mid quarter policy fy13 - fundsupermart.co.in€¦ · mid quarter monetary policy review – march...
TRANSCRIPT
Key Rates Measures
CRR Unchanged at
Reverse Repo rate readjusted
Repo Rate reduced by 25 bps
MSF Rate readjusted by
Bank Rate readjusted by
SLR Unchanged at
In keeping with the guidance and
7.50%. While doing so, it also emphasized that
RBI to achieve this outcome, the revival of investments would be necessary
down the cost of capital has become
However, the structural imbalance in demand and
supply, along with the lagged impact of r
prices may act as a limiting factor in repo rate
moderation in the days ahead.
• Inflation continues to moderate
o Inflation in WPI has been on a declining
trend since Sep 2012 and
for Feb-13. This was better than
expected figure and provides a
headroom to the central banker.
Op
tim
isti
c
Sta
nce
Q3-FY13 GDP at 4.5%
Feb 13 WPI at 6.8%
Jan IIP at 2.4%
FY14 fiscal deficit target at 4.8%
H1 FY14 govt borrowing lower
Kotak30 September 2010
Mid Quarter Monetary Policy Review
March 13
March 19th , 2013
Unchanged at 4.00%
readjusted by 25 bps to 6.50% (affixed at 100 bps below repo)
by 25 bps to 7.50%
readjusted by 25 bps to 8.50% (affixed at 100 bps spread over repo)
eadjusted by 25 bps to 8.50%
Unchanged at 23%
In keeping with the guidance and an increasingly benign stance, RBI reduced the repo rate by 25 bps to
While doing so, it also emphasized that supporting growth is going to be a priority
revival of investments would be necessary; and thus the need for bringing
has become vital.
the structural imbalance in demand and
lagged impact of rising fuel
prices may act as a limiting factor in repo rate
moderate.
WPI has been on a declining
trend since Sep 2012 and stood at 6.8%
This was better than the
and provides a
headroom to the central banker.
FY13 GDP at 4.5%
FY14 fiscal deficit target at 4.8%
H1 FY14 govt borrowing lower
Do
wn
sid
e
Ris
k Q2 FY13 Current Account Deficit at US$ 22.3 bn.
Structural inflation in commodities
Conitnued imbalance in Macro Supply-Demand aggregates.
Economic Trend
Monetary Measures
WPI Primary Fuel MFG
6.8%
9.7%10.5%
4.5%
7.6% 7.1%
15.1%
January-13
January-12
Mid Quarter Monetary Policy Review –
% (affixed at 100 bps below repo)
% (affixed at 100 bps spread over repo)
increasingly benign stance, RBI reduced the repo rate by 25 bps to
a priority in days ahead. For
and thus the need for bringing
Q2 FY13 Current Account Deficit at
Structural inflation in commodities
Conitnued imbalance in Macro Demand aggregates.
MFG Core Inflation CPI
4.5%3.8%
10.91%
5.8% 5.9%
8.83%
Kotak30 September 2010
Mid Quarter Monetary Policy Review –
March 13
March 19th , 2013
o The Core Inflation, which is inflation in non-food manufactured products, eased to 3.8% in Feb-
13. This goes to higlight the demand-constraining effect of high interest rates on the core
manufacting products.
Growth Woes
• The growth in the Indian economy
has also moderated significantly
during the period. GDP growth in
Sept-Dec 12 was at around 4.5% yoy.
In the last three quarter of FY13, the
gdp growth was at around 5%. This
is much below the potential of the
Indian economy.
• At that, the flat growth in the mining
sector, and steep moderation in the
agriculture and manufacturing
sector highlight the structural
imbalance that may have got built-
in; and may require a prolonged
redressal.
Outlook
We remain largely optimistic with respect to the debt market for the following reasons:
• The steep moderation in the economy, coupled with moderating inflation provides a robust
grounding for implementing a repo rate cut in the future. The decline and de-growth in the
manufacturing sector and mining sector makes it imperative that the investment cycle in the system
be revived, lest the deflationary pressure sets in.
• Already, the core inflation, which is inflation in non-food manufactured products, has come down to
3.8% in Feb-13. It is noteworthy here, that the monetary policy has a restraining impact mostly on
the core inflation. (The inflation in the food and fuel segment is largely determined by demand supply
interaction and is relatively less responsive to the policy rates). Therefore the impact of high interest
rates seems to have been fully effected; and a policy reversal may be needed to support the
manufacturing prices.
• The gilt supply pressure in first half of FY14 is slated to be lesser than what it was in H1-FY13. In H1-
FY14, the government is scheduled to borrow a net amount of Rs 2.7 trillion. For the market to
absorb this supply smoothly, RBI may need to resort to OMO in the range of around Rs 600 bn during
the period. This is expected to push down the gilt yields further.
However, the central banker remains circumspect about the risk which the large current account deficit
poses to the economy. With current account deficit at around 5.4% of the GDP, India may need to
Industry FY12 FY13
Agriculture, forestry and
fishing 4.3 1.7
Mining and quarrying -2.8 0.1
Manufacturing 3.6 1.2
Electricity, gas and water
supply 7.6 4.7
Construction 5.7 7.7
Trade, hotels, transport and
communication 7.8 4.9
Financing, ins., real est. and
Business services 11.8 9.4
Community, social and
personal services 5.7 6.9
GDP at Factor Cost 6.6 5
Source: CSO
Apr-Dec 2012 GDP Growth Rate
Kotak30 September 2010
Mid Quarter Monetary Policy Review –
March 13
March 19th , 2013
discourage unproductive imports and also attract inflows on the capital account to meet the resource
requirement. For this purpose, RBI may need to maintain the high rates to attract foreign investments.
Also, the lagged effect of the fuel price; along with the upward pressure from the structural inflation may
cause WPI inflation to remain sticky. This also restricts the headroom for RBI with regard to the monetary
policy.
We continue to favor the fixed income investments across the maturity spectrums. The short term category
provides a better risk reward profiling in the current market scenario. Actively managed duration funds also
would be suited for investors who maintain a 1 year and beyond investment horizon.
Disclaimer & Risk Factors
The information contained in this (document) is extracted from different public sources. All reasonable care
has been taken to ensure that the information contained herein is not misleading or untrue at the time of
publication. This is not a sales literature and all the information is for the information of the person to whom
it is provided without any liability whatsoever on the part of Kotak Mahindra Asset Management Co Ltd or
any associated companies or any employee thereof. This material should not be construed as an offer to sell
or the solicitation of an offer to buy any Security or units of Kotak Mahindra Mutual Funds. We are not
soliciting any action based on this material and is for general information only. This material is relevant only
to clients who qualify as eligible counterparties. The price and value of the investments referred to in this
material and the income from them may go down as well as up, and investors may realize losses on any
investments. Future returns are not guaranteed and a loss of the whole capital may occur. Before acting on
any statement made or advice or recommendation in this material, clients should consider whether it is
suitable for their particular circumstances and, if necessary, seek professional advice. Clients may read
relevant Scheme information document and understand the investment objective, risk of such investment
before investing. Past performance does not indicate the future performance of the Schemes of the Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.