RBI would pause for breath after December on hikes, says QuantEco’s Shubhada Rao
After Wednesday’s 50 basis points hike in the repo rate, the Reserve Bank of India still have 75 bps to go, Shubhada Rao, founder of independent research firm QuantEco Research Ltd. Rao pointed out that the RBI has raised its inflation forecast by a massive 100 bps, which shows that the central bank has anticipated every possible adverse effect. While the cash reserve ratio was untouched, she feel, it is still on the table to be used. Her assessment is that in February policy, the RBI could take a pause to assess if the government’s fiscal position is changing. The new fiscal year budget would be out and the fiscal position for FY23 would be known. The RBI would want to assess how the government’s fiscal position for the next year would be. It could resume its rate hiking cycle in April.
Market at 3.00 PM
Indices remain under pressure after repo rate hike, Sensex trading lower by around 200 points, Nifty below 16,400
The Sensex was trading lower by 209.38 points or 0.38% at 54,897.26 and the Nifty was down 57.35 points or 0.35% at 16,359.3. About 1541 shares have advanced, 1734 shares declined, and 124 shares are unchanged.
Source: BSE
ISMA increases 2021-22 sugar output estimate to 36 MT
Indian Sugar Manufacturers Association (ISMA) increases 2021-22 sugar output estimate to 36 MT. The country had achieved a sugar output of 35.7 MT till June 6 as compared to 30.7 MT during the same period last year. ISMA has inked contracts to export around 9.5 MT sugar for 2021-22 out of which 8.5 MT of sugar was exported during the period of October to May.
Repo Rate Hike To Impact Home Loan Borrowers
"The repo rate hike by RBI will impact the home loan borrowers, both the existing as well as the new ones. The hike is positive for the banks and the NBFCs but it is a burden for the borrowers. RBI has raised its inflation forecast for FY23 by 100 basis points to 6.7%, citing supply shocks emanating from the Russia-Ukraine war and the consequent surge in commodity and oil prices. This is very worrisome,"KunalValia, Chief Investment Officer – Listed Investments at WaterfieldAdvisors said.
The rise in inflation will impact the purchasing power. Simultaneously, the borrowing cost has gone up too. This dual phenomenon will lead to a slowdown in the economy. Having said that, the repo rate is still lower than the pre-pandemic level of 5.15 percent. There is room for RBI to increase the repo rate up to 5.5%, he added.
Short Build-Up
Based on the open interest future percentage, Gujarat Gas, GNFC, Polycab India, Deepak Nitrite, Metropolis Healthcare, ICICI Lombard, SRF, LIC Housing Finance, Aditya Birla Fashion & Retail and Bata India saw highest short build-up.
An increase in openinterest, along with a decrease in price, mostly indicates a build-up of short positions.
Market Update
The market wiped out all gains in afternoon to trade lower with the Nifty50 falling below crucial support of 16,400 mark and the BSE Sensex shedding around 200 points, dragged by Bharti Airtel, Reliance Industries, ITC, IndusInd Bank, Asian Paints, Axis Bank, HUL, ICICI Bank, and Infosys.
However, Tata Steel, SBI, Bajaj Finance, Titan Company, Maruti Suzuki, Bajaj Finserv, TCS and HCL Technologies are top gainers.
MRPL Gains 200% in 2 Months
Mangalore Refinery and Petrochemicals (MRPL) has been gaining strength since the end of March this year despite intermittent correction. It has rallied 200 percent in last more than two months.
Fund Raising by Ujjivan Small Finance Bank
Ujjivan Small Finance Bank informed exchanges that the board has approved the proposal for raising of funds by way of issuance of non-convertible debt securities upto Rs1,500 crore on a private placement basis, in one or more tranches, within a period of 1 (one) year from the date of seeking shareholders' approval.
Lupin Receives Tentative Approval from USFDA for Ivacaftor tablets
The pharma major said it has received tentative approval from the United States Food and Drug Administration (FDA) for its abbreviated new drug application (ANDA) Ivacaftortablets which are available in150 mg strength. This drug is a generic equivalent of Kalydecotabletsof Vertex Pharmaceuticals Incorporated.
