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RBI cuts repo rate by 25 bps, raises hopes of further cuts; changes stance to 'neutral'

The Reserve Bank of India (RBI) on February 7 lowered the repo rate—its key lending rate—by 0.25 percentage points to 6.25 percent and changed its stance to "neutral" from "calibrated tightening", signalling higher chances of more cuts in the coming months if inflation persisted within tolerable limits.

The central bank also sounded bullish about the prospects in the real sector, only marginally reducing its 2019-20 GDP growth forecast to 7.4 percent from 7.5 percent earlier, amid sprouting investment revival signs.

The lower repo rate—the rate at which banks borrow from the RBI— has raised hopes of bringing down EMIs for the millions of home loan borrowers as well cut capital raising costs for corporates, with banks expected to pass on the reduced rates to its customers.

The six-member Monetary Policy Committee (MPC), headed by RBI governor Shaktikanta Das, noted that large part of the current investment recovery has been driven by government spending and it was necessary to broad base the revival with a private sector boost.

RBI will meet banks in the next fortnight to discuss a range of issues, including the extent to which lenders have passed on lower repo rates to its customers, Das told journalists after presenting the policy.

In December, it had introduced a new method for fixing floating loan charges—a move that will likely force banks to change home loan rates according to the way the RBI's repo rate or government bond yields move.

The RBI also announced a string of regulatory changes including raising the limit of collateral free bank loans for farmers to Rs 1.6 lakh from Rs 1 lakh currently, among others.

Banks have also been given greater operational freedom to offer interest rates to bulk deposits, raising the definition of “bulk deposits” to Rs 2 crore from Rs 1 crore currently.

"Investment activity is recovering but supported mainly by public spending on infrastructure. The need is to strengthen private investment activity and buttress private consumption," the MPC statement said.

The focus will now shift to growth given the stability in inflation levels, said Das, who was presenting the monetary policy review after taking charge as RBI Governor in December.

There are few worry lines, both in the industrial sector, as well as the rural economy.

"First, aggregate bank credit and overall financial flows to the commercial sector continue to be strong, but are yet to be broad-based. Secondly, in spite of soft crude oil prices and the lagged impact of the recent depreciation of the Indian rupee on net exports, slowing global demand could pose headwinds. In particular, trade tensions and associated uncertainties appear to be moderating global growth," Das said.

Rabi sowing so far (up to February 1, 2019) has been lower than in the previous year, but the overall shortfall of 4 percent across various crops is expected to catch up as the season comes to a close.

“The extended period of cold weather in this year’s winter is likely to boost wheat yields, which would partly offset the shortfall, if any, in area sown,” it said.

Headline inflation will likely persist within the RBI's tolerable level of 4 percent. The RBI projected that consumer price inflation, the primary price gauge that it tracks for interest rate decisions, will be around 3.2-3.4 percent during April-September 2019, reflecting the current low inflation levels and benign food price outlook.

India's retail inflation eased to an 18-month low of 2.19 percent in driven by cheaper food items.

Crude oil prices have also moderated sharply over the last six weeks, which could push down headline inflation rate even further. This could allow the RBI more elbow room to lower lending rates, eventually bringing down borrowing costs for individuals and corporate houses.

The RBI, however, said that "some uncertainties warrant careful monitoring", flagging seven key issues.

These include the volatile vegetable prices that could reverse upwards, uncertainty in crude oil prices despite the drop in recent months, heightening global trade tensions, the unusual spike in health and education prices, volatility in financial markets, monsoon rains in the coming summer months and its impact on food prices, and lastly, the union budget proposals' effect on the real sector.

"While inflation excluding food and rule remains elevated, the recent unusual pick-up in the prices of health and education could be a one-off phenomenon," the statement said.

Inflation expectations, a broad measure of what businesses, investors and households think about how prices will change in the coming months, have softened by 80 basis points for the next three months and the 130 points in the next 12 months, according to the RBI's latest survey in December 2018.

