Will the Weather Gods be kind to Dalal Street?

At a time when Dalal Street traders are fretting over the potential impact of Britain’s shocking decision to exit the European Union, some help from the heavens above may quell the ongoing volatility at domestic bourses and offer a major boost to Asia’s third biggest economy.

Yes, the focus is firmly on the progress of the Southwest Monsoon which is set to pick up pace in the coming days, cheering farmers, lending a boost to agricultural output and signaling higher rural demand.

If the monsoon pans out as predicted, increased farm incomes will be welcome news  for shares of automobile, agro, cement,  consumer durable and FMCG companies as demand from rural India, that makes up for almost 70 per cent of the country’s population, strengthens.

The India Metrological Department (IMD) has forecasted an above-normal monsoon for 2016 at 106 per cent of the Long Period Average (LPA), a massive relief after two straight years of sub-par rainfall. In its latest prediction, the country’s weather office sees monsoon rains ending later than usual this year.

A strong monsoon will boost agricultural GDP, helping the sector perform to potential, while enabling India to consolidate its position as the world’s fastest growing major economy by pushing growth close to the 8 per cent mark in FY 2016-17, bolstering the appetite for the country’s financial assets including equities.

Further, above-normal rainfall may help rein in inflation as prices of key food items are kept in check, giving the RBI more room for monetary accommodation to bolster demand and growth.

RBI hits pause button on rate cuts

The Reserve Bank of India has refrained from lowering policy rates in its second bi-monthly monetary policy review on Tuesday as it is monitoring the progress of the monsoon rains for cues over near-term inflationary trend in Asia’s third biggest economy.

As expected, the central bank retained the repo rate at 6.5 per cent after cutting it by 25 basis points in its April meeting. Banks' cash reserve ratio or CRR, the ratio of net demand and time liabilities kept with RBI, has also been kept static at 4 per cent.

RBI has cut the policy rate by nearly 150 basis points since January 2014 when it stood at 8 per cent.

The RBI’s decision came in against a backdrop of higher retail inflation in April, prospect of the interest rate hike by the Fed later this month and on the timely outburst of the monsoons.

The country’s consumer inflation, the RBI’s benchmark inflation gauge, accelerated to 5.39 per cent in April 2016 from 4.83 per cent in March 2016, leaving lesser room for a further interest rate cut in the near-term. Despite that, RBI has retained the inflation projection at 5 per cent announced in the April policy statement, though with an upside bias.

Further, it is hoping that an above-normal monsoon may boost agricultural output and keep a lid on food prices.

The RBI is also weighing the impact of heightened global economic uncertainties including the lack of clarity over the next US Federal Reserve interest rate hike and a possibility of Brexit - events which may risk capital outflows from the emerging markets.

The central bank warned that while inflation risks were on the upside, it retained its forecast for India’s GDP growth for the current financial year at 7.6 per cent.

Going forward, RBI expects demand conditions to improve as consumer confidence is seen rising on improving expectations of employment and spending, with rural demand aided by a stronger monsoon. 

Upbeat consumer confidence brightens India’s economic outlook.

Upbeat consumer confidence brightens India’s economic outlook

Indians are more confident about their jobs prospects, personal finances and ability to spend as consumer confidence in India surged to a nine-year high in the first quarter of 2016, indicating a pickup in the Asia’s third biggest economy.

India tops global consumer confidence leaderboard

According to a report by market research agency, Nielsen, the consumer confidence index score for India increased three points in the March quarter to 134, the highest since 2007. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.

According to the report, 83 per cent of the urban Indian respondents were confident about improved employment conditions in the country. Further, 85 per cent of urban Indian respondents remained hopeful about their personal finances, while 66 per cent Indians felt that it was a good time to spend.

Global consumer confidence remains stable

Consumer confidence at the global level remained stable in the first quarter but stood below the baseline score of 100, indicating pessimism. The score grew one index point to 98 in the March 2016 quarter compared to three months ended December 2015.

In the first quarter, Philippines (119) and Indonesia (117) stood at second and third position globally in terms of consumer confidence after India. Consumer confidence score surged 10 points to 110 in the US. Whereas, most of Europe (including UK and Germany), Latin America, Saudi Arabia, United Arab Emirates, Japan, Canada, China and Hong Kong witnessed quarter-on-quarter drop in the confidence level in Q1.

What’s driving consumer confidence in India?

The surge in the consumer confidence was primarily bolstered by the government’s vision to play the role of an enabler to ensure sustained growth. The government’s much campaigned ‘Make in India’ reform coupled with ‘start-up India’ campaign seems to have played a crucial role in improving the overall consumer sentiment through the promise of job creation.

The consumers also seem to have remained optimistic following the Budget announcements and government’s commitment to stick to its fiscal consolidation goals and its focus on inclusive & sustained growth.

Further, robust macroeconomic indicators including strong GDP growth and softening inflation, coupled with lower interest rates have also added to the cheerful mood of Indian consumers.

Latin Manharlal Group

Strengthening forex reserves to improve India’s economic outlook.

Amidst the fear of global economic slowdown and flight of funds from emerging countries, surge in India’s foreign exchange reserves has brought the much needed relief to the system, lifting the outlook for Asia’s third biggest economy.

Under the guidance of Reserve Bank of India (RBI) Governor, Raghuram Rajan, the foreign exchange reserves have surged from a three-year low in September 2013 as he stimulated inflows by offering discounted currency swaps to the banks.

Forex reserves at record high

Maintaining the uptrend of the past several weeks, India’s forex reserves soared by USD 1.52 billion to a record high of USD 363.12 billion in the week ended April 29, 2016, the Reserve Bank of India noted.

The country's forex reserves had gone up by USD 1.35 billion to USD 361.601 billion in the week before.