This product will be manufactured at Lupin’s Nagpur facility in India. Ivacaftortabletshad estimated annual sales of $109 million in the US(as per IQVIA MAT March 2022).
Expert's Take on RBI Policy
"The outcome of the MPC meet was in line with most of our expectations except that the repo rate hike came in at 50 bps vs 40 bps expected by us,"DhirajRelli, MD & CEO at HDFCSecuritiessaid.
While a revisit of the pre Covid repo rate of 5.15% over the next 1-2 meets is a given (vs 4.90% currently), most economists expect this to go above 5.15%. A lot in this regard will depend on how soon the inflation peaks out and begins to fall and when do the global Central Banks feel that they are done with the rate hikes for now, he added.
Naveen Kulkarni, Chief Investment Officer, Axis Securities
Post the off-cycle announcement of a rate hike in May’22, paving the way for a series of rate hikes in the following meetings, the RBI increased the repo rate by 50bps. The MPC has decided to focus on calibrated withdrawal of accommodation while supporting growth. May’22 witnessed pro-active measures by the central government in the form of excise duty cut on petrol and diesel, a ban on wheat export, and other similar measures easing domestic inflationary pressures. However, keeping in view the ongoing geopolitical tensions, rising crude oil prices, and global inflationary input cost pressures, the regulator has increased its inflation estimate for FY23 to 6.7% vs 5.7% earlier. RBI has retained its growth estimates at 7.2%. We believe the market had already discounted a rate hike of 40-50bps, and the key monitorable was a commentary on inflation. We may witness another rate hike, probably of a similar quantum, in the next monetary policy to manage inflationary pressures.
Positive sentiments help broader indices trade positive
Souces: BSE
Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund
While the June’22 RBI policy did not deliver any exciting update, it laid out hawkishness concerning inflation. Repo rate was hiked by 50bps to 4.90%. Stance continued to guide for withdrawal of accommodation. CRR was left unchanged at 4.50% as exogenous external account factors continue to drive down excess liquidity from the system. Most eye-catching were upward revision to inflation estimates, thereby acknowledging inflation pressures in the economy. FY23 inflation were revised from 5.7% in April policy to 6.7% in today’s policy, with an additional qualification that average inflation may stay above 6% until December’2022.Today’s policy was broadly on expected lines and may provide a temporary breather to the bond market. Another 50bps hike in next policy cannot be ruled out. Real policy rates based on expected CPI of 6.7% stays negative even if policy rates move to 6% over the year. A front-loaded policy rate adjustment seems more likely rather than a long drawn-out rate adjustment process considering the domestic and external backdrop. We expect the policy rate adjustment process to be completed over the fiscal year.
Market at 1.00 PM
Indices trade remain rangebound with marginal gains, Sensex trading higher by around 50 points, Nifty around 16,450
The Sensex was trading higher by 57.74 points or 0.1% at 55,161.09 and the Nifty was up 19.95 points or 0.12% at 16,436.3. About 1839 shares have advanced, 1351 shares declined, and 131 shares are unchanged.
Source: BSE
Unmesh Kulkarni, Managing Director Senior Advisor, Julius Baer India.
The repo rate hike of 50 bps by the RBI’s Monetary Policy Committee is pretty much on expected lines. RBI has raised its inflation forecast for FY23 to 6.7% which is probably a more realistic number now.The MPC has dropped the words “remain accommodative” and indicated that it is focused on withdrawal of accommodation; this is possibly suggesting a “neutral to calibrated-tightening” stance.The bond markets have heaved a sigh of relief as the rate hike came in as per expectations, and RBI did not increase the CRR any further. RBI’s ongoing measures around withdrawal of liquidity have been broadly successful in bringing down systemic liquidity. Although the bond markets have reacted positively to the policy, yields will continue to be under pressure over the next few weeks, and drift upwards.Key factors to watch out for going ahead, are how the food inflation pans out and the government’s borrowing programme and the ongoing auction supply.
