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Sensex Trades Marginally in the Red; IT Stocks Drag
Fri, 13 Jan 11:30 am

After opening the day on a flat note, the Indian share markets have slipped below the dotted line and are currently trading marginally in the red. Sectoral indices are trading on a mixed note with stocks in the IT sector and the auto sector witnessing selling pressure. FMCG sector stocks are trading in the green.

The BSE Sensex is trading down 27 points (down 0.1%) and the NSE Nifty is trading down 14 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 68.24 to the US$.

Bharti Airtel's subsidiary - Airtel Payments Bank, has commenced national operations with its services now live in all 29 states of India with a total investment of over Rs 30 billion. This makes Airtel Payments Bank the first off the block to launch the new model of banks aimed at taking financial services to the millions who are outside the banking system.

The company plans to tap into its telecom customer base and sign up as many as 100 million of them initially for the services, giving it a large base to keep off competition from digital wallet players and others set to enter the segment.

Airtel is planning to offer an interest rate of 7.5% per anum initially to woo new customers, who can deposit up to Rs 100,000 in their accounts. The interest rate however, is only an introductory offer will go down over time. Customers will be able to operate their accounts with the help of a mobile application, USSD, or IVR and withdraw and deposit money at authorised retail outlets.

The fully digital and paperless bank aims to take basic banking services to the doorstep of every Indian by leveraging Airtel's vast retail network, an official statement said. The only catch is that the payments banks, which do not offer loans and several other facilities offered by full-fledged rivals, are not allowed to accept deposits beyond Rs 100,000 in bank accounts.

The company said it had already on-boarded 1 million merchants and aimed to develop a nation-wide digital payments ecosystem with over 5 million merchants, by March this year. Merchants including kirana stores, chemist shops and many others would be able to download the merchant app of Airtel Payment Bank.

Bharti Airtel holds an 80% stake in the bank, while the rest is held by Kotak Mahindra Bank. Airtel Payments Bank got the payments bank license in April 2016 and became the first among such niche banks to start operations.

India's major telecom operators are pushing ahead the government's broad agenda to move towards cashless economy, at a time when demonetisation has crippled cash payments due to inadequate cash in the system.

To go cashless would mean a complete overhaul of how Indians spend their money. Banks and other financial institutions banks will have to be technologically competent to tackle the security issues associated with the shift towards a digital economy.

All these are major changes, and thus beg the question - Is India ready to go digital?

Moving on to news about the economy. India's factory output, measured by the Index of Industrial Production (IIP), has seen a swing from negative to positive, registering a robust 5.7% growth in November 2016 as against 1.9% in October 2016.

The robust industrial growth runs contrary to retail sales data showing slide in household spending and muted corporate investment hit by an economy-wide cash-crunch due to demonetisation.

The contradiction can however, be explained by the base effect - a statistical phenomenon that makes even tiny changes look large. The index plunged dramatically by over 4.6% in November 2015, the result of post-Diwali blues, which explains the very positive base effect.

The best way to strip away the base effect, therefore, is to consider the fall in the index from the previous month, or October 2016, to reflect the impact of demonetisation. Even after doing so, the manufacturing index shows a contraction of a mere 1.3% from October 2016, which can be attributed to resilient growth in capital goods production in November.

There are expectations that the actual impact of demonetisation on factory output would be known once December IIP figures are announced. It is worth noting that December 2015 saw a huge rise in IIP and therefore, there will be a strong negative base effect in December 2016.

Meanwhile, retail inflation measured by the Consumer Price Index (CPI) eased to 3.4% in December 2016, as compared to 3.6% in November 2016. The current CPI of 3.4% is a 25-month low for the index, and implies frozen spending in the economy.

CPI Hits 25-month Low
CPI Hits 25-month Low

The decline in headline CPI inflation was mainly due to softening of food prices. Prices of vegetables and pulses slipped month-on-month- the former by 11.7% and the latter by 1.6%.

Going ahead, expectations are that CPI or retail inflation would see an increase but is likely to remain under RBI's projection. The central bank and the government set a retail inflation target of 4% for the next five years with an upper limit of 6% and lower limit of 2%. Going forward, whether RBI goes for a repo rate cut at its next monetary policy review due in February 2017 will be the key thing to watch out for.

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Jun 28, 2017 09:06 AM

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