The Week That Was - December 01 to 05, 2014

After rallying for six consecutive weeks, the Indian equity market seems to be taking a breather as indices enter into a consolidation phase. The RBI policy meet turned out to be a non-event as the central bank stuck to its decision of holding back any interest rate cut which was in-line with market expectations.

Dec 05, 2014 06:12 IST India Infoline News Service

Top Stories
 
As expected: RBI leaves key rates unchanged
 
On expected lines, the RBI left key rates unchanged. On the basis of an assessment of the current and evolving macroeconomic situation, the RBI said it has been decided to:
  • Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0%;
  • Keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0% of net demand and time liabilities (NDTL);
  • Continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system through auctions; and
  • Continue with daily one-day term repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0%, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0%.
 
Assessment of the Global Economy
 
Since the fourth bi-monthly monetary policy statement of September 2014, the global economy has slowed, though the recent sharp fall in crude prices will have a net positive impact on global growth. The recovery in the United States is broadening on the back of stronger domestic consumption, rising investment and industrial activity. In the Euro area, headwinds from recessionary forces continue to weaken industrial production and investment sentiment. In Japan, growth may be picking up again on the back of stronger exports, helped in part by further quantitative and qualitative easing that has led to a depreciation of the yen. In China, disappointing activity and still-low inflation have prompted rate cuts by the People's Bank of China. In other major emerging market economies (EMEs), downside risks to growth from elevated inflation, low commodity prices, deteriorating labour market conditions and stalling domestic demand have become accentuated...Read More
 
Fifth Bi-Monthly Monetary Policy Statement, 2014-15 by Dr. Raghuram G Rajan
 
RBI Policy: Highlights of RBI governor interaction
 
Change in the monetary policy early next year expected: Chanda Kochhar
 
Contrary to the pressure from the government, technical advisory and the various other groups, RBI Governor Raghuram Rajan decided to not reduce the key interest rates in the central bank's monetary policy review. Retail inflation, as measured by the consumer price index (CPI), has decelerated sharply since the fourth bi-monthly statement of September. However, Dr. Rajan said that it would be premature to change the monetary policy at the current stage, yet hinted that if things progress as they are right now, early next year could see some rate cuts.
 
Chanda Kochhar, MD & CEO, ICICI Bank said, "The policy signals RBI's resolve to firmly contain inflation and inflationary expectations, while responding to positive developments in inflation and fiscal consolidation. The statement that a change in monetary policy stance is likely early next year if the current positive trends continue is very welcome. The economy has already received a tremendous boost in terms of sentiment and confidence. The results of government actions to energise investment activity should start playing out in the coming months. As this happens and interest rates moderate, we should see an improvement in growth going forward."
 
RBI sends clear message of reversal of the rate cycle, sooner than later: SBI
 
Interest rates unchanged along expected lines: Federal Bank
 
Apex bank continues to be cautious in its fight towards inflation: Sachin Sandhir, RICS
 
Real Estate sector will face challenges in short term with unchanged repo rate: Knight Frank India
 
CREDAI Chief demands Government intervention for low cost funding of real estate
 
Interest rate sensitive sectors like Auto will feel the heat of no rate cut: Zyfin Research
 
October Eight Core Ind growth at 6.3% Vs 1.9% (MoM)
 
The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial Production (IIP). The combined Index of Eight Core Industries stands at 165.9 in October, 2014, which was 6.3 % higher compared to the index of October, 2013. Its cumulative growth during April to October, 2014-15 was 4.3 %.
 
Coal
 
Coal production (weight: 4.38 %) increased by 16.2 % in October, 2014 over October, 2013. Its cumulative index during April to October, 2014-15 increased by 8.5 % over corresponding period of previous year.
 
Crude Oil
 
Crude Oil production (weight: 5.22 %) increased by 1.0 % in October, 2014 over October, 2013. The cumulative index of Crude Oil during April to October, 2014-15 declined by 0.9 % over the corresponding period of previous year.
 
Natural Gas
 
The Natural Gas production (weight: 1.71 %) declined by 4.2 % in October, 2014 over October, 2013. Its cumulative index during April to October, 2014-15 declined by 5.6 % over the corresponding period of previous year.
 