Yesha Shah, Head of Equity Research, Samco Securities
Quite contrary to outcomes of the previous MPC meets, the rate hike and the subsequent steps announced this time have been fairly in line with the consensus estimates. While RBI’s stance has not changed to neutral, the subtle shift from the words “remaining accommodative” to “withdrawal of accommodation” is an important take-away. The MPC also increased its CPI estimates to 6.7% from 5.7% for FY23, which now appears to be a more realistic level. This contributes to enhanced creditability and confidence in RBI’s policy decisions. The status quo on CRR certainly comes as a positive surprise for the banking sector and augurs well to nurture the credit growth revival. Overall, as the repo rate still has catching up to do when compared to global peers, this policy seems to be in the right direction to achieve Governor’s aim to bring back the policy rates to at-least pre-Covid levels.
Madhavi Arora, Lead Economist, Emkay Global Financial Services:
The 50bp rate hike in policy repo rate is in line with our expectations of RBI remaining front-loaded on rate hikes, after un-anchoring markets’ policy expectation in Apr/May.The stance continues to be focussed on withdrawal of accommodation. The triple whammy of commodity-price shocks, supply-chain shocks and resilient growth, has shifted the reaction function in favor of inflation containment. The reaction function is now evolving with fluid macro realities. The inflation prints of next two quarters are likely to exceed 7%, which could pressure the RBI into acting sooner rather than later.
FY23 could thus further see rates going up by 75 bps+, with the RBI now showing its intent to keep real rates neutral or above to quickly reach pre-Covid levels.
Our Taylor’s estimate shows a max tightening of policy rate by 6% by FY23, of which liquidity tightening to 2% of NDTL is tantamount to another estimated 25bps of effective rate hike.However, the front-loaded rate-hiking cycle does not imply a lengthy tightening cycle, and once they reach the supposed neutral pre-Covid monetary conditions, the bar for further tightening incrementally may be higher amid increasing growth-inflation trade-offs.
Sampath Reddy, Chief Investment officer, Bajaj Allianz Life
RBI hikes key policy repo rate by 50bps to 4.90%, which was along expected lines. The markets were relieved, as there was no CRR hike. However, the RBI did remove the word “Accommodative” from the policy stance and decided to remain focused on withdrawal of accommodation. On the inflation front, the forecast for the FY23 has been raised to 6.7% from 5.7% earlier, due to the elevated commodities prices, which we believe is realistic. On the growth front, GDP growth rate estimates retained at 7.2% for FY23, which is a healthy growth rate in the current backdrop.Overall, a significant part of the pandemic led “policy accommodation” has been reversed. Bond yields will track global crude oil prices, monetary policy stance of the major central banks and the inflation trajectory.
Market at 12.00 Noon
Indices trade positive, Sensex trading higher by more than 150 points, Nifty around 16,450
The Sensex was trading higher by 175.88 points or 0.32% at 55,283.22 and the Nifty was up 50.4 points or 0.31% at 16,466.75. About 1841 shares have advanced, 1281 shares declined, and 126 shares are unchanged.
Source:BSE
Amar Ambani, Head – Institutional Equities, YES SECURITIES
On the expected lines, RBI unanimously re-emphasized its endeavour to contain inflation through withdrawal of the accommodative stance and normalisation of the policy rates. 50bps hike in the repo rate was very much factored in the 10yr yields which moved above 7.5% before the policy outcome, only to retreat lower to 7.45%. Markets are taking respite from the fact that the central bank did not move on the CRR hike, as feared earlier. On inflation, RBI now sees CPI average for FY23 to 6.7%, 100bps higher than the earlier estimate, with the revision primarily attributed to food prices. CPI inflation is likely to remain above the tolerance level of 6% till December 2022 and fall to 5.8% in Q4 FY23. RBI emphasized that the recent fiscal measures have moderated the inflation expectations. However, the inflation projection seemed to be a conservative one, as it assumes Oil to have peaked out and monsoon rainfall to be a normal one. So, the CPI projections are subject to revisions, depending on the magnitude of the supply-side risks. On growth, RBI retains GDP growth for FY23 at 7.2%, emphasising improving aggregate demand and capacity utilization in manufacturing. On the policy rate outlook, the pronounced priority to combat inflation has paved the path for further rate hikes, with the repo rate seen proximal to 5.75% by the end of FY23.
