Dear Reader,
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.
The Monetary Policy Committee has decided to keep interest rates unchanged. The day also opened with a few important economic releases becoming available, providing investors a context in which to understand the MPC’s decision. Take the IHS India Services PMI for March, which came in strong but was lower than February. Elections supported the recovery but recent COVID-19 restrictions dampened its pace. While input costs rose, companies absorbed much of it and that’s good news for inflation. More here: Chart of the Day.
Read our take on the IMF's World Economic Outlook, where it projected India’s GDP to grow by 12.5percent in FY22 after declining an estimated 8percent in FY21. But the IMF does not expect investment demand to revive any time soon. The main reasons driving its upbeat forecast then are an increase in consumption and in government spending. The cyclical recovery watchers may have a longer wait in store.
In Ultra-low interest rates pose risks to global financial stability, we analyse the findings from the IMF’s latest Global Financial Stability Report. As the headline states, the IMF is worried by the possibility of asset prices getting inflated due to ample liquidity and low interest rates. We say: “Since the IMF believes low interest rates are causing all kinds of distortions, does the remedy lie in raising interest rates then? The report is quick to dismiss such talk. It says, ‘Ongoing policy support remains essential until a sustainable and inclusive recovery takes hold to maintain the flow of credit to the economy and prevent the pandemic from posing a threat to the global financial system. Monetary policy will need to remain accommodative until mandated policy objectives are achieved.’”
Echoes of the same sentiment are found in the MPC’s statement too. It noted the recovery in economic activity. Rural demand is buoyant and urban demand is recovering with vaccination expected to provide further support. Firms surveyed by the RBI in March 2021 were cheerful about their FY22 outlook. But consumer confidence has been dented a bit by the surge in COVID-19 cases.
Headline inflation has risen to 5percent and core inflation touched 6percent in February. That has led to a slight increase in its consumer inflation expectations in FY22. While demand-side inflation pressures are moderate, it expects supply-side influences to persist. It continues to be optimistic on the fuel inflation front, hoping that state and central governments together cut taxes (or bring fuel under GST). But nothing has come of that so far.
The main reason for the MPC to keep interest rates on hold and maintain an accommodative stance is the jump in COVID-19 cases. It expects this to affect demand for consumer services, restrain growth and prolong the return to normalcy.
But as we say in our analysis of the policy Talking does only so much, RBI swings into action, the bigger news was the RBI announcing a calendar for open market operations. The RBI and the bond market have been facing off for some time now, with the regulator wanting to see rates stay low while the bond market has had a different view, raising borrowing costs. The RBI wants to put an end to that. A calendar for borrowing will give the market a clearer idea of the RBI’s appetite. But that’s not all. A new acronym GSAP (G-Sec Acquisition Programme) 1.0 has entered the bond market lexicon. Do read today’s analysis to get updated on all things monetary policy.
Investing insights from our research team
Market outlook: Expect 20,000 on Nifty by September 2021
Federal Bank – Is there room for re-rating amid the COVID scare?
Should you invest in Macrotech IPO?
IndusInd Bank – Will asset quality match the strong business growth indicated in the update?
What else are we reading today?
Can Byju’s Aakash deal revive the Ed-tech sector?
Glenmark rides COVID-19 wave, all eyes on debt reduction
From the Lex: Solid State Batteries could be the answer to EV industry's battery problem (republished from the FT)
Technical picks
Asian Paints, Asian Paints, Minda Industries and Jubilant FoodWorks (These are published every trading day before the markets open and can be read on the app)
Ravi Ananthanarayanan
Moneycontrol Pro
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
