Andrew L Dcunha
Mumbai, Oct 28: The BSE Sensex witnessed a sharp rally today and gained 516 points after the European Union summit decided to bail-out Greece by asking banks to write-off losses on Greece's debts. As expected Indian market had a gap up opening on the back of positive cues from Asian, European as well as US markets. The Sensex ended at 17804,. The 30-share index touched intraday low of 17672 and high of 17908. The Nifty ended at 5361 up 159 points touched a high of 5399 and low of 5323.
The global benchmark indices rallied, as a relief measure by EU summit was chalked out towards resolving European debt crisis on Thursday and US reporting a GDP growth rate of 2.5% for the 3rd quarter (in line with economists’ estimates). The EU summit reached a decision to reinforce EFSF bailout fund and approved for recapitalization of its banks. The EU policy makers approved a EUR106bn plan to recapitalize the ailing European banks. Also, EFSF bailout fund has been strengthened to EUR1,000bn from EUR 440bn earlier. Also banks and other private bondholders in Greece will voluntarily write down 50% on Greek government debt. The deal is expected to reduce Greece’s debt to 120% of its GDP in 2020 which is currently 180%..
The Indian markets also reacted positively on RBI signaling low probability of further rate hikes as it is quite confident that interest rates have peaked. However markets are expected to face resistance at higher levels as the concerns of high inflation are increased after food prices rose 11.43%.
Highlights of RBI’s Second-Quarter Policy Review (October 2011) :
• Hiked the Repo rate by 25 bps to 8.50% with immediate effect (the 13th hike since March 2010); consequently the Reverse Repo rate (pegged at 100 bps below Repo) stands at 7.50% while the Marginal Standing Facility (MSF) (pegged at 100 bps above Repo) stands at 9.50%.
• The central bank has continued with its rate hike as inflation rate continues to remain above its comfort level and expects it to begin falling only in December 2011 and then continue to a steady path of 7% by March 2012; the central bank expects inflation to further moderate in the first half of FY13 fiscal.
• RBI expects slowdown in global economic growth to adversely affect the Indian growth path particularly industrial production and hence the central bank has revised down its forecasts for FY12 to 7.6% from earlier projection of 8% growth.
• The policy stance is to maintain an interest rate environment that contains inflation and anchors inflation expectations, stimulates investment activity and manage liquidity to ensure that it remains in moderate deficit, consistent with effective monetary transmission
• RBI deregulated the savings bank deposit rate with immediate effect.
• RBI creates a new category of NBFCs called Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs).
• The policy stance is to maintain an interest rate environment that contains inflation and anchors inflation expectations, stimulates investment activity and manage liquidity to ensure that it remains in moderate deficit, consistent with effective monetary transmission.
• RBI deregulated the savings bank deposit rate with immediate effect. Each bank has to offer a uniform interest rate on savings account up to Rs. 1 lakh after which, a bank may provide differential rates of interest.
Food Inflation jumps to 11.43%
India’s primary article inflation for the week ended October 15 came in at 11.75% compared with 11.18% in the previous week; Food inflation for the latest week came in at 11.43% compared with 10.60% in the previous week. The rate of price rise of food items was 14.20% in the corresponding week of 2010. Fuel and power inflation stood at 14.70 per cent during the week under review, compared to 15.17 per cent in the previous week
Andrew L D Cunha, Managing Director, WinWin Fin Advisory Pvt. Ltd. Mangalore. Email: finadvisoryltd@yahoo.com