Rahul Bajoria, MD & Chief India Economist, Barclays
The RBI revised up its inflation forecasts, but kept its growth projections. This signals its intention to keep inflation at the centre of its decision making, and desire to return to the pre-COVID policy stance as soon as it can. We now expect the policy rate to reach 5.75% by December, from 5.15% earlier.
Based on today’s moves, if the inflation outlook does not improve and downside growth risks do not rise materially, we think the RBI will continue on its rate hiking trajectory, taking the policy rate to 5.25% by delivering a 35bp hike in the next meeting in August. The bank also indicated that inflationary pressures have become more entrenched, which has taken place much faster than it was expecting.
As today’s policy outcome was broadly along expected lines, we think this sends a very strong signal that the central bank no longer feels the need to go beyond market expectations in delivering rate hikes.Over the next three meetings (August, October, and December), we expect the RBI to make inflation management its key priority, which could include steps to curb aggregate demand. In terms of sequencing, we now expect the RBI to deliver a 35bp rate hike in August, and then raisethe policy rate by 25bp to 5.50% in October, while also switching to a neutral stance. Beyond that, we expect RBI to deliver one more rate hike in December to 5.75%, which we now believe will mark the end of this cycle. This will allow the RBI to lean its policy stance towards tightening, while maintaining a neutral stance by the end of the calendar year.
Sharad Mittal, Director and CEO, Motilal Oswal Real Estate Funds.
Decadal low mortgage rates coupled with other govt driven incentives and increased value of homeownership during the pandemic provided much needed stability and momentum to the real estate sector. The robust uptake in the demand has continued despite recent inflationary pressures on commodity prices and adverse supply chain constraints.
RBI in its last two MPC meetings has hiked interest rates in order to keep the rising inflation under check. Now with mortgage loan rates set to go up, we may notice a slight demand blip in the short term but overall outlook on the sector remains strongly bullish in the long term.
In an interesting move, RBI has now allowed rural co-operative banks to lend towards residential housing projects. This will help improve much-needed liquidity in the sector.
Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities
The June policy was a continuation of the off-cycle policy with the focus remaining squarely on inflation. The RBI’s decision of hiking repo rate by 50 bps as well as increasing inflation estimate by 100 bps were in line with market expectations. The tone of the policy continues to be hawkish and we expect the RBI to continue hiking repo rate to ensure a neutral to marginally positive real policy rate. We expect 35 bps repo rate hike in the August policy to 5.25% and repo rate at 5.75% by end-FY2023. Along with pushing the repo rate to above the pre-pandemic level, a 35 bps hike would also signal a gradual normalization in the policy actions while being adequately hawkish. We also expect another 50 bps hike in CRR to 5% by end-FY2023 to move the liquidity conditions towards the pre-pandemic levels.
Aurodeep Nandi, India Economist and Vice President at Nomura.
To knock high inflation out of the park, central banks are having to step out of the crease and come out swinging with tight monetary policy. Today’s hike by 50bp on the top of an inter-meeting 40bp hike in May is reflective of inflation elbowing its way to the top of the RBI’s priority list and it belatedly looking to catch up with the curve. The RBI’s upward revision of the inflation forecast for FY23 to 6.7% from 5.7% in April, was also in line with our expectations, but still lower than our forecast of 7.2%. So, we believe that we are still far from the finishing line and that more front loaded rate hikes are on the offing.
Market at 11.00 AM
Indices trade positive, Sensex trading higher by more than 100 points, Nifty around 16,450
The Sensex was trading higher by 135.6 points or 0.25% at 55,242.94 and the Nifty was up 42.95 points or 0.26% at 16,459.3. About 1816 shares have advanced, 1208 shares declined, and 117 shares are unchanged.
