expected to remain in the same zone over the next few weeks or so. There is no urgent need of liquidity management at this moment, so RBI can keep its focus intact on inflation and bank rates.

Expectations From RBI

The market has seen a lot over the past few weeks. There is a need of quick relief from RBI's side; hence, it should think of a rate cut. As of now 25 bps cut should be good enough to revamp the market.

Growth Prospects of India From This Level

As the financial market is going through a tough phase at this moment, keeping growth expectations down is the best solution available in the market. The CPI numbers of August are lowest in the past few months, which gives a clear indication that the headline inflation in February will be around 7 percent. It's well under RBI's trajectory and can help it take a call on the bank rate cut issue and fuel some positivity in the market before the festive season starts. 

12 Stocks in focus today

Check out the companies which will be in focus during trade today based on recent and latest news developments.

GPT Infraprojects Ltd: The company has bagged orders worth Rs. 46 Crores from Kanpur Development Authority, Kanpur, Uttar Pradesh for development and beautification works at the bank of River Ganga under Ganga Barrage in Kanpur city.

L&T Construction: The company has bagged orders worth Rs. 15.09 billion so far this month.  Larsen & Toubro Infotech Limited, a subsidiary of Larsen & Toubro Limited, has filed its draft red herring prospectus with the SEBI in order to undertake an initial public offering of its Equity Shares (the Issue).

Nestle India Ltd: The company has ended its contract with the lone third party producer of its Maggi instant noodles, SAJ Food Products, which means the Swiss food giant will no longer outsource production of the popular snack brand that was recently recalled on safety concerns, as per media reports.

Colgate-Palmolive: The company said its shareholders have approved issuance of bonus shares in the ratio of 1:1.

Jaiprakash Power Ventures Ltd: The company said that it has paid USD 75 million to bondholders on sale of securities of its arm Himachal Baspa Power Company Limited (HBPCL) to JSW Energy.

Crompton Greaves: The company said it has bagged a EUR17mn order from Spanish utility Gas Natural Fenosa (GNF) for supplying ZIV single and three phased smart meters. 

Corporation Bank: Corporation Bank approved issuance of over 15.66 crore shares on preferential basis to government valued at about Rs. 857 crore.

ABB India: The company has energised the first pole of the North-East Agra 800 kilovolt (kV) ultra-high voltage direct current (UHVDC) transmission link, which will supply clean hydropower from northeastern India to a nodal substation in Agra and from there, feed it across north India.

Neyveli Lignite Corporation Limited : The company plans to set up solar power plants to produce 4000 mega watt (MW) of power. Going by the current value the whole project will attract investment to the tune of Rs. 280-300bn.

ONGC, BPCL: ONGC with its consortium partners BPCL and Japanese conglomerate Mitsui, signed a MoU to set up a re-gasification LNG terminal at New Mangalore Port, the project is again on the back burner. The consortium had in March 2013 signed the MoU to carry out a feasibility study for a 2-3 million metric tonnes per annum (mmtpa) terminal, which could be expanded to 5 mmtpa.

Indian Hume Pipe: The company has secured orders worth of Rs. 12.31 bn for Telangana Water Grid project in respect of Telangana Drinking Water Supply Projects (TDWSP) of Mahabubnagar and Nizamabad districts from Rural Water Supply and Sanitation Department, Government of Telangana.