What’s driving the surge

The spike in foreign exchange reserves was primarily on account of rise in the value of foreign currency assets that constitute a major part of the overall reserves.

Foreign currency assets, which are expressed in dollar terms and comprises the effect of appreciation or depreciation of non US currencies such as euro, pound and yen held in reserves, grew from USD 337.537 billion to USD 339.02 billion in the week ended April 29, 2016.

Further, a surge in the Indian rupee amid a pick-up in dollar inflows into local equity and debt markets has given adequate opportunity to the RBI to purchase dollars in the currency market.

Forex reserve to help curb volatility

The central bank is increasing reserves to stand any volatility in outflows amid sluggish growth in China and forecasts that the Federal Reserve will consider raising US interest rates.

Earlier this month, Raghuram Rajan cut the benchmark interest rate and promised to end a prolonged funding squeeze in the financial system by infusing cash via bond repurchases. He said, the central bank would buy dollars and bonds to infuse funds into the banking system.

A strong forex reserves kitty will help the Indian economy overcome any possible volatility in foreign capital flows amidst heightened global economic uncertainty on account of weak commodity prices and worries over a China slowdown.   

Latin Manharlal  Group

Good monsoon to spur growth in Indian economy.

The concerns over the farm and economic growth are waning amid hopes of generous rainfall this year, which may significantly boost farm incomes, rural demand and the overall growth momentum in Asia’s third biggest economy.

In its initial projection, the India Meteorological Department (IMD) expects monsoon to be 106 per cent of the long period average (LPA) in 2016.

If the Met Department’s prediction of a good monsoon turns out to be right, India's economy could grow at 8-8.5 per cent in 2016-2017 from the projected 7-7.5 per cent.

Agriculture is one of the major sectors of the Indian economy and contributes about 17 per cent to the country’s GDP. Thus, a normal monsoon would be an encouraging supply shock, strengthening the rural demand by augmenting the supply of farm products, thereby significantly contributing to the India’s economic growth.

According to the SBI research report, agricultural GDP is most likely to see a robust performance in FY17 and may even touch 7-8 per cent mark if IMD’s prediction of a good monsoon comes true.

For the Modi government, which has bet big on rural India as the key economic growth driver and dreams of doubling the farm income by 2022, a good monsoon would bring a lot of respite. At the same time, it would augur well for Raghuram Rajan, who is tasked with keeping retail inflation within the 5 per cent, giving an adequate room to the Reserve Bank of India (RBI) to bolster monetary easing.

Going ahead, the stable microeconomic environment, forecast of an above-average monsoon, falling interest rates and higher public investments would boost the economy, despite a contraction in exports amid global slowdown.

Latin Manharlal Group.

Faster private sector growth bodes well for Indian economy

Amid the global slowdown, Indian economy seems to be gaining strength day by day, justifying the title of being the world’s fastest growing major economy, as strong macroeconomic fundamentals, favourable business sentiments and downward trend in interest rates are significantly supporting the Asia’s third biggest economy.

Indian services activity expanded at a quicker pace in the month of March driven by a marked acceleration in new business, signaling strong underlying demand in Asia’s third biggest economy which is withstanding a global slowdown.

The Nikkei India Services Business Activity Index climbed to 54.3 in March from 51.4 in February, with a reading above 50 signaling expansion.

Climbing to the highest level in 37 months, the composite gauge measuring manufacturing and services in India climbed at 54.3 in March from 51.2 in February driven by faster increases in both the sectors.

Further, the government’s vow to stick to its budget deficit goals, easing inflation and a recent reduction in the interest rates on small savings instruments gave the Reserve Bank of India (RBI) additional room to bolster monetary easing in a bid to buoy demand and encourage investments in the country’s economy.

As expected RBI delivered an interest rate cut, its first in six months while signaling a continued accommodative monetary policy stance to help power growth in Asia’s third biggest economy. The central bank lowered the repo rate by 25 basis points to the lowest level since March 2011 at 6.5 per cent from 6.75 per cent.

The RBI kept unchanged its gross-value added growth projection for FY 2017 at 7.6 per cent while inflation is expected to decelerate at a modest rate to hover around the 5 per cent mark through March 2017.

Going forward, policy reforms initiated by the government, lower interest rates and a surge in investment activity would be the key triggers in propelling the economy on an upward trajectory.

Latin Manharlal

RBI set to deliver another Rate Cut

The stage is set for the Reserve Bank of India (RBI) to cut interest rates in its first annual policy statement for FY17 to be announced on April 5, delivering a much needed boost to Asia’s third biggest economy at a time when a growing global gloom threatens to hurt exports.

The central bank is poised to cut the repo rate by 25 basis points as softening consumer inflation, coupled with the government’s decision to maintain fiscal prudence in the Union Budget leave more leeway for policy easing to help boost demand and revive investments.

The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude. This needs to be maintained so that the foundations of stable and sustainable growth are strengthened.

Benign Inflation, fiscal prudence gives room for rate cut

The NDA government in its Union Budget 2016-17 maintained its fiscal deficit target at 3.5 per cent of the country’s GDP in FY 2016-17, the lowest since 2008, while that for the ongoing fiscal was retained at 3.9 per cent.

India’s wholesale inflation stayed in the negative terrain for the sixteenth straight month, as wholesale prices fell 0.91 per cent year on year in February 2016, compared to an annual drop of 0.90 per cent in January 2016. Moreover, the consumer inflation cooled to 5.18 per cent in February 2016 from 5.69 per cent in January 2016, paving the way for further softening of the borrowing costs.

The RBI in 2015 cut interest rates by an overall 125 basis points with the repo rate currently standing at 6.75 per cent. 

Latin Manharlal Group