Source: BSE
Bond yields slip as rate hike priced in, CRR hike absent
10 year yield slipped roughly 8 bps to 7.45% after RBI Governor's statement. Absence of CRR hike, and RBI's willingness to keep the door open for measures to support government borrowing comforted investors.
No CRR hike by the RBI is a relief for Nifty Bank
No CRR hike by the RBI is a relief for Nifty Bank as it gained more than 1 percent
Source: NSE
Aditi Nayar, Chief Economist, ICRA on the MPC announcement.
While further rate hikes remain clearly on the table, with the reference to the revised repo rate of 4.9% remaining below the pre-pandemic level, the comment on the orderly completion of the government borrowing programme has served to cool the 10-year G-sec yield. We foresee further repo hikes of 35 bps and 25 bps, respectively, in the next two policies. However, the upmarch in the yields will now be somewhat shallower than our earlier expectations.
Nifty Realty gain as RBI permits rural cooperative banks to extend finance for residential housing project
Nifty Realty gains 1.11 percentas RBI permits rural cooperative banks to extend finance for residential housing projectto further augment credit flows to housing sector
Source: NSE
RBI sees India FY23 inflation at 6.7% vs 5.7% seen previously
RBI sees India FY23 inflation at 6.7% vs 5.7% seen previously. RBI Governor Das said that, upside risks to inflation as highlighted in previous two policy statements have magnified faster and more than anticipated.Indian economy has remained resilient and recovery has gained momentum despite war as is evident in the so-called Animal Spirits which was steady for the 10th straight month in April as a wider reopening from the pandemic kept rising prices from depressing demand for the time being.
RBI retains real GDP forecast for FY23 at 7.2 percent
RBI retains real GDP forecast for FY23 at 7.2 percent even though it sees that the global stagflation concerns are growing and amplifying volatility in global financial markets. It beleives that the recovery in domestic economy remains firm with growth impulses becoming increasingly broad based while urban demand is recovering, rural demand is gradually improving.Capacity utilizationhas increased from 72.4% in Q3 to 74.5% in Q4 in manufacturing sector
MPC voted to raise repo rate by 50 bps to 4.90%
MPC voted to raise repo rate by 50 bps to 4.90% and decided to remain focused on withdrawal of accommodation
RBI Governor Das begins his address
RBI Governor Das said war in Europe is lingering and we are facing new crisis everyday which are accentuating supply chain issues.
The war has led to globalization of inflation but Indian economy has remained resilient in challenging times supported by strong macro-economy and buffers. The recovery has gained momentum and we will continue to be proactive and decisive in mitigating the fallout of ongoing geopolitical crisis on the economy. We remain focused on bringing down inflation closer to the target and fostering macroeconomic stability
Market at 10.00 AM
Indices at day's low, Sensex trading lower by more than 200 points, Nifty around 16,350
The Sensex was down 293.18 points or 0.53% at 54,814.16 and the Nifty was down 80.1 points or 0.49% at 16,336.25. About 1225 shares have advanced, 1486 shares declined, and 154 shares are unchanged.
Source: BSE
Hindustan Oil Exploration Company (HOEC) commenced oil production and gas sales from Mumbai offshore wells
Hindustan Oil Exploration Company (HOEC) on June 8 announce that it has commenced oil production and gas sales from Mumbai offshore wells, namely D-1 and D-2.The company said that both the wells - D-1 and D-2 - have been individually brought online for production after successfully addressing the technical issues faced during pre-commissioning operations.The company has begun gas sales to Gujarat State Petroleum Corporation (GSPC) from ONGC’s gas processing terminal at Hazira.
Liquidity withdrawal expected as RBI is likely to hike rates today
Measures to tighten liquidity are expected to accompany a rise in Indian interest rates today, adding upward pressure to bond yields and increasing the need for central bank measures to support government borrowing.The rise in interest rates is not in doubt, because the governor of the Reserve Bank of India (RBI) said on May 23 that the decision woud be a "no brainer".
