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.
Reforms march ahead-II - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 29, 2003

    Reforms march ahead-II

    In the prelude to this article, we had illustrated that despite elections being around the corner, the government has been going ahead with its implementation of the reforms process. What is heartening is that elections have not dampened the resolve of the government. In this light the RBIís reduction in the repo rate will be of further help to the economy.

    ĎRepoí rate stands for repurchase options, and are basically short-term debt instruments that the RBI issues to adjust liquidity in the markets. While the intention of the RBI is clear, vis-ŗ-vis soft interest rate regime, the proactiveness of the Central Bank is paramount. While the reduction of the repo rate may not be a reform as such, the intention is very clear from the RBIís side. The intention is to spur growth by making capital cheaper. While this has worked to an extent, higher credit offtake seems to have been restricted to a few sectors.

    The effect of the reduction in repo rates has had an almost immediate impact on the banking sector. One of the largest public sector banks in the country has already pared its deposit rates, while others have indicated that in view of the new developments, they are open to the idea of paring down both lending as well as deposit rates. This will have a couple of benefits for the economy as a whole. Firstly, banks at a latter stage will be forced to review their Prime Lending Rates (PLRs). This means that corporates who did not have access to cheap sources of capital will now have an option.

    While it may be a while before PLRs are aligned to interest rates prevailing in the market, the repo rate cut is a step in the right direction. Currently, apart from companies that have strong credit ratings, the remaining are not in a position to borrow at a rate below PLR. Under these circumstances, there is need to rationalise PLRs further, that too downwards. In an earlier article, we had indicated that borrowers in the country continue to pay a high real rate of interest despite falling lending rates.

    The second indirect benefit that this move is likely to bring about is that as deposit rates head southwards and with the public savings schemes being aligned (though this will take more time) to market rates, investors would look for other options that give better returns. Retail investors, for example, may chose to invest more money in the stock markets, either directly or via the mutual fund route.

    While the Indian financial system has a long way to go as far as reforms are concerned, we can safely say that the efforts to reach there are well under way. In this respect, full marks to the governmentís intention and the RBIís proactiveness. As the country slowly but surely gets integrated with the global economy, further reforms are a necessity. For once, populist measures seem to be taking a back seat to the reforms process. We hope that this continues in the future, irrespective of who comes to power.

     

     

    Equitymaster requests your view! Post a comment on "Reforms march ahead-II". 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

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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