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SHAREKHAN SPECIAL Monthly economy review Economy: IIP growth surges due to base effect; inflation continues to moderate -
In October 2012 the Index of Industrial Production (IIP) grew by 8.2% after declining by 0.7% in September 2012. The higher than expected growth in the IIP in October was due to a lower base effect and a strong festive season-driven rebound in the manufacturing segment (up 9.6%) during the month. The uptick in the consumer durables and capital goods segments, which grew by 13.2% and 7.5% respectively, also aided the overall surge in the IIP during October 2012. The IIP growth for September has been revised to -0.7% from the provisional estimate of -0.4%. Therefore, based on the three-monthly moving average, the IIP growth stands at 3.3% as against 0.3% in October 2011. -
The Wholesale Price Index (WPI)-based inflation came at 7.24% (lower than the markets' expectations) in November 2012 as against 7.81% in October 2012. The month-on-month (M-o-M) decline in inflation was due to a decline in the fuel group inflation and the manufactured goods inflation. However, the inflation rate for August 2012 has been revised upwards to 8.07% from 7.81% as per the provisional estimate. -
India's trade deficit in November 2012 softened marginally to $19.29 billion after worsening the most in at least 17 years in October 2012 to $21.0 billion. The trade deficit increased by 21.8% year on year (YoY). The exports decreased by 4.2% YoY (down 1.6% in October 2012) to $22.30 billion while the imports increased by 6.4% YoY (up 7.4% in October 2012) to $41.59 billion. Banking: RBI leaves rates unchanged; deposit growth at a record low of 12.8% -
In the mid-quarter policy review, the Reserve Bank of India (RBI) surprised the markets by holding the repo and the cash reserve ratio (CRR) rates as the markets were expecting a 25-basis-point cut in the CRR. According to the RBI, the recent policy initiatives taken by the government have improved sentiments in the market but the pitfalls in the global economy remain, especially the US fiscal cliff and the contagion risks to the other economies. The liquidity has tightened due to the rising government balances. The RBI expects to manage it via open market operations (OMOs). Further, the RBI expects the inflation rate to moderate in Q4FY2013. The central bank has also reiterated its guidance of an easing monetary policy by the beginning of Q4FY2013 in order to address the growth concerns. -
The credit offtake registered a growth of 17.0% YoY (as on November 30, 2012), which was higher than the 16.2% year-on-year (Y-o-Y) growth recorded in the previous month (as on November 2, 2012). -
The deposits registered a growth of 12.8% YoY (as on November 30, 2012), which was lower than the 13.4% Y-o-Y growth recorded in the previous month (as on November 2, 2012). The growth in the deposits has been subdued due to the higher yields offered by the other debt instruments and advance tax outflows. Consequently, the growth in the deposits has remained below the RBI's guidance of 15.0%. -
A slower growth in the deposits compared with the advances remains a concern for the banks. Consequently, the credit/deposit ratio (CD) for the banks increased to 76.0% in the year till date (YTD) FY2013 from 73.9% during the same period of the previous year. -
The yields on government securities (G-Secs; of ten-year maturity) stood at 8.14% as on December 24, 2012, lower than the average of 8.20% maintained in November 2012. Moreover, the five-year and ten-year G-Sec yields declined by 9 to 11 basis points on an M-o-M basis. The yields declined due to the OMO of ~Rs31,000 crore (since December 4th) and expectations of the easing of the rates. Equity market: FIIs remain net buyers During the month-to-date (MTD) period of December 2012 (December 3-21, 2012), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period of December 2012 (December 3-21, 2012), the FIIs bought equities worth Rs17,310 crore while the mutual funds sold equities worth Rs2,984 crore. Banking stocks outperform In the last one month, the BSE Bankex has increased by 7.6% as compared with an increase of 4.2% in the Sensex. The outperformance of the BSE Bankex as compared with the broader index was primarily led by the rally in the public sector banks (PSBs) due to expectations of economic reforms, banking reforms [The Banking Laws (Amendment) Bill, 2011, and the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011.] and the RBI's guidance for monetary easing in Q4FY2013. Moreover, with the passage of banking bills the RBI may expedite the process of issuing new banking licences.
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