Economists polled by Reuters expect a rise of 25 to 75 basis points. It will follow a 40-basis-point rise in May that kicked off the central bank's tightening cycle, which economists expect to be relatively short.
Ravi Singh-Vice President & Head of Research-ShareIndia
Gold prices are rising a bid on weaker equities and geopolitical tensions. The dollar is easing again and will continue to support gold until there is some hawkish policy tightening by major central banks. The ECB meeting outcome is most awaited to get a clear trend in gold.
Buy Zone Above - 51100 for the target of 51300
Sell Zone Below - 50800 for the target of 50500
China’s tech stocks are rallying after the government’s latest batch of approvals for new game
China’s tech stocks are rallying after the government’s latest batch of approvals for new game raised hope that the industry is reviving. China’s entertainment regulator has approved licenses for 60 new games, a step which being seen as a move towards normalization. Beijing had cracked the whip on online gaming last summer, with regulators introducing measures to curb addiction.
Prashanth Tapse, Vice President (Research), Mehta Equities Ltd
Domestic equities are likely to see a gap up opening on the back of a strong upsurge in overnight US markets and early optimism in SGX Nifty. However, if the RBI's rate hike decision meets street expectations, markets may price in the hike. The street suspects RBI will go for another 40-basis points rate hike. That said, RBI would also prefer to go slow on rate hikes in the backdrop of the government too responding to the inflation risks. The recent announcement on fuel tax cuts and reduction of import duties on edible oils will provide some comfort to the RBI. Besides the Reserve Bank of India, the European Central Bank is also set to meet next week with the outcome expected on June 9.
Deepak Jasani, Head of Retail Research, HDFC securities
Indian markets could open higher in line with largely positive Asian markets today and higher US markets on Tuesday..…
U.S. stocks closed higher Tuesday, picking up steam late afternoon and shaking off early weakness after a profit warning from retailing giant Target Corp. reinforced worries over the retail sector. All three major stock benchmarks booked solid gains as the 10-year Treasury yield hovered near 3%.The stock market ended higher after flipping between gains and losses in the wake of a profit warning from retailer Target Corp. ahead of the opening bell. The market is still trying to digest this tug of war” between inflation and the prospect of recession
RBI monetary policy LIVE Updates | Indranil Pan, Chief Economist at Yes Bank, said inflation surprise has brought to the fore need for RBI to tighten the monetary policy.
“We see RBI extending its 40 bps repo hike of May with a 35 bps increase in June, followed by 25 bps each in August and September. By this time, we expect the global growth to have softened enough to pull down commodity prices and thus provide some comfort to the domestic inflation cycle too,” he said
Brent crude futures for August rose 0.2 percent to $120.79 a barrel
Oil prices edged up on Wednesday ahead of data on U.S. oil inventories, with crude futures supported by tight supplies and recovering fuel demand as China's top cities relax COVID-19 curbs.Brent crude futures for August rose 22 cents, or 0.2%, to $120.79 a barrel by 0012 GMT after closing at the highest since May 31 on Tuesday.U.S. West Texas Intermediate crude for July was at $119.65 a barrel, up 24 cents, or 0.2%, after reaching its highest settlement since March 8 on Tuesday.
US Markets edge higher on June 7
U.S. stocks rallied late on Tuesday to end higher for a second straight day as technology and energy shares gained, while Target Corp's warning about excess inventory weighed on retail stocks for much of the session.Dow Jones ended with a gain of 264.36 points or 0.8 percent; NASDAQ Composite ended higher by 113.86 points or 0.94 percent while S&P500 was closed with a gain of 39.25 points or 0.95 percent
Markets on June 7: The 30-pack BSE Sensex was down 567.98 points, or 1.02 percent, at 55,107.34 and the Nifty lost 153.2 points, or 0.92 percent, to end the day at 16,416.35. Indian equity benchmarks extended their losing streak to a third day on June 7 amid fears that the Reserve Bank of India will the next day increase interest rates when its monetary policy committee (MPC) concludes its meeting.
Good morning and welcome to the live coverage of all the action from D-Street. Stay tuned to this blog for all live updates from the market in India and around the world.