Petroleum Refinery Products (0.93% of Crude Throughput)
 
Petroleum refinery production (weight: 5.94%) increased by 4.2 % in October, 2014 over October, 2013. Its cumulative index during April to October, 2014-15 declined by 1.7 % over the corresponding period of previous year...Read More
 
Internal and external confidence has returned in India: Mukesh Ambani
 
In an event organised by Brown University, in association with CNBC TV-18 in Mumbai, Mukesh Ambani, the richest man in India and Reliance Industries chief, highlighted upon a number of issues including the growing investor's confidence in India, the telecom business, recent downfall in the oil prices and the regime change at the central government level.
 
Speaking about the new government, he said that confidence is back in India, both at the individual and institutional level. He was upbeat that "spirit of saying yes" has come back and the spirit of helplessness has gone.
 
"Confidence is the most important thing and both internal and external confidence has come back to India. I have no doubt in my mind that we will be the fastest growing economy in the world in next 2-3 years." he answered, when asked about what was the one thing that stood out during the present government's six months tenure at the center.
 
Talking about the sharp decline in the oil prices to USD 73 per barrel, he said that for a country like India, "USD 60-70 per barrel is a good price". Also, he said there have been a lot of theories going on about why there was an upsurge in the prices and then a subsequent sharp decline...Read More
 
India to be fastest growing economy in next 2-3 years: Mukesh Ambani
 
Strong revival in investment climate and growth expected in FY16: Rana Kapoor
 
Contrary to the pressure from the government, technical advisory and the various other groups, RBI Governor Raghuram Rajan decided to not reduce the key interest rates in the central bank's monetary policy review. Retail inflation, as measured by the consumer price index (CPI), has decelerated sharply since the fourth bi-monthly statement of September. However, Dr. Rajan said that it would be premature to change the monetary policy at the current stage, yet hinted that if things progress as they are right now, early next year could see some rate cuts.
 
Rana Kapoor, MD & CEO, YES BANK and President ASSOCHAM said regarding the development, "While the Reserve Bank of India has left policy rate unchanged in the fifth bi-monthly monetary policy; it has clearly opened the window for rate cuts to begin in the next review in Feb 2015 or possibly earlier. The sharp decline in global commodity prices especially crude along with moderation in domestic food prices have evolved as 'strong enablers' for a rate cut. Further, as government continues to remove supply bottlenecks and expedites pace of reforms post Budget, the RBI could complement Government's efforts by embarking on a rate easing cycle...Read More
 
Larger quantum of easing likely in 2015: Amar Ambani

 
Policy guidance re-affirms street's early rate cut expectation
 
Amidst clamour for a rate cut, RBI held on to its monetary stance by retaining repo rate at 8%. While raising caution about the transitory nature of base effect and a probable uptick in food inflation in the near term, the central bank lowered its March 2015 CPI forecast to 6%. It also now expects inflation to average around that level in the coming 12 months predicated on a normal monsoon and no adverse supply-side or financial shocks. With threat of imported inflation receding due to softening of commodity prices and a reasonably stable currency, RBI believes that risks to its January 2016 CPI target of 6% are evenly balanced at the current juncture. However, the central bank remains open to cut rates early next year (including outside the policy review cycle meaning March 2015) if the extant disinflation momentum strengthens, inflationary expectations in the economy starts waning and the government delivers on fiscal consolidation.
 
Expect 75-100bps easing in 2015
 
The policy outcome and commentary is in line with our belief that RBI wants to play safe and be sure about disinflation being driven by more structural than frictional factors. This also implies that once the policy stance is shifted the subsequent actions would be consistent with it. As we expect that inflation bounce in the watch period of Dec 2014 to Feb 2015 would not be worrisome, the central bank could announce the first rate cut in February or March 2015. Overall easing in 2015 is likely to be 75-100bps...Read More
 
Infosys Analyst Meet: What Vishal Sikka says
 
Speaking at analyst meet on Thursday, CEO Vishal Sikka reportedly said that the company is also looking at acquisitions in under penetrated geographies and verticals and newer services like artificial technologies and automation.
 
