We have the RBI policy coming in tomorrow i.e 1st
April ’14 from which we are expecting a status quo. As
we have been talking earlier, CPI inflation continues to be the benchmark for the RBI when it comes to
setting the interest rates. We have seen CPI coming down to 8% levels already which is the RBI target for
the next year. Hence we are not expecting any interest rate hike in this policy. Also it is too early for RBI
to start cutting interest rates considering that it is only two months since we have seen any respite in
inflation. Hence we believe that RBI would want to hold on to these levels for some more time before
taking a view that interest rates need to come down. Our belief is that both the CRR and the SLR ratios
would be kept at the same level and RBI would not go ahead with a status quo kind of a policy.
In terms of the equity markets, we saw nifty moving up by 3% last week on back of continuous FII inflows.
We have seen almost 3 bn $ worth of FII investments in equity and around 2 bn $ investments in debt
taking a total FII money to a 5 bn $. We have seen the effect of that on Rupee which breached the level
of 60 for the first time in the last eight months. It is difficult to say to what level rupee will go in the short
term but we believe that RBI will intervene meaningfully in case Rupee continues to appreciate. Our own
sense is that rupee will not appreciate very significantly from these levels considering the fact that
exports continue to be the driver of the Indian economy. We believe that there are big macroeconomic
risks emerging from an expected failure of monsoons. We had the lamina effect which is supposedly
strengthening in the pacific and hence it is expected that rainfall is going to be uncertain and
unpredictable this summer. Therefore we shall be unsure about how agriculture growth will be.
The only sector which continues to drive Indian macro economic growth in the next two quarters is the
export growth. Hence the government and RBI are very cognizant of the fact that the rupee does not
appreciate meaningfully from the levels at which it is trading at this point of time. We have already seen
RBI intervening in the Forex markets in the last few trading sessions and the extent of intervention might
increase in case the pace of appreciation of Rupee actually increases from the current levels. It is difficult
to predict short term levels but we do expect government to intervene much more aggressively to avert
the FII flows to increase significantly from the current levels. In terms of the Q4 earning season which we
will see the beginning in the next 8-10 trading sessions. We expect a muted performance this time as far
as the IT sector is concerned. We have the Infosys and TCS already guided for a soft quarter essentially
because of weather related disruptions in the US and some kind of delaying in fresh order inflows coming
in. The volume growth this quarter for both Infosys and TCS is expected to be around 3% on a Q-o-Q
We believe that the next two years would be extremely robust for most of the Tier I - IT companies
because of two reasons:
1) There is a very strong macro economic recovery which is playing out in US, i.e. also playing out in terms
of comments which we have seen from the US Federal Reserve which has expedited the pace of tapering
and we believe that it also shows the kind of confidence that they have in durability of US macro
economic recovery. So a strong US recovery is going to be extremely positive for Tier I - Indian IT
2) The margin regime has more or less stabilized and we believe that this margin will stay and sustain for
the at least the next 3-4 Quarters. Based on these two assumptions we believe that the earnings growth
for all Tier I - IT companies should be of the order 5-20% and therefore they remain aggressive bias for us
in the coming quarters.
Government’s indirect tax collections rose by 5% to Rs 43,794 cr in February, against Rs 41,714 cr in the
same month last fiscal.
Direct tax collection as per Central Board of Direct Taxes grew 13.6% to Rs 5.82 lakh cr during the period of
Apr 1-Mar 22, against the revised target of Rs 6.33 lakh cr.
Government reduces potash subsidy by Rs 3.33 per kg for 2014-15 financial year, resulting in a saving of
Rs.900cr to the exchequer.
RBI extends the date for full implementation of Basel-III capital norms by banks to March 31, 2019 from the
original date of March 31, 2018.
Euro zone manufacturing PMI falls to 3-month low of 53.0 in March following a final reading of 53.2 in
UK’s consumer price index (CPI) grew by 1.7% in the year to February, down from 1.9% in the year to
Fitch affirms US' AAA credit rating with a stable outlook.
US GDP grew at 2.6% in Q4 2013 following 4.1% growth in Q3 2013.
US new home sales fell 3.3% to a seasonally adjusted annual rate of 440,000 in February following a
downwardly revised 455,000 in January.
China’s flash Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.1 in March
from February's final reading of 48.5.
Satadru Mitra Varun Goel Jharna Agarwal
Nupur Gupta Ridhdhi Chheda
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