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RBI’s monetary policy meet: Here’s some of the expectations

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Though the RBI’s raising policy rates in the ongoing monetary policy committee meeting is a “no-brainer”, as its Governor Shaktikanta Das said in a recent interview, investors, however, await the actual degree of percentage hike before taking fresh positions and future course of action in the financial markets.

Besides policy rates, investors also eye other macro-economic forward-looking guidance from the central bank.

The three-day meeting started on Monday.

In early May, the RBI, in a surprise off-cycle meeting, hiked the repo rate, the rate at which the central bank lends short-term funds to banks by 40 basis points (bps) to 4.40 per cent, amidst rising inflation concerns in the economy.

In the same off-cycle meeting, the cash reserve ratio was hiked by 50 basis points to 4.5 per cent essentially to squeeze out some liquidity from the system.

India’s retail inflation accelerated to 7.79 per cent in April, remaining above the tolerance limit of the central bank for a fourth month in a row. It is highly likely that the retail inflation will remain above 6 per cent for another few months.

Besides, wholesale inflation in the country rose to 15.08 per cent in April 2022 from 14.55 percent in March, which has been in double digit for over a year now.

Below are some of the expectations by analysts, market observers, and real estate players on the possible outcome of the ongoing monetary policy meeting:

Deepak Jasani, Head of Retail Research at HDFC Securities

MPC’s off-cycle policy meeting in May clearly pivoted its focus on inflation over growth as a policy priority. The MPC is likely to increase the benchmark repo rate in its ongoing monetary policy review as inflation shows no signs of abatement.

The RBI is likely to follow a nuanced and calibrated approach to rate hikes once it reaches its pre-Covid neutral accommodation (5.15 per cent vs current 4.40 per cent). We expect a 40 basis points rate hike in the upcoming policy meet and see the RBI raising policy rates to 5.15 per cent by calendar year end.

Any further rate hikes will be contingent on the inflation-growth dynamics and would be data dependent.

Hence, equity markets and debt markets have for the most part discounted this rate hike and market reaction would depend more on the statement of the RBI Governor hinting about the future course of action.

Ashish Chaturmohta, Director, Research Group at JM Financial Services

India is currently facing the heat of “imported inflation” owing to rising crude prices, supply chain disruption and global liquidity absorption.

Hence, to control the same, the government has played its role by reducing petrol and diesel prices, bringing in restrictions for exports in order to keep the domestic market stable etc, and on the other hand, the RBI has been very proactive in their actions, which was clearly visible from their 40 base points surprise rate hike.

It’s been the first time in the last several years that the RBI and the Government are both working in a synchronised way. We believe the rate hike would be 30-40 basis points along with a stable outlook on the GDP.

Mohit Batra, Founder and CEO of MarketsMojo

The RBI will try to tackle two issues in its upcoming monetary policy – tackle inflation and ensure that the rupee does not depreciate too much against the dollar. The last time when the RBI revised its inflation target, crude was at $100 per barrel, and now it’s trading at $120 per barrel, suggesting a risk of inflation flaring up is high.

Keeping these facts like rupee depreciation and high inflation rate, I expect RBI to hike the interest rate by 50 basis points.

Satish Kumar, Research Analyst at Choice Broking

We are estimating a repo rate hike of 40 basis points by the central bank in the coming monetary policy to contain the inflation which rose to 8-year high of 7.8 per cent in April. Upside risks to inflation remain elevated given the prevailing high crude oil and commodity prices amidst supply side concerns.

Pushpender Singh, MD of JMS Group

The outcome of the MPC meeting is pretty obvious, most probably leading to an inevitable hike in the repo rate in lieu of a concerted effort to lower the inflation rates, which perhaps is becoming a huge aberrant in the growth parameters of the economy. I do not expect to see a massive increase in the repo rate but definitely, a slight rise will be announced to curb the dwindles and shift the radar of growth in the right direction.

