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Sensex, Nifty rangebound; RBI targets CPI at 4% by FY18


The News International Team

11:52am Market update: Equity benchmarks recouped losses in late morning trade. The Sensex climbed 62.60 points to 28567.06 and the Nifty rose 18.40 points to 8678.30.

About 1303 shares have advanced, 1020 shares declined, and 152 shares are unchanged on the BSE. 

11:48am Microfinance companies rally: SKS Microfinance and SE Investments gained 2 percent each after the bank increased borrowing limit.

RBI says taking into consideration the improvement in the Micro-Finance Institutions (MFI) sector and recommendations of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, there is a need to revise upwards the limit relating to total indebtedness of the borrower, eligible rural and semi-urban household annual incomes and loan amounts to be disbursed in the first cycle and in subsequent cycles ass follows:
i) Total indebtedness of a borrower, excluding educational/ medical expenses, not to exceed Rs 1,00,000 (raised from the current limit of Rs 50,000).
ii) Loan disbursed to a borrower with a rural household annual income not exceeding Rs 1,00,000 (enhanced from Rs 60,000) or urban and semi-urban household income not exceeding Rs 1,60,000 (enhanced from Rs 1,20,000).
iii) Disbursement of the loan amount not to exceed Rs 60,000 (enhanced from Rs 35,000) in the first cycle and Rs 1,00,000 (enhanced from Rs 50,000) in subsequent cycles.

11:44am Economist view on RBI policy: Radhika Rao, economist as DBS Singapore says “Benchmark rates were left unchanged on concerns over near-term sticky inflation. Calls to lower the cash reserve ratio to aid policy transmission were meanwhile left unanswered, as we expected.”

“While a lower CRR might have eased liquidity conditions without straining banks’ interest margins, its uncertain whether that would have been enough to trigger cuts in base lending rate cuts or stoked credit growth. As far as policy transmission is impaired due to weak credit demand and concern over banks’ asset quality, infusion of additional liquidity might not do the trick. Marginal impact on the base rate during the 2012-13 rate cutting cycle also does not set an encouraging precedent,” she adds.

11:40am The Reserve Bank says will watch for signs of normalisation of the US monetary policy, though it anticipates India is better buffered against likely volatility than in the past.

“Fed’s policy changes will have a global impact but that’s not RBI’s central issue. Fed’s movement will not be constraining on RBI’s move on rates,” says governor Raghuram Rajan in press conference.

11:36am RBI says going forward, the accommodative stance of monetary policy will be maintained, but monetary policy actions will be conditioned by incoming data.

“First, the Reserve Bank will await the transmission by banks of its front-loaded rate reductions in January and February into their lending rates. Second, developments in sectoral prices, especially those of food, will be monitored, as will the effects of recent weather disturbances and the likely strength of the monsoon, as the Reserve Bank stays vigilant to any threats to the disinflation that is underway,” it detailed.

11:34am Expert on RBI action: Abheek Barua, Chief Economist, HDFC Bank says, “I am a little disappointed as I was expecting a rate cut. But the way policy is conducted these days all the rhetorical language doesn’t mean much and it’s entirely data driven. It’s quite possible that we get a nice retail inflation print and the RBI would move.”

“One critical thing that RBI has said is to wait for the impact of its front-loaded rate cuts on bank lending rates. I think that will happen very soon and if data is supportive of a rate cut we might see one between policies,” he adds.

11:29am GDP target: Assuming a normal monsoon, continuation of the cyclical upturn in a supportive policy environment, and no major structural change or supply shocks, output growth for 2015-16 is projected at 7.8 percent, higher by 30 bps from 7.5 percent in 2014-15, but with a downward bias to reflect the still subdued indicators of economic activity, says RBI

11:27am RBI feels the outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy, it says.

11:24am The Reserve Bank will stay focussed on ensuring that the economy disinflates gradually and durably, with CPI inflation targeted at 6 percent by January 2016 and at 4 percent by the end of 2017-18.

“Although the target for end-2017-18 and thereafter is defined in terms of a tolerance band of +/- 2 per cent around the mid-point, it will be the Reserve Bank’s endeavour to keep inflation at or close to this mid-point, with the extended period provided for achieving the mid-point mitigating potentially adverse effects on the economy,” says RBI

11:22am In 2015 so far, the inflation path has evolved along the projected path after a sizable undershoot of the January 2015 target. CPI inflation is projected at its current levels in the first quarter of 2015-16, moderating thereafter to around 4 percent by August but firming up to reach 5.8 per cent by the end of the year, says RBI.

11:20am Market Check: The Sensex fell 120.36 points to 28384.10 and the Nifty declined 39.75 points to 8620.15 amid consolidation.

About 1153 shares have advanced, 1076 shares declined, and 149 shares are unchanged on the BSE.

11:10am RBI says retail inflation will remain below 6 percent in FY16. “CPI inflation is expected to fall to 4 percent by August but firm up to 5.8 percent by year-end.”

The Reserve Bank says GDP growth under new methodology is seen at 7.8 percent in FY16.

11:00am Market Check:

The market remained lacklustre post announcement of RBI policy. The Reserve Bank of India kept repo rate unchanged at 7.5 percent and cash reserve ratio at 4 percent.

The Sensex rose 1.27 points to 28505.73 and the Nifty declined 10.90 points to 8649. The broader markets continued to outperform benchmarks.

About 1216 shares have advanced, 913 shares declined, and 138 shares are unchanged on the Bombay Stock Exchange.
Reliance Industries, TCS, Bajaj Auto, Mahindra & Mahindra, GAIL and NTPC rallied 1-2 percent whereas Sun Pharma remained under pressure on profit booking, down nearly 2 percent. Infosys, ITC, Tata Motors, Bharti Airtel, Hero Motocorp, Dr Reddy’s Labs and Cipla lost 0.5-0.9 percent.


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