The company will renew existing services and enter newer services, stated Vishal Sikka. The strategic focus of Infosys will now be on 'renew' and 'new'.
 
Sikka quoted "The company is also planning to move its business process outsourcing (BPO) and infrastructure management services to the automation area."
 
"As of September, we are at USD 53,000 revenue per employee. We have been engaging with employees for great new technology," he said.
 
The customers rate us very high, give us usually the highest rating on quality, project delivery, on responsiveness in a crisis," Sikka reported during Infosys' annual interaction.
 
Sikka also said that India's IT services companies will have to turn their employees into "great finders of problems".
 
RBI emphasizes on making mobile banking mandatory for customers
 
The Reserve Bank of India has ordered Indian banks to make mobile banking as a mandate for all the customers. With reference to the density of mobile usage which currently exists in the country, the usage of mobile banking services is relatively less. The customers of various banks across the country, should consider activating their mobile banking services, on high priority. This is to ensure augmentation of mobile banking in India. To make this service readily accessible, RBI has asked the banks to simplify the process of mobile banking registration. It said that banks can reduce the time span between registration and activation of the process, in order to ensure hassle free operation for customers. RBI further adds the mobile pin (MPIN) generation process can be made easier by providing the facility to change MPIN at their respective ATMs. This process can be facilitated by the means of MPIN mailers (like PIN mailers for cards). Alternatively, banks can also set up a website specifically for carrying out this function. RBI also encouraged the banks to conduct multilingual education and awareness programs for customers across India, through diverse communication mediums.
 
Mobile banking registration, activation and usage can be further enhanced through the banks' respective Interactive Voice Response (IVR) system and phone banking channels, mails, SMS, website, kiosks, social media. RBI further suggested that whenever a customer performs any transaction at the ATM, an SMS alert can be instantly sent to his/her mobile number, as a reminder to activate mobile banking on his/her number. Digitalization is the need of the hour, hence activating mobile banking services would prove to be mutually functional. The implementation of this rule as mentioned by the RBI, should notably optimize the banking operations in the country.
 
Cement story: Focus on volumes depresses prices, says IIFL
 
The performance of the Indian cement industry appears to be below the mark. All major producers clocked strong double-digit despatch growth for November owing to focus on volumes, says an IIFL Institutional Equities report. According to cement dealers, demand has been weak across segments. Thus, higher despatches by companies resulted in a sharp increase in inventory at the dealer and consumer end, putting pressure on prices.
 
The current depletion in the demand of cement as well as an incessant brawl for market share, is affecting the prices adversely. Mentioned below is an extract of a recent IIFL Institutional Equities report which highlights the unsatisfactory state of the cement market across the country.
 
Cement prices declined upto Rs20 per 50kg bag (1-7%) in all regions except the west as demand continues to be weak and producers are fighting for volumes, according to the dealers.
 
Our channel checks indicate that all major producers clocked strong double-digit dispatch growth for November owing to focus on volumes. According to the dealers, demand has been weak across segments. Thus, higher despatches by companies resulted in a sharp increase in inventory at the dealer and consumer end, putting pressure on prices.
 
All-India average price is down 3% MoM and 1% YoY. The average price is ~5% below our expectation for November.
 
We expect cement prices to be under pressure (except for south) for December since the MNC players are likely to focus on volumes to meet year-end targets. In the southern region, producers indicated price increase of Rs30-60 per bag with some improvement in discipline (prices have fallen by similar amount in the last two months), the dealers state.
 
Although we continue to be positive on the sector from a medium-to-long-term perspective, there is downward risk to our FY15 earnings estimate to the tune of 5-10% due to lower-than-expected prices for the past two months...Read More
 
Auto majors reveal November sales volume
 
It was a week where auto majors disclosed their sales volumes for the month of November. India's largest auto maker Maruti Suzuki disclosed that it sold a total of 110,147 units for the month. This includes 100,024 units in domestic market. The company, which had found it a little difficult to gain good sales in the premium segment due to competition from other auto majors like Honda and Hyundai, has now found its saviour in Ciaz. In the last month, it sold 6,345 units of Ciaz.
 
