In a recent decision, the Reserve Bank of India (RBI) has slashed the cash reserve ratio (CRR, the share of deposits that banks hold with the Central bank) by 50 basis points to 5.5%. However, the interest rates (repo) rates have been left unchanged at 8.5% (after being raised for around 13 times between March 2010 and October 2011). The move is expected to ease liquidity and signifies a policy shift from controlling inflation to promoting growth. The cut in the CRR is expected to release around Rs 320 bn into the banking system. As per the RBI Governor, future actions will be towards lowering the CRR. RBI has also lowered the GDP growth forecast for FY12 by 0.6% to 7%. The wholesale price index (WPI) inflation target has been kept unchanged at 7% for the end of FY12.
Majority of the automobile stocks are trading in the positive with Ashok Leyland, Mahindra & Mahindra Ltd. (M&M) and Tata Motors (Telco) being the biggest gainers. However Maruti Suzuki, which has posted a dismal financial performance, is the biggest loser (down 1.6%). As per a leading financial daily, Maruti Suzuki's first diesel engine plant is likely to commission by 2HFY13. The plant, which is expected to come up in the Gurgaon facility, will have an annual capacity of 1.5 lakh engines reportedly at an investment of around Rs 15 bn. The company manufactures only petrol engines with diesel engines being supplied by the allied company, Suzuki Powertrain India. In light of the growing demand for diesel cars and Suzuki Powertrain's 2.9 lakh capacity being inadequate to service Maruti's diesel engine requirements, the waiting period for its diesel models have gone up by upto 4-5 months. Presently the shortfall is being met by a supply arrangement with Fiat India.