Aman Sharma, Director at Spaze Group

There are great chances of a repo rate hike yet again in a bid to control the inflationary rates that grow unabated despite direct attempts to stop it. It has to be accepted with a pinch of salt by the industries across the segments which will face teething troubles due to the probable hike after the RBI’s MPC meeting.

A surge in the repo rate is almost certain, I do not think there will be a sharp insurgence but somewhat a marginal increase to let the inflationary challenges deflate and the numbers drop.

Mohit Nigam, Head, PMS, Hem Securities

The repo rate is anticipated to be raised by another 40-50 basis points by the MPC. This decision is influenced by rising price levels as a result of ongoing geopolitical tensions and supply-chain pressures, which are driving inflation higher. The primary goal of the RBI would be to keep inflation under control and minimise its second-round impacts.

Inflationary pressures on food and fuel remain high, and supply-chain disruptions continue to put upward pressure on input costs. The biggest issue is that if rates are raised further, urban demand, which was formerly a major concern, may dwindle. Agricultural output will be supported by favourable weather conditions, thus rural demand may not be affected as much.

Ashish Khandelia, Founder of Certus Capital

We expect the repo increase to be between 40-50 basis points in upcoming MPC meeting with future increases leading to 5.75 per cent (where we were exactly 3 years ago) or upwards by the end of FY23. 40 basis points increase in May caused homes loans to move in to 7 per cent +/- range from 6.5 per cent earlier.

And by the end of this financial year, home loan rates will likely touch 8 per cent. This is unlikely to derail the housing momentum, but it will certainly soften it. Coupled with increasing prices, the growth may slow down a bit in FY23, after a record FY22.

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India, Africa must double bilateral trade by 2030: Piyush Goyal

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New Delhi, Aug 29: India and Africa must work to double bilateral trade by 2030, focusing on value addition, technology-driven agriculture, renewable energy, and healthcare, Minister of Commerce and Industry Piyush Goyal said on Friday.

Delivering the keynote address at the valedictory session of the CII India Africa Business Conclave here, the minister pointed out that bilateral trade between India and Africa is already fairly balanced — with India’s exports at $42.7 billion and imports at $40 billion.

However, he underlined the untapped potential across regions: “This demonstrates the opportunity we have missed out on over the years, and the scope for expansion today.”

The Minister stressed that India and Africa need not compete in every sector, but rather explore complementarities.

He highlighted areas such as agriculture, food security, cooperative and self-help group movements, education, skill development, capacity building, research and development, innovation, start-ups, healthcare, pharmaceuticals, and renewable energy, which provide vast opportunities for mutual benefit.

Goyal highlighted the immense potential for collaboration in the automobile sector. He noted that while Africa imports nearly $20 billion worth of motor vehicles annually, India currently supplies only about $2 billion of this demand.

He underlined that Indian automobiles are globally competitive, both in terms of cost and quality, with manufacturing standards on par with the best in the world.

He said that Indian manufacturers can play a vital role in meeting Africa’s growing demand for passenger vehicles, commercial vehicles, two and three-wheelers, and affordable electric mobility solutions.

This opens up a wide delta of opportunity for African nations to access reliable, fuel-efficient, and environmentally sustainable vehicles at competitive prices, while India can, in return, benefit from greater imports of African resources such as critical minerals, petroleum products, and agricultural commodities.

This balanced exchange would help both regions expand trade, generate employment, and build long-term industrial partnerships, he added.

Highlighting complementarities, the Minister observed that Africa could support India in areas such as critical minerals and petroleum products, while India could support Africa in food security, technological upgradation, manufacturing, and services.

He mentioned that India is cost-competitive in services like architecture, engineering, IT, AI and telecom, while also offering potential in medical tourism.

Referring to India’s close bond with Mauritius, Goyal assured the Indian Ocean island nation continued support in addressing inflationary pressures in essentials such as milk products, edible oils, and rice.

“It is this spirit of friendship and cooperation