RBI keeps key interest rates unchanged & hikes SLR to 25%

As expected from the growth prospective, RBI kept key interest ratios(CRR, Repo & Reverse Repo) unchanged and increased SLR from24% to 25%. In my last post, I wrote in bottom line that

"So instead jumping to reversing the monetary policies, RBI should give some more time to country to get back into fast track growth rate & then can think of increasing SLR, CRR, Repo & Reverse Repo in a sequential manner".

So by keeping important ratios unchanged & increasing SLR, RBI has given some more time for monetary expansion & at the same time has give the hint that next move will be of CRR to curb inflation.

This is how RBI has reduced key ratio is sequential manner...


As I raised the point of credit growth slow below picture indicates that...

And I raised one more point export & import in my previous posting...

And finally inflation, about which RBI is worrying...


And other highlights of today's policy review from RBI are...

1. RBI increased its March-end wholesale price index (WPI) inflation estimate to 6.5% with an upward bias, revised from its earlier target of 5%.

2. The estimate for FY10 gross domestic product (GDP) growth was left unchanged at 6.0% with an upward bias.

3. The Central bank cut its FY10 credit growth target to 18% from 20% that it had set in the July monetary policy review.

4. The RBI also asked banks to ensure that their total provisioning coverage ratio is not less than 70% and imposed a timeframe of September 2010 to achieve this target. The coverage ratio is a measure of the bank’s ability to absorb potential losses for non-performing assets (NPAs) and is arrived at by calculating the loan loss reserve balance with the total non-performing loans.

5. RBI increased the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40% to 1%, a move that makes lending to the sector tougher.

Is RBI in a position to increase the interest rates?

27th October there is a half yearly review by RBI, and many surveys are coming out regarding the outcomes of that meeting. Yesterday or day before yesterday I read moody's report stating that RBI is going to increase the CRR by 50 basis points from 5% to 5.5%. CRR is Cash reserve Ratio, that is banks keep 5 rupee of every 100 rupee deposit with the central banker. Increasing CRR means slow sucking up off liquidity from the system. But is our economy ready or over heating by excess liquidity? No, I dont think so. Due to global financial meltdown RBI has reduced the CRR & repo from peak 9% to 5% & reverse repo from 6.5% to 3.25%. When Lehman Brother collapsed immediate next day itself call money rate went beyond 15% which was well above the RBI's repo & reverse repo corridor. From then RBI has gradually reduced all above mentioned rates to present ones.

Now question comes why people are expecting RBI to increase the interest rates? Its because of fear of inflation. Now again there is one more question, why Inflation will/is rising? Is it because of Demand pull (caused by increases in demand due to increased private and government spending, etc) or cost push (caused by a drop in aggregate supply)? Here in our case I can say both the reasons & in addition to that low base is also going to play major boost for incremental inflation.

Due to financial crisis, government has announced many stimulus packages & also 6th pay commission grants & etc helped the domestic demand intact. And due to poor monsoon & flood situation in some places food production is expected to hit hard rocks. So these two above lines cover demand pull & cost push reasons. And as I explained about many times how the base effect is playing major role in direction of the inflation.

But because of above reasons RBI should not rollback their policy decisions. Since even though ours is 2nd fastest growing economy our GDP fell from around 9% to 6% levels. Due to collapse many financial organizations & others, export declined continuously 8 months, according IIP data. The credit growth rate is around 20% from its peak of 30+% in 2004 & 25% in 2007 -08. So to roll back to dream run, we as country needs to monetary policy stimulus to continue till at least March 2010.

And due to FII (nearly US $14 Billion in last 6 months) & FDI inflow Indian Rupee is appreciating against the US Dollar. That is one good sign for importing companies, espeically oil importing companies since oil is the major importing goods. This makes the all importing goods cheaper & oil has some more than 15% weightage in WPI index according which weekly inflation is measured in India.

And according to economist James Tobin, moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money to investing in real capital projects.

Bottom line:


So instead jumping to reversing the monetary policies, RBI should give some more time to country to get back into fast track growth rate & then can think of increasing SLR, CRR, Repo & Reverse Repo in a sequential manner.

Good articles...

Sometime back I read a very good article called ESCAPING DEPRESSION 2 in by Robert Samuelson. Its an interesting article where in he has compared present economic crisis with 1930 great depression with lot facts & figures.

Many people wrote many articles about BUBBLES happened in the history, but I read an article which talks about probability future BUBBLES.


There was article in Business Standard about Central Banker's Dilemma about monetary policy.

Article about Money Supply.

Everybody knows that Bharti Airtel's efforts of acquiring MTN failed due to some reasons. But there is a very good opportunity for Bharti in Banking sector. Read this article in ET.

