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RBI leaves interest rates untouched
Tue, 5 Aug 11:30 am

The Indian stock markets lost their morning gains post the RBI announcing its monetary policy, details of which are discussed below. The BSE-Sensex is currently trading lower by about 15 points or 0.1%, while the NSE-Nifty is trading flat. Stocks from the information technology, automobile and healthcare spaces are the only gainers at the moment. Banking and capital goods stocks were the least preferred by market participants today. The BSE Mid Cap and BSE Small Cap indices were higher trading up by about 0.4% each.

Stock markets in other parts of Asia were trading weak with Japan, China and Hong Kong down by about 0.9%, 0.6% and 0.2% respectively. The rupee was trading at Rs 61.02 to the dollar at the time of writing.

In the first quarter Monetary Policy review today, the RBI kept the key lending rate (repo rate) unchanged. Even the cash reserve ratio stayed at 4%. However, in an effort to ease some liquidity the statutory liquidity ratio (SLR) was reduced from 22.5% to 22%. The RBI's move has come in anticipation of revival in economic activity, fall in consumer inflation and fiscal tightening. If the economic parameters fail to reach RBI's target the central bank may again review its liquidity stance. Meanwhile, it is unlikely that banks will want to bring down the deposit and lending rates too soon. Growth in credit in the near term will therefore largely depend on economic revival as against fall in interest rates.

Stocks from the FMCG space were trading weak with Godrej Consumer, ITC and Dabur being the key losers. Pidilite Industries announced its results for the quarter ended June 2014 recently. The company reported a 20% YoY growth in revenues while profits grew by 5% YoY. Growth in revenues was led by its consumer bazaar business (revenues up 21% YoY; 83% of sales), while its industrial products division grew by 16% YoY. However, the company's margins took a hit, falling to 17.9% from 20.3% earlier largely due to higher input costs. As highlighted by the company's management earlier, the sharp spike in the key input costs (vinyl acetate monomer) was the key reason for the rise in input costs. The effect of the same was however expected to cool down over time as the company was looking at taking certain measures such as price hikes, amongst others, to curb the effect of the same. Further, profit growth would have been higher had it not been for the voluntary retirement scheme payment during the quarter.

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