Global trends, macroeconomic data, and the outcome of the US Fed policy meeting are the major factors that will drive the movement in the domestic equity markets this week, analysts said. "In the upcoming data-centric week, the focus will be on crucial releases, including inflation data from India and the US. "Indian inflation is expected to rise, while US inflation will remain steady.
Banks are likely to see their net interest margins (NIM) - broadly the difference between interest earned on loans and paid on deposits - shrink by another 30 basis points (bps) over the next few quarters. After hitting a peak of 3.3 per cent in the third quarter (Q3) of the financial year ended March 31, 2023 (FY23), NIMs have been on a downward trajectory, touching 3.13 per cent in Q2FY24 on higher cost of funds, according to capital markets firm CARE Ratings. Banks are still grappling with the Reserve Bank of India's policy rate increases - that have made deposits costlier as the interest payable to customers has increased - and the regulatory actions on unsecured lending.
Foreign portfolio investors' (FPIs') net investments in the domestic debt market surged in December, marking a 77-month high, that is, since July 2017. According to market participants, this significant uptick in FPI inflows can be attributed to the post-domestic policy outcome and the US Federal Reserve's dovish stance at the December policy. FPI inflows into debt stood at Rs 18,393 crore in December against Rs 14,106 crore in November, according to data on the National Securities Depository Limited.
British banking major RBS on Thursday said it expects the Reserve Bank to cut key rate by 25 basis points or 0.25 per cent in its monetary policy review next week, leaving the cash reserve ratio (CRR) unchanged.
SBI Q3FY24 result review: A higher-than-factored weakness in the October-to-December quarter (Q3) results of State Bank of India (SBI), for financial year 2023-24 (FY24), has prompted brokerages to cut earnings estimates for the ongoing financial year. They, however, have maintained 'Buy' ratings on the stock, revising target price upwards in some cases, owing to the stock's recent underperformance relative to its peers.
Reserve Bank Governor Shaktikanta Das on Friday stressed that the monetary policy must remain actively disinflationary to ensure that the decline in inflation from its peak of 7.44 per cent in July continues smoothly. Addressing the Kautilya Economic Conclave 2023, he also said price stability and financial stability complement each other and it has been an endeavour at RBI to manage both efficiently. Retail inflation declined to a three-month low of 5.02 per cent annually in September on account of moderation in vegetables and fuel prices, and was back within the Reserve Bank's comfort level.
Host of lenders led by State Bank of India (SBI) and Bank of India hiked lending rates after the Reserve Bank raised the benchmark interest rate to tame inflation. The hike has been effected in their benchmark rate linked to the repo rate, which increased by half a percentage point to 5.9 per cent. Even financial institutions like mortgage lender HDFC Ltd hiked the lending rate by 50 basis points effective Saturday.
Moody's Investors Service on Friday raised India's growth projection for 2023 calendar year to 6.7 per cent on account of robust economic momentum. "Strong services expansion and capital expenditures propelled India's 7.8 per cent real GDP growth in the second (April-June) quarter from a year ago. "We have accordingly raised our 2023 calendar year growth forecast for India from 5.5 per cent to 6.7 per cent," Moody's said in its Global Macro Outlook. - el nino
Opinions vary, but fund managers remain bullish.
The Reserve Bank is likely to cut the repo rate by 25 basis points (bps) after the Budget.
The monetary authority said it was worried on three fronts with regard to inflation as well as the economy.
During 2023, the Indian real estate sector - both housing and commercial - witnessed buoyancy fuelled by demand, supply, and absorption, and the sector is banking on the upcoming Budget to keep the momentum going. Mumbai-based Sattva Group wants the government to focus on the critical pillars for long-term growth. The company emphasised on the infrastructure boom with increased allocation, lower goods and services tax (GST) rates, incentives for affordable housing and single-window clearance to fast-track projects and support liquidity.
Reserve Bank of India governor, Bimal Jalan, said on Monday there was no proposal to cut the repo rate as of now and added the bank's bias towards soft rates would continue.
'The rate cut could have been higher in the current economic conditions which would have had a stronger impact on business sentiment and spurred investment in a big way.'
Private sector lender ICICI Bank has revised its external benchmark lending rate (EBLR) to 8.10 per cent, and state-owned Bank of Baroda has raised the rate to 6.90 per cent with immediate effect after the RBI hiked the key repo rate. Likewise, two other public sector banks -- Bank of India and Central Bank of India -- have also raised the repo linked lending rate. In an out of turn Monetary Committee Meeting (MPC), the Reserve Bank on Wednesday announced to hike the benchmark repo rate -- the short term lending rate it charges to banks -- by 0.40 per cent to 4.40 per cent with immediate effect, aimed at taming the rising inflation caused by the global geopolitical situation.
All six members of the Reserve Bank of India's (RBI's) monetary policy committee (MPC) expressed caution over food inflation during the December review, while two external members warned about high real interest rates as headline inflation approaches its target of 4 per cent. The central bank continued to maintain the status quo on both the repo rate and the stance in the December monetary policy. India's retail inflation in November rose to 5.5 per cent - its fastest pace in three months - due to higher food prices.
'We have a plan to plough back a 'This year in the first half we had profits of more than Rs 31,000 crore.' significant amount of profits this financial year.' 'We have seen this organic plough back of profit is one of best ways to support the equity of the bank.'
