Fitch Rating's Devendra Kumar Pant says: "A 25 bps hike is pretty likely, but a lot will depend on the May inflation data. I think RBI will continue to monitor prices closely." He is of the opinion that RBI will effect more hikes during the year, to the tune of 50-75 bps, depending on the inflationary expectations. On the inflation front, Pant says non-food inflation is the core and if it comes down, one can expect some breather from the Mint Street. But food inflation will remain high due to the recent MSP (minimum support price) hike and the increasing demand due to the rising income levels, he says. "High food inflation is the new norm," Pant said, adding that past 6-7 years' average GDP growth of 8 percent has resulted in over 15 percent spike in national income levels. Standard Chartered Bank India economist and head of research, Samiran Chakraborty, too foresees a 25 bps hike in the repo rate, as inflation remains the primary issue. On the poor April IIP data, he said it is only a slowing and not a collapsing, hence nothing to worry about. He sees Q1 economic numbers to be under 8 percent and May inflation at 8.5 percent. Axis Bank economist Saugata Bhattacharya too forecasts a 25 percent spike, so does Yes Bank chief economist Shubhada Rao. Rao said the central bank had already indicated on May 3 that its medium term focus will be battening down inflation. However, she sees no incremental threat to core inflation as commodity prices are more or less stabilised, though high. But she pegs inflation closer to 9 percent till November. On growth numbers, she said, "The April data only shows that growth is moderating and not collapsing."....
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Inflation, fuel price hike hold key to growth
The stock markets started the week on a positive note. However, concerns on a slowing down in the economic growth rate and low Index of Industrial Production (IIP) number weighed heavy on the market sentiments, and they ended the week on a weaker note. Interest rate-sensitive stocks took a beating in the markets as analysts believe the Reserve Bank of India (RBI) will increase the key interest rates further in the coming mid-term monetary policy review.
The major factors to track in the short term include fuel price hike and its impact on the inflation rate, RBI's mid-term monetary policy review, and the progress of the monsoon. Analysts are also concerned about the slower-than-expected pace of growth in the developed economies once the stimulus packages and quantitative easing come to an end.
The domestic stock markets are expected to remain range-bound with significant resistance at higher levels.
These are some of the major developments that are expected to drive the markets in the short to medium terms:
Global factors
In the US, analysts are following the performance of the economy closely. There are concerns on the slowerthan-expected pace of economic growth after the end of the second phase of quantitative easing. Analysts believe the US Fed will not announce another round of quantitative easing after the end of this one. However, the Fed is expected to maintain the interest rates at a low level and track the developments before taking further actions.
In the Asian markets, the news of a sharp drop in exports in Japan hit the market sentiments. Although it was expected due to the calamity recently, there are concerns on the pace of recovery and the time it will take to get back to normalcy.
IIP data
In the month of April, industrial production grew at 4.4 percent according to the old series and 6.3 percent according to the new series. The central statistical organisation launched a new series of IIP that covers 45 percent more items than the old series.
Although the IIP number looks better according to the new series, the message is clear that industrial growth is slowing down. There are concerns on the slow growth rate in manufacturing, mining and capital goods.
Investors should remain cautious with their existing positions or new positions in these sectors.
Inflation
The food articles inflation rate has again registered a growth for the week ended May 28. The prices of animal products registered a rise and that resulted in a rise in the index of food articles. The headline inflation rate based on the Wholesale Price Index ( WPI )) is also going strong and not showing significant signs of cooling down.
Analysts feel the RBI will implement another round of monetary tightening. However, the traditional methods of monetary tightening are not yielding the expected results.
Investors should track the economic growth rate as the RBI is continuously increasing the key interest rates. They have gone up to an extent where the industrial sector is feeling the pinch.
Commodity prices
There has been a sharp correction in the commodity markets mainly on the back of weak signals from China and unwinding of speculative positions.
Investors here should track the price of crude oil closely as it is one of the most significant factors that can influence growth. The price of crude oil is already above 100 dollars per barrel and any significant upward movement from here can have a negative impact on economic growth...
The major factors to track in the short term include fuel price hike and its impact on the inflation rate, RBI's mid-term monetary policy review, and the progress of the monsoon. Analysts are also concerned about the slower-than-expected pace of growth in the developed economies once the stimulus packages and quantitative easing come to an end.
The domestic stock markets are expected to remain range-bound with significant resistance at higher levels.
These are some of the major developments that are expected to drive the markets in the short to medium terms:
Global factors
In the US, analysts are following the performance of the economy closely. There are concerns on the slowerthan-expected pace of economic growth after the end of the second phase of quantitative easing. Analysts believe the US Fed will not announce another round of quantitative easing after the end of this one. However, the Fed is expected to maintain the interest rates at a low level and track the developments before taking further actions.
In the Asian markets, the news of a sharp drop in exports in Japan hit the market sentiments. Although it was expected due to the calamity recently, there are concerns on the pace of recovery and the time it will take to get back to normalcy.
IIP data
In the month of April, industrial production grew at 4.4 percent according to the old series and 6.3 percent according to the new series. The central statistical organisation launched a new series of IIP that covers 45 percent more items than the old series.
Although the IIP number looks better according to the new series, the message is clear that industrial growth is slowing down. There are concerns on the slow growth rate in manufacturing, mining and capital goods.
Investors should remain cautious with their existing positions or new positions in these sectors.
Inflation
The food articles inflation rate has again registered a growth for the week ended May 28. The prices of animal products registered a rise and that resulted in a rise in the index of food articles. The headline inflation rate based on the Wholesale Price Index ( WPI )) is also going strong and not showing significant signs of cooling down.