Hyundai Motor India Ltd (HMIL), the country's second largest car manufacturer and the largest passenger car exporter registered the domestic sales of 35,511 units and exports of 18,500 units with cumulative sales of 54,011 units. Exports accrued by 14.3% from the previous year of 16,180 to the current year's 18,500 units while the domestic sales grew by 6 % to 35,511 from 33,501 units.
 
Mahindra & Mahindra (M&M), India's leading SUV manufacturer, registered the cumulative sales of 34292 units, which is 13% lower than the previous year's 39254 units. The passenger vehicles segment sold 13765 units in Nov'14 as against 16,771 units in Nov'13. Domestic sales stood around 32100 units as against 36,261 units for the same period. The 4 wheeler segment dipped marginally lower by 3% from 13186 units last year to 12748 units this year.
 
The commercial vehicle section of Eicher Motors saw sales of 2233 units gaining 15.8% from the last year's 1928 units, while that of Bajaj Auto zoomed by 48% with the sales clocking 47,311 units. Ashok Leyland, flagship of the Hinduja group, registered the domestic sales of 7,732 units for the month of November 2014, which is 44% higher than the previous year's 5,375 units. The total units sold in M&HCV and LCV in Nov'14 were 5204 and 2528 units respectively.
 
Ford India sold 12,762 vehicles in combined domestic wholesales and exports, compared to 12,050 vehicles in the corresponding month last year. Toyota Kirloskar Motor reported 11 percent increase in total sales at 14,134 units, while Honda Cars leading manufacturer of premium cars in India, registered monthly domestic sales of 15,263 units.
 
In the tractor segment, M&M regained its top spot with a sale of cumulative sales of 15,333 tractors while Escorts Agri Machinery registered the cumulative sales of 4,306 tractors.
 
Two wheeler segment saw TVS Motor Company posting a sales growth of 36% with total sales increasing from 161,908 units. However, world's largest two-wheeler manufacturer, Hero MotoCorp has clocked over 5 lakhs of units of two-wheelers in the month of November.The company despatched 547413 units of two-wheelers. It has added to its formidable presence with a manufacturing facility in Columbia and its bullish on its plans to expand its dealership network.
 
The Motorcyle division of Bajaj Auto dipped a minor 6%, with sales of 2,61,948 units, while Eicher motors posted a strong growth of 52% with a total of 27,542 units sales in the domestic markets. Suzuki Motorcycle India registered a 2% increase with 33,400 units.
 
The three wheeler segment also saw TVS Motor Company posting sales of 9,067 units and Atul Auto registering a sale of 3,807 vehicles. Recently Goldman Sachs bough 2.83 lakh shares of Atul Auto, skyrocketing its stock price.
 
News Infocus
 
Five mistakes Smart Investors make

 
Even the smartest of investors do make mistakes. The evidence is Peter Mallouk's own experience as a wealth manager. Mallouk has outlined the common errors that even smart investors commit while dealing with their finances. Here are the five listed out.
 
Constantly into active trading: Active trading refers to buying and selling of stock regularly and quickly, which sits in contrast to choosing investments carefully and then keeping invested into it for the long-term. The idea in play behind active trading is to outperform market. However, Mallouk pointed that the stock market works in lines of a Las Vegas Casino. In casinos, where house always wins, it is the brokerage houses that always wins in trading. The activity has both winners and losers, but time is crucial as it is seen that winners eventually become losers over time.
 
Investing on the basis of market momentum: Usually, investors who want to time the market believe in investing in an upswing and withdrawing during downtrends. But, Mallouk believes that market timing does not work. Rather it divides the investors into two groups, one of the liars and other idiots. He says that liars make money by making predictions, while idiots are those who only remember their times of victory. However, irrespective of timing, one should always be participating in the market as sitting on the sidelines could mean missing the upside.
 
Right understanding of financial information and performance: There is too much of financial information, but it is not necessarily clear or is understood correctly at all times. It is not necessary that a successful portfolio or a hedge fund will outperform each time. The investments should be on the basis of individual needs and not just on the basis of past performance of the fund or portfolio.
 
