The buoyancy of the Indian equity markets is back. They had been faltering for almost a fortnight amidst fears that the bull run might be over but an unexpected rate cut by the RBI provided just the right boost necessary to send the indices to a month and a half high note.
The 30-share benchmark S&P BSE Sensex gained about 664 points to end at a 6-week high of 28,121.89 points, a gain of 2.42 percent. The 50-share NSE CNX Nifty also breached the 8,500 level in over a month to end the week at 8,513.80 points, registering a gain of 229.30 points (2.77 percent) since last week. On Thursday, the day the rate cut was announced, Sensex registered its largest single-day gain in five years. The sectors that benefited most from the RBI’s rate cut announcement were the rate sensitive ones – banks, realty and capital goods.
Top gainers from the Sensex were HUL (up 9.14 percent), BHEL (up 7.64 percent), HDFC (up 7.29 percent), Larsen (up 6.17 percent), M&M (up 5.36 percent), Maruti (up 4.27 percent) and SBI (up 4.06 percent). The top losers from amidst the Sensex 30 were Hindalco (down 10.68 percent), SSLT (down 6.69 percent) and Tata Steel (down 4.17 percent). The total turnover at the BSE went up to INR 18,662.50 crore (from INR 15,597.01 crore last week) and at the NSE went up to INR 88,774.58 crore (from INR 83,908.67 crore last week).
Gold closed the week at 27,654 (up 0.59 percent), while silver ended at 39,061 (up 2.92 percent) and crude prices rose slightly this week. Market experts have suggested that retail and intra-day investors look out for the developments in Europe since the equity markets have already shown a sharp reaction to developments in Greece.
Inflation scorecard and RBI rate cut
India’s index of industrial production (IIP) grew by about 3.8 percent in November 2014 – a five-month high rate. While the recovery of industrial production from a decline of about 4.2 percent recorded in October 2014 was certainly cause for cheer, the inflation figures for the month were not as heartening as the previous month’s scorecard.
Good news from the mining, manufacturing and capital goods sectors was offset by India’s core consumer price index (CPI). The core CPI for the month of December 2014 was estimated to have gone up up about 5.2 percent from the same month the previous year. The all-India general CPI inflation grew to about 5 percent in December 2014, up from a nine-year low of 4.4 percent recorded in November 2014. Apart from breaking a four-month fall, the CPI rates also triggered a rate cut expectation from the RBI. The increase in the CPI inflation of December 2014 was the result of a higher inflation rate in the food, beverages and tobacco – up from 3.6 percent in November 2014 to 5.1 percent in December 2014.
The January outlook in terms of manufacturing activity does not look optimistic, though. The SBI Composite Index declined from 55.4 in December 2014 to about 51.5 in January 2015.
The RBI responded to the inflation and industrial production economic data with a surprise interest rate cut. While the rate cut in itself was not surprising, the decision to announce the change this week, just ahead of the scheduled bi-monthly monetary policy review on February 3, was indeed unexpected.
On Thursday, the RBI cut interest rates by 0.25 percentage points – the first such reduction in over 20 months. Within hours of the RBI’s announcement, a number of PSU banks such as the SBI, United Bank of India and Union Bank of India cut their minimum lending rates. A number of other banks are likely to follow. The RBI”s rate cut is likely to bring relief on EMI to retail borrowers. Finance Minister Arun Jaitley appreciated the RBI move and called it an “important turning point”.
Forex reserves go up
The RBI announced that in the week ending January 9, India’s foreign exchange reserves went up by USD 236.4 million to USD 319.475 billion buoyed by an increase in the country’s foreign currency assets. The previous week had seen a decline in the forex reserves by USD 471.4 million to stand at USD 319.238 billion. The country’s gold reserves for the week remained unaltered at USD 19.377 billion. The foreign currency assets (FCAs) of India, pegged at USD 294.845 billion (increase of USD 308.5 million) is a major portion of all reserves and varies according to the changes in the forex rates of non-US currencies, including the Euro, pound and yen.
World Bank lauds India’s reforms
In an appreciation of India’s economic reforms enacted since the NDA came to power in May 2014, the World Bank said that the country would catch up with China’s growth by 2016-17. Kaushik Basu, World Bank chief economist and senior vice-president, said that according to the latest report, ‘Global Outlook: Disappointments, Divergences and Expectations – Global Economic Prospects’, China’s growth is likely to taper to 6.9 percent by 2017 while India will reach a 7 percent growth rate. Sustained implementation of reforms in India and enacting the deregulation process may result in an upliftment of the FDI.
No privatization of railways and Coal India – FM
The Finance Minister of India, Arun Jaitley, announced on Saturday that the Central Government of India had no intentions of privatizing either the railways or Coal India. The announcement came as an assurance to trade unions across the country. “The main target of the federal Government is to create extra jobs and employment alternatives, in addition to safeguarding the prevailing jobs,” said Jaitley. The NDA Government’s recent steps to disinvest part of the stake in State-run enterprises had rung alarm bells with the unions and speculations were rife that these two enterprises may soon be privatized.