'If rate cuts happen, bond yields will come down and investors will make mark-to-market capital gains on them.'
Retail inflation rose to three-month high of 4.81 per cent in June, mainly on account of hardening prices of food, according to the government data. Inflation based on the Consumer Price Index (CPI) stood at 4.31 per per (revised upward from 4.25 per cent) in May and 7 per cent in June 2022. The inflation, however, remains within the RBI's comfort level of below 6 per cent.
Reserve Bank of India has kept options open for a possible repo rate cut but said there was no "great urgency" for slashing it from the present level of 5.0 per cent.
'Banks will continue to increase FD rates to attract more deposits and meet the increasing demand for credit.'
The members of the Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC) voiced different views on the interest rate and stance, with two of them indicating they may not vote for further rate increases even if Governor Shaktikanta Das and Deputy Governor Michael Patra maintain bringing down inflation as their primary objective, the minutes of the December review of the monetary policy showed. The other two members remained neutral. The MPC increased the policy repo rate by 35 basis points (bps) - which was lower than the previous three hikes of 50 bps. The repo rate has been hiked by 225 bps to 6.25 per cent since May this year.
Retail investors could be hesitant to invest in floating rate savings bonds, as these specific bonds tend to be profitable only in a rising rate environment, according to market participants. The Reserve Bank of India has allowed subscriptions for floating-rate savings bonds, 2020, via retail direct - an online portal that enables individual investors to purchase government securities.
Banks and bond dealers expect RBI to slash its bank rate by 0.50 per cent and reduce repo rate by 0.25-0.50 per cent in the forthcoming busy season credit policy, going by the excess liquidity and lower yield on government papers.
Analysts are divided on their retail price inflation forecast, with some saying the first quarter numbers will overshoot the RBI target by as much as 60 bps while others are softer in their estimate. Consumer price inflation retreated from its 15-month peak of 7.4 per cent in July to 6.8 per cent in August, much lower than the market expectations, despite vegetable prices remaining elevated at 26.1 per cent. Food inflation eased to 9.9 per cent from 11.5 per cent, led by some cooling of inflation in vegetables, cereals, pulses and milk.
Kotak Mahindra Bank was the biggest loser in the Sensex pack, sliding 2.68 per cent, followed by Tech Mahindra, Mahindra & Mahindra, Axis Bank, Hindustan Unilever, Tata Motors, Tata Consultancy Services, Bajaj Finserv, Bajaj Finance, Nestle and Titan. In contrast, NTPC, Power Grid, Larsen & Toubro, HDFC, Reliance and HDFC Bank were the gainers.
A day after the Reserve Bank of India's (RBI's) Monetary Policy Committee hiked the policy repo rate by 50 basis points (bps), several commercial banks, including ICICI Bank and Bank of Baroda, raised their external benchmark-linked loan rates by an equal amount on Thursday. HDFC, the country's largest mortgage lender, too, increased its interest rates on housing loans by another 50 bps. In total, it has raised rates by 85 bps since May 4, when the RBI had increased the repo rate by 40 bps in an off-cycle meeting.
The Reserve Bank of India has no plans to cut the short-term repo rate for some time, a senior central bank official said on Thursday.
The apex bank in its monetary policy for 2010-11 hiked the repo and the reverse repo to 5.25 per cent and 3.75 per cent, respectively, and the CRR to 6 per cent.
While most borrowers calculate the gain they stand to make from switching to a lower interest rate, they often fail to take into account all the costs.
Elections may be a few months away, but the government may get into election mode much earlier than that, predicts A K Bhattacharya.
Housing sales rose 36 per cent year-on-year to a record 120,280 units across seven major cities during the July-September period on robust demand amid stable mortgage rate, according to Anarock. Housing sales stood at 88,230 units in the year-ago period across the seven major cities. Releasing the data, real estate consultant Anarock said average housing prices across the seven cities grew 11 per cent annually in the July-September period this year.
The RBI's decision to hike repo rate will hit consumers' buying sentiment, but will have a moderate impact on housing sales in the affordable and mid-income categories, according to industry experts.
The bulk of an investor's portfolio should be in shorter-duration funds of up to one year portfolio duration.
CLSA says government actions to facilitate investment more important for revival than a token monetary easing.
Interest rate sensitive stocks gain ground post decision
Floating-rate mutual funds are back in demand after a year-long period of consistent outflows. In the past three months, investors have poured over Rs 6,100 crore into these debt schemes, indicating a reversal in fortunes for the category that recorded outflows for 11 consecutive months (May 2022 to March 2023), totalling Rs 32,250 crore. Floating-rate funds invest at least 65 per cent in floating-rate instruments, which have their interest rates linked to the Reserve Bank of India repo rate.
Market participants attribute the stability to the Reserve Bank of India's timely intervention in the foreign exchange market, both in terms of selling and buying dollars.
The global brokerage firm believes that CRR cut is likely to help cut lending rates and revive growth sentiments.
India decisively withstood global headwinds in 2023 and is likely to remain as the world's fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rate regime and robust foreign exchange reserves. Despite widespread pessimism witnessed among the developed nations and the worsening geopolitical situation, India recorded a gross domestic product (GDP) expansion of 6.1 per cent in the March quarter. The growth moved up to 7.8 per cent in the June quarter and was 7.6 per cent in the September quarter. For the first six months of this fiscal, the growth was 7.7 per cent.
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