Analysts feel the RBI will implement another round of monetary tightening. However, the traditional methods of monetary tightening are not yielding the expected results.
Investors should track the economic growth rate as the RBI is continuously increasing the key interest rates. They have gone up to an extent where the industrial sector is feeling the pinch.
Commodity prices
There has been a sharp correction in the commodity markets mainly on the back of weak signals from China and unwinding of speculative positions.
Investors here should track the price of crude oil closely as it is one of the most significant factors that can influence growth. The price of crude oil is already above 100 dollars per barrel and any significant upward movement from here can have a negative impact on economic growth...
Planning Commission members demand grant of Rs 1 crore to employ consultants
NEW DELHI: Every member of the planning commission might get an annual grant of Rs 1 crore to employ consultants to further research projects taken by the commission. Some members of the planning commission have forwarded the proposal to the deputy chairman Montek Singh Ahluwalia as part of the exercise to restructure and reform the commission.
"There is a proposal but it is still in the works and no decision has been taken," a planning commission member told ET. The current Planning Commission, which was constituted in 2009, had started with the aim of carrying out internal structural reform to make the commission more relevant.
The exercise had been undertaken by planning commission member Arun Maira who was inducted into the commission from the Boston Consulting Group. "The move has been proposed to give members the flexibility to get qualified people for the work we do at the commission if the need arises," added the member. Primarily three members - Arun Maira, Syeeda Hameed and Abhijit Sen, are backing the proposal.
However, given the monetary requirement, which will be around Rs 8 crore excluding ministerial members of the commission, the proposal is likely to be shelved for the time being. "The quantum of the grant is quite big for the purpose and it is unlikely to be passed in the current scenario," said another official at the planning commission.
The Planning Commission has been criticised often as being monolithic, stagnant and hierarchical with lack of expert domain knowledge...
"There is a proposal but it is still in the works and no decision has been taken," a planning commission member told ET. The current Planning Commission, which was constituted in 2009, had started with the aim of carrying out internal structural reform to make the commission more relevant.
The exercise had been undertaken by planning commission member Arun Maira who was inducted into the commission from the Boston Consulting Group. "The move has been proposed to give members the flexibility to get qualified people for the work we do at the commission if the need arises," added the member. Primarily three members - Arun Maira, Syeeda Hameed and Abhijit Sen, are backing the proposal.
However, given the monetary requirement, which will be around Rs 8 crore excluding ministerial members of the commission, the proposal is likely to be shelved for the time being. "The quantum of the grant is quite big for the purpose and it is unlikely to be passed in the current scenario," said another official at the planning commission.
The Planning Commission has been criticised often as being monolithic, stagnant and hierarchical with lack of expert domain knowledge...
Exports post fastest growth since Mar '04
NEW DELHI: India's exports grew 56.9% during May 2011, the fastest pace of expansion since March 2004, to $25.9 billion. The provisional numbers released on Friday belie the government's own expectations of a moderation in growth rate, partly due to shipments rising at a fast clip during the last financial year.
While sectoral break-up for May was unavailable,commerce secretary Rahul Khullar told reporters on Friday that the engineering sector led the way in the first two months, clocking a growth of 115% to $14.7 billion.
Higher oil prices helped Indian refiners such asReliance Industries step up the value of consignments in their tankers. The sector grew 64% to $8.8 billion in April-May 2011. Similarly, electronics exports grew 80% to $1.83 billion while the other stars included gems & jewellery (23% to $ 5.7 billion), cotton yarn and made-ups (10.4% to $1.04 billion) and marine products (15.8% to $400 million).
Along with a rise in exports, trade deficit too widened in May on higher imports of crude mirroring rising global crude prices, prompting Khullar to warn that the gap between exports and imports could reach $150 billion. The other major contributor to the surge in imports were gold and silver, where prices have been on the rise for the last few months, resulting in imports rising 222% to $13.5 billion during April-May. Import of oil went up 12.9% to $20.3 billion during this period. The other sectors where imports went up significantly included major pearls and precious stones (24.6% to $5.2 billion) and machinery (46.7% to $5.9 billion).
"The big change between the last couple of months and now is that imports have suddenly surged," Khullar said. During the period April-May 2011, exports grew 45.3% to $49.8 billion, while imports were up 33% to $73.7 billion, resulting in a trade deficit of $23.9 billion..
While sectoral break-up for May was unavailable,commerce secretary Rahul Khullar told reporters on Friday that the engineering sector led the way in the first two months, clocking a growth of 115% to $14.7 billion.
Higher oil prices helped Indian refiners such asReliance Industries step up the value of consignments in their tankers. The sector grew 64% to $8.8 billion in April-May 2011. Similarly, electronics exports grew 80% to $1.83 billion while the other stars included gems & jewellery (23% to $ 5.7 billion), cotton yarn and made-ups (10.4% to $1.04 billion) and marine products (15.8% to $400 million).
Along with a rise in exports, trade deficit too widened in May on higher imports of crude mirroring rising global crude prices, prompting Khullar to warn that the gap between exports and imports could reach $150 billion. The other major contributor to the surge in imports were gold and silver, where prices have been on the rise for the last few months, resulting in imports rising 222% to $13.5 billion during April-May. Import of oil went up 12.9% to $20.3 billion during this period. The other sectors where imports went up significantly included major pearls and precious stones (24.6% to $5.2 billion) and machinery (46.7% to $5.9 billion).
"The big change between the last couple of months and now is that imports have suddenly surged," Khullar said. During the period April-May 2011, exports grew 45.3% to $49.8 billion, while imports were up 33% to $73.7 billion, resulting in a trade deficit of $23.9 billion..
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