Overconfidence could get in the way: Mallouk wrote that a typical investor is not an expert, but believing so could get one in the trouble. Emotional factors like greed, overconfidence, fear or mental bias could be a great hurdle for an investor.
 
Selection of a financial advisor: More often financial advisors do much harm to a portfolio than good. An investor should seek information about the compensation structure of their advisors or in case of building a plan should solicit help of a Certified Financial Planner.
 
Only 48% of Indian adults have access to a bank account?
 
The Financial Inclusion Insights program (www.finclusion.org), operated by global strategic research consultancy, InterMedia, and supported by the Bill & Melinda Gates Foundation, shows that India has the highest account dormancy rate of the seven countries (Kenya, Tanzania, Uganda, Nigeria, India, Pakistan, Bangladesh) assessed in its 2014 cross country survey on financial behaviour. While 48% of Indian adults have access to a bank account, the highest rate of the seven countries, 47% of Indian accounts lie dormant. The survey findings also highlight that fewer than a quarter of Indian bank account users use advanced bank services, while only 0.3% of Indian adults use mobile money services - the lowest among the seven countries surveyed. InterMedia's report on the survey, Financial Services and Digital Pathways: A comparison of the nationally representative FII surveys conducted in Kenya, Tanzania, Uganda, Nigeria, Pakistan and Bangladesh includes analysis of financial behavior by gender, geographic location, urban/rural location, and other key socioeconomic factors. Gayatri Murthy, InterMedia's Research Manager for India said, "We hope that the information contained in this study will enable policy makers, regulators, and bankers to identify priorities to improve financial inclusion, design focused initiatives to push the inclusion agenda, and most importantly, measure the progress made." Girindre Beeharry, Director, India Country Office, the Bill & Melinda Gates Foundation said, "This study challenges the notion that financial inclusion is merely a matter of opening bank accounts. Hopefully its findings will mobilise further innovation in the sector, and further promote the potential of digital technology in ensuring that all Indians - wherever they may live - can access the financial services they need."...Read More
 
World's most densely populated city spreads north
 
Mumbai is projected to become the fourth largest city in the world after Tokyo, Delhi and Shanghai by 2030, from the sixth largest in 1990. But in terms of population growth within the metropolis, the adjoining districts are growing faster than the main metropolitan region. Among the districts, 8.3% of Maharashtra's population lived in Mumbai (suburban) or Greater Mumbai in 2001, making it the biggest district in the state. But in 2011, Thane, a suburb of Greater Mumbai, contained the largest proportion of the state's population at 9.8%.
 
While the population of Mumbai has more than doubled in the past five decades, the city has witnessed a drop in population growth in the past decade. Greater Mumbai is made up of two districts, Mumbai and Mumbai Suburban. Of the two, Mumbai witnessed a drop of 5.75% in the decadal growth rate of population between 2011 and 2001. This is largely because economic activity and housing has moved northward from the narrow, old--but still expensive--heart of the city. Mumbai's offshoots--the suburban district and Thane--have absorbed the metropolis' emerging expansion, with their population rising over the past decade...Read More
 
SAARC Summit: Making friends of enemies
 
Apart from the photo-op between Indian Prime Minister Narendra Modi and his Pakistani counterpart Nawaz Sharif, the 18th summit of South Asian Association for Regional Cooperation (SAARC) nations held recently in Kathmandu, Nepal concluded on a disappointing note. No major deals could be signed as Pakistan held back from signing two key pacts; Agreement for Regulation of Passenger and Cargo Vehicular Traffic and SAARC Regional Agreement on Railways. The only pact that was signed was SAARC Framework Agreement for Energy Cooperation (Electricity).The Kathmandu Declaration highlighted "deeper integration for peace and prosperity" among member states. Some of the key features of the declaration are mentioned in the BOX below.
 
In his speech addressing the regional leaders on 26th November, Modi emphasised economic cooperation and regional trade. He said: "Today, less than 5% of the region`s global trade takes place (among ourselves). Even at this modest level, less than 10% of the region`s internal trade takes place under the SAARC free trade area. Indian companies are investing billions abroad but less than one percent of that flows into our region." Modi highlighted the role of free trade agreements between India and Sri Lanka which have strengthened relations between the neighbours...Read More
 
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