CRR Hike and Impact on Indian Banks + Markets
Friday, January 29, 2010
The Reserve Bank of India (RBI) often likes to spring a small surprise, and today's meeting was no exception. Contrary to market expectations, the RBI raised the CRR by 75bps v/s expectations of 50bps. RBI has raised its growth estimate for FY10 from6% with an upward bias, to 7.5%.
The RBI raised its inflation projection, it has stated that inflation expectations are on the rise and warned of further upside risks emanating from: oil, below average monsoons in 2010, and capital flows. RBI also pointed out that large fiscal deficit is a far bigger risk to both short-term and medium-term. The reversal of monetary accommodation cannot be effective unless there is a roll back of government borrowing.
Citi Analysts said,
Going forward, we maintain our view that the RBI will hike policy rates by at least 125bps and the CRR by an additional 50bp-100 bps depending on liquidity conditions.Morgan Stanley Analysts said,
In our view, the direct impact of this move is that NIMs for banks will be impacted by about 5 bps, implying a F2011 earnings impact of 3-4% for banks in our coverage (assuming all else is equal). The RBI move is likely to cause short rates in India to start moving up, in our view.HSBC Analysts expect 125bp of CRR hikes and the same increase in both the repo and reverse repo rates by end of 2010.
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Published by Webmaster @ 5:49 PM IST.
Big Monetary Policy Coming this Friday - Expectations on the Street
Monday, January 25, 2010
Ahead of RBI's monetary policy on Friday, 29 Jan, the domestic Macro scenario has improved with industrial production at 10-11% growth, inflation with the Dec reading crossing the RBI's Mar 10 target of 6.5% and Loan growth returning to the double-digit range.
The street expects the RBI to begin normalizing rates with a 25-50bp increase in the CRR and 25bp increase in repo and reverse repo rates. Surprise could also be a withdrawal/roll-back of some of the liquidity injection measures taken during the crisis.
Another section of the market have set a tone that RBI may delay the hikes saying that there is nascent signs of a pick up in loan growth.
Given the upside surprises seen on the growth front, the RBI could raise its FY10 GDP estimate of 6% (with an upward bias). However, more important will be its guidance on inflation, which has already crossed 6.5% (policy makers have been stressing more on the importance of asset price inflation rather than commodity price inflation.
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Published by Webmaster @ 1:16 PM IST.
Nomura India Macro Strategy 2010
Monday, January 04, 2010
The markets is no mood to correct and Bulls have taken total control of the same. Here is Nomura's Expectations from Indian Equities for 2010.Growth: The 2H FY09 (fiscal year-ending 31 March, 2009) saw demand reeled in. Expect better growth in FY11F, underpinned by a turn in the investment cycle. Firm signs of a demand recovery are evident. Capacity shortages that had been masked by absent demand are now back to the fore, creating conditions for a capex revival.
Managing the Fiscal Deficit:
The government stepped up and infused risk-capital into the economy post-crisis when the private sector was in de-leveraging mode. Expect strong growth this year and expect FY11F to move towards consolidation of government finances as a pick-up in revenues is augmented by slowing expenditure, a tapering-off of extraordinary items and a move towards disinvestment.
Inflation and Monetary Outlook:The market will have to navigate the proverbial puddle of inflation in the short term. Long domestic cyclicals to play
growth, but short rate-sensitives until inflation overhang abates.
CAPEX Vs DEMAND:
Domestic production was unable to meet demand in FY08, causing capacity utilisation to peak, industrial production to drop and imports to rise. Stalled financial closures of many big power projects have completed since March 2009. A renewal in capex will translate into higher capital inflows, with implications for monetary policy and the rupee
Strong capital flows and an appreciating rupee:
The high tide of capex will draw capital inflows as poor disintermediation of savings (underdeveloped long-end corporate bond market and comparatively low level of savings via equity) implies increasing external inflows to finance long-term capex. This will have implications for monetary policy and the rupee. Expect Indian rupee/US dollar to touch 42.3 by end-2010F.
Return of Leveraging Saga:
Re-leveraging in 2010 is a key theme, following as it does de-leveraging by corporates and households; the government had to leverage up as it administered fiscal stimulus.
Finally on SENSEX Target - Bullish on a one-year horizon. While valuations do not seem frothy they remain vulnerable to excessive inflation and ensuing monetary tightening. See a correction of some 10% as offering a more attractive entry point into a solid growth story. We revise our Sensex target from 18,800 for September end to 19,600 for December-end 2010F. New target implies ~13% upside.
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Published by Webmaster @ 11:29 AM IST.