"Inflation in the prices of farm inputs and industrial raw materials remain elevated, despite some softening. Growth in rural wages moderated in October," RBI said.

The decision to change the monetary policy stance was unanimous. Among the MPC members, Ravindra H. Dholakia, Pami Dua, Michael Debabrata Patra and Das voted in favour of a repo rate cut. Chetan Ghate and Viral V Acharya voted to keep the policy rate unchanged.

Source:https://www.moneycontrol.com/news/business/economy/rbi-cuts-repo-rate-by-25-bps-raises-hopes-of-further-cuts-changes-stance-to-neutral-3492001.html

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Sensex gave positive returns in Feb in 5 out of 10 years; what does 2019 hold?

It looks like bulls and bears battle it out on Dalal Street in the month of February, which is usually marred by Budget volatility. Historical data shows Sensex gave positive returns in February in 5 out of last 10 years.

During the last 10 years, S&P BSE Sensex rallied the most in February 2014 rising 4.5 percent, followed by a 2.6 percent up move seen in 2012, and 2.1 percent gain in 2017, data collated by Ace Equity showed.

On the other hand, in past 10 years, Sensex fell the most in 2016 when it plunged over 7 percent, followed by 4.8 percent drop in 2018 and 4.6 percent fall in 2013.

This month, the sentiment on D-Street has been positive from day 1 after the Interim Budget when Nifty rose beyond 10,900, which is a strong sign as it has put bears on the back foot for now.

Source:https://www.moneycontrol.com/news/business/markets/sensex-gave-positive-returns-in-feb-in-5-out-of-10-years-what-does-2019-hold-3485291.html

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Berger Paints Q3FY19 review: Volume drives topline, but crude prices hurt margins

Highlights:

- Q3 volume growth was strong at nearly 14-15 percent
- Festive demand aided topline growth
- Management expects margins to recover in Q4
- Competitive intensity to increase going forward

- Valuations offer little upside from current levels

India’s second-largest decorative paints company reported better-than-expected Q3FY19 topline. Volume growth was in high teens, at par with its larger peer Asian Paints. Operating margins, however, contracted as high crude oil prices expanded the cost base. The company appears to be on a secular growth path as it continues to grow faster than the industry, gaining market share from smaller and unorganised players.

Key Q3 positives

- Topline growth of 21 percent was driven by strong volume growth. The decorative volume growth estimates for the quarter stood at nearly 14 percent as strong consumer demand during the festive season along with a favourable base (timing of Diwali) aided the sales growth in October-December period.

- Operating profit margins recovered sequentially with successive price hikes partially alleviating the crude-oil and currency-related pressures. However, high-cost inventory kept margins under pressure on YoY basis.

- Apart from strong demand in the decorative business, there was decent traction in industrials, Nepal decorative business, and Saboo Coatings.

- The management expects a recovery in Q4 margins from softening crude prices and rupee stabilisation against the dollar.

Source: https://www.moneycontrol.com/news/business/moneycontrol-research/berger-paints-q3fy19-review-volume-drives-topline-but-crude-prices-hurt-margins-3491201.html

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Closing Bell: Nifty manages to end above 10,900, Sensex gains 113 pts; RIL market-cap above Rs 8 lk cr

Market at close: Benchmark indices bounced from the day's low to end on positive note with Nifty closed above 10,900 level.

The Sensex was up 113.31 points at 36582.74, while Nifty was up 18.60 points at 10912.30. About 799 shares have advanced, 1757 shares declined, and 172 shares are unchanged. 

Reliance Industries, ONGC, Bajaj Auto, TCS and Kotak Mahindra Bank are the top gainers on the Sensex, while losers include Yes Bank, Power Grid, NTPC, Sun Pharma and M&M.

Among sectors, infra, auto, metal, FMCG and pharma witnessed selling pressure, while some buying saw in bank, energy and IT stocks.

Source:https://www.moneycontrol.com/news/business/markets/closing-bell-nifty-manages-to-end-above-10900-sensex-gains-113-pts-ril-market-cap-above-rs-8-lk-cr-3477221.html

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