#1. Lending rate cuts in April-May BoA ML expects a 25 basis point lending rate cut in April-May with the onset of the slack industrial season. The RBI OMO and/or CRR cuts are pushing up deposit growth to 14 percent levels. At the same time, it says, high lending rates will likely continue to drag down loan demand. The resultant improved bank liquidity should help pull down lending rates.
#2. Earnings to bottom out BoA ML's equity strategists expects the coming results season to report March-quarter BSE Sensex headline profit growth at a weak 1 percent atop zero percent in the December quarter. However, weak growth is largely on account of poor performance of Tata Motors. Excluding it, Sensex profit growth is 13 percent. The strategists think FY14 Sensex EPS growth will be under 10 percent vs current expectations of 17 percent.
#3. FDI in insurance in Budget session ending 10 May BoA ML expects it to try to pilot legislation to hike FDI/FII limits in insurance to 49 percent from 26 percent (perhaps with 26% cap for FDI) in the current Budget session reconvening 2 April-10 May. The government has also called for a third all-party meeting on 9 April to discuss the Land Acquisition Bill.
#4. 25 basis point CRR cut on 3 May, 25bp rate cut in June, July "We expect the RBI to cut CRR by 25bp on 3 May, repo rates by 25bp in June andJuly, CRR by 25bp in October and rates by 25bp in January (Chart 3). We have shifted our next repo rate cut to June from 3 May after the RBI today indicated that it would not want to cut thrice in a row," BoA ML says in its report.
#5. Karnataka, West Bengal polls to shape reform appetite "We would monitor the West Bengal panchayat (April-May) and the Karnataka state (May) polls as they will determine the political appetite for reforms, especially with the DMK leaving the Congress-led United Progressive alliance," BoA ML report says.
#6. RBI to hold Rs 52-56/USD; US dollar at 1.30s-1.20s/€ Can the RBI really hold Rs52-56 per dollar after the seasonal support of March fades away? Well, BoA ML says yes, if the US dollar trades in the current 1.30s-1.20s/€ range. "We expect the RBI to buy FX at Rs 52 per dollar to arrest the falling import cover. Its USD 291 billion reserves should be able to defend Rs 56 per dollar levels," BoA ML says.