Strong IIP data douses hopes of rate cut; all eyes on budget: Analysts in Economic Times Website .....
RAJESH DESAI
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Please find the link of Microsec Fundamental Research Coverage in Economic Times Website .
12 Mar, 2012, 01.29PM IST, The writer has posted comments on this articleEconomictimes.com and Agencies
Strong IIP data douses hopes of rate cut; all eyes on budget: Analysts
NEW DELHI: Indian markets corrected
sharply from their day's high after the government released IIP data for the
month of January. According to analysts, stronger-than expected industrial
output data reduced hopes for a rate cut in the coming Reserve Bank
of India (RBI) policy meet on Thursday.
"Though markets
opened gap up at the opening stand on Monday, but shaded all its gains due to
the events following during this week. Monetary policy by RBI is less likely of
announcing any repo cuts due to the elevated levels of crude oil and sail
through for better clarity on fiscal consolidation by the government during the
Union budget on 16th March 2012," said Siddharth Sedani, AVP (PMS) of
Microsec Capital Ltd.
Industrial output in January grew at its fastest pace in 7 months, powered by a
surge in manufacturing, including consumer non-durables, a sign of strength in a
sluggish economy that reinforces expectations the central bank will wait until
April before cutting interest rates.
"A rate cut in March is certainly out of the question due to the latest
industrial output number and the high powered money injected through the cash
reserve ratio cut on Friday," said Ashish Vaidya, Executive Director and
Head of Interest Rates, UBS.
"As far as the possibility of a rate cut in April goes, it will depend to
a large extent upon how the government lays out the fiscal consolidation path
in the Budget," added Ashish.
"The possibility of a more populist budget has risen as a result of the
state elections and that is really quite bad news for the Indian stock market
and for the Indian economy generally," said Jim Walker,
Founder & Managing Director, Asianomics.
"The budget deficit will not be addressed in any meaningful way which
means that if the populous measures do come out, then the Reserve Bank of India
is not going to cut interest rates in the way that the market has been hoping.
So, all eyes are now on the 16th of March, that may be a budget long in
rhetoric and very short on details, which will disappoint the market,"
added Jim Walker.
According to most experts, the data is too volatile after they introduced this
new series, which has reduced the credibility of IIP as a leading indicator.
The other big indicator to watch out will be the inflation numbers.
"The spikes in data are so unpredictable, it is difficult to interpret it
in a reasonable, analytical format. There is a serious credibility issue with
the data. I suspect huge data reporting issues on capital goods," said
Abheek Barua, Chief Economist, HDFC
Bank.
We have compiled views & recommendation of important market voices on
industrial output data, RBI policy review and Union Budget 2012:
Samiran Chakraborty, Regional Head Research, India, Standard Chartered Bank:
I am sure that RBI looks at a broad set of activity numbers and not just IIP
while deciding on the policy action. The IIP number will straightaway get
reflected in the GDP number. We might doubt the integrity or the quality of the
data, but the fact remains that we will now probably see a better fourth
quarter GDP as well if this trend continues in February and March as well.
We have to give it two more quarters for investment cycle revival to sustain.
The power and the metals sector comprises of about 70% of overall private
sector capex. If policy issues are handled in those two sectors, well, then
possibly with some interest rate easing we might see an investment recovery in
the second half of the next fiscal.
C Rangarajan, chairman of the Prime Minister's Economic Advisory Council
(PMEAC):
The overall number is encouraging. It shows that perhaps industrial production
is picking up and we may expect to see slightly improved behaviour in the month
of February and March. In that sense the January number is encouraging, but the
composition of the index of industrial production, particularly the growth
rates in some of the sectors, is not very encouraging.
The capital goods sector is still not doing well. It is still negative and the
intermediate goods sector is also showing a negative growth, but the big push
has come as a result of the consumer non-durables.
Siddharth Sedani, AVP
(PMS) of Microsec Capital Ltd:
We observed the CRR cut of 75 bps by RBI on Friday and injecting Rs 48000 cr
into the system and relieving banking and corporate ahead of advance tax
payments. This was more of in expected lines of the market, but before the
scheduled monetary policy meet on 15 March 2012.
As the government would be trying to keep the fiscal deficit under control and
maintain traction in growth numbers (GDP) in the upcoming Union Budget. Budget
doesn't seem like a big bang reformist one except a few tinkering on direct and
indirect taxes.
Nifty may find strong support at 5000 levels where it would trade 12.35xFY13E
EPS. Nifty may trade between 12.35-13.5xFY13E EPS, which makes a range of
5000-5451 for March 2012.
Regards,
Team Microsec Research
--
CA. Rajesh Desai