There is very good discussion about Indian Telecom Sector in today's Business Standard.

Read this article about FTA & Prime Minister Manmohan Singh's silent efforts...

There is an analysis about GOLD FUTURE in today's business line.

In today's Business Standard there is an article about Disinvestment Policy & it's purpose. Have a look at it...

Support an entrepreneur!!!

One of my friend, Anto has ventured into new business which he was planning from long time & discussed with us many times. Finally he has jumped into water, so I wish him all the best...

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Following is the message from Anto, so I request all my readers to support in whatever manner you can...


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Market is @ crucial point

In my last Friday's post, I said market is looking overbought zone and correction may be due in near term. Compared to last Friday's closing and this Friday closing Nifty lost almost 130 points and standing at very crucial point S1= 4945, S2= 4920.

These levels are the very crucial for the markets. As you can see in above chart, Nifty spot is making almost Double Bottom kind of pattern & all other indicators, Stochastic, MACD & RSI are making Tripple Bottoms. So there is intermediate support at these level which may give little support to the market in coming week.

But if you see the below chart, there still pain left in the market from the 2-3 months perspective. Market is breaching 14 days EMA(Exponential Moving Average), which is considered as the reversal in the trend. And also if you see RSI & Stochastic they are still in downward movement & not in oversold region.


BOTTOM LINE:

So breach of 4920 levels leads to market movement towards 4800 level where market consolidated previously, so has a major support & by then all the GAP UP OPENINGS will be filled!!!

Have a look @ Bharti Airtel

Short & Medium term investors start thinking about accumulating Telecom sector leading company's stock Bharti Airtel as all the telecom sector stocks crashed down, couple days on the news of per second tariff bill proposed move by TRAI (Telecom Regulatory Authority of India).

Going by Technical charts, all the indicators RSI, Stochastics, MACD & Volume (which is not there in the chart) are in oversold zone. So investors can start accumulating this stock in subsequent steps & not in single move.

As I wrote in my last article/post, market is not holding up the 5100-5150 levels in Nifty. So it is consolidating @ this level or indicating the sluggishness in the present rally. So at this level still I caution short investors to be careful about the levels 4980 & 4950 which are giving major support to Nifty.

In systematic way investors can start looking @ some stocks which are fundamentally strong & also technically in oversold zone...

Market is in overbought zone

Yes, I feel like markets zoomed too much in the wake of excess liquidity flowing in terms of FIIs, DIIs & somewhat retail investors(recently, when they started feeling left out in the present rally) due to various reasons like sound fundamentals, good earning seasons, cheap valuations & etc.

But does all the reasons support a rally from 2600 levels in Nifty to above 5000 levels, that is more than 90% return in period of mere 6 months.

Here I am not going to discuss any fundamentals today, technically markets are in overbought zone according to many chart indicators which I have given above.

In above chart you can see that RSI(Relative Strength Index) & Stochastic are above 80 levels & slightly feeling sluggishness on these levels. And these are the main(particularly RSI) are pre-indicators for the markets' conditions on both the cases (overbought & oversold).

Here I am not saying that market will start correcting immediately, but correction is in due. It may happen from 5250-5300 levels if not immediately because that is the level when markets started sliding more aggressively in April 2008. You can see that in the below chart.


If you see the 1st chart in first week of June 2009 RSI started sliding from overbought zone, i.e. above 80 levels but markets moved further up for couple of days. But after that they corrected from 4700 levels to 400o levels. And in one more case similar to this is 1st week of August 2009 RSI gave the hint and profit booking took place from 4750 levels to 4400 levels. And it applies to Stochastic also which is similar to that of RSI but little bit complicated. And in 2nd chart you can see the decrease in the volume recently.

So here I am advising not go long(buying) in the present conditions. But as I said above, I not advising going short(for F&O players) also on Index immediately. So for traders its okay to take positions on either side(since they track regularly & exit with little bit loss if needed by not minding) but for short & medium investors I would advise to wait for markets to get correct and then start accumulating good bets.

Now question comes, if markets corrects(IF is the big question mark here) then what is the level to enter back into the markets. Thats the million dollar question!

At present condition I dont know, that's why I am not exiting my longs in solid bets & but I have started exiting from other counters(which I believe not blue chip or high beta or whatever you call).

May be 4700-4800 levels are the starting points for getting back into the markets if markets corrects to that level.

Bottom line:

Personally I dont think/want/expect markets to corrects to below 4500 levels (as solid consolidation has taken place 3-4 times during these 6 months period @ 4500 levels) but markets are always right, so go with the markets...