X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Monetary Policy: Fears are now real - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 29, 2008

    Monetary Policy: Fears are now real

    Having won accolades from the world over for being one of the most 'independent' central banks, the RBI (Reserve Bank of India) has once again displayed its independence in the annual Monetary Policy for fiscal 2008-2009. The same has not only brought the concerns with regard to liquidity conditions, growth rates and credit risks to the fore but may also force the speculators who tried to be indifferent to the problems, bite the dust.

    In its trademark manner, the RBI has once again used its oft-resorted tool, the CRR (cash reserve ratio), to tighten the reins of money supply in to the economy. As per this mandate, banks will now have to maintain 8.25% of the net demand and time liabilities (essentially savings, current and fixed deposits) as CRR (effective 24 May, 2008). This means that of every Rs 100 that the banks have in the form of deposits, they will be left with only Rs 66.75 (Rs 100 less CRR Rs 8.25 less SLR Rs 25) for lending purposes. Whether the same will put pressure on interest rates? This is yet to be figured out given the fact that the demand for loans (both retail and corporate) has already shown some signs of cooling off in FY08.

    For FY09, the central bank has projected the GDP growth rate in the range of 8.0% to 8.5% (8.7% in FY08) with the money supply expansion moderated in the range of 16.5% to 17.0% (21% in FY08). This is notwithstanding the fact that the central bank will be targeting to bring down inflation to around 5.5% in FY09 with a preference for bringing it close to 5.0%. The bank also estimates the economic slowdown to have an impact on deposit accretion and loan offtakes in the books of banks with the two growing at 17% YoY and 20% YoY respectively in FY09 (both grew 22% YoY in FY08).

    Two other notable facts highlighted by the RBI in this policy are that the limit of mortgage loans to individuals having lower risk weight of 50% has been enhanced from Rs 2 m to Rs 3 m and that all transactions of Rs 100 m and above will be mandatory to be routed through the electronic payment mechanism. While the former will ease the interest cost on lower ticket home loans, the latter is expected to bring in more transparency in transaction of large volumes.

    We reckon that for investors in equities, the RBI message signals only one thing. That while there is no reason to panic or change exposures or pay heed to the market noise, investors certainly need to temper down their expectations of returns beyond 15% per annum, especially in case of the large cap stocks. This is particularly taking heed of the fact we are starting this fiscal on a very high base (across parameters) and the near term outlook is relatively muted. This is however, notwithstanding the fact that the long term growth story stands intact!

     

     

    Equitymaster requests your view! Post a comment on "Monetary Policy: Fears are now real". Click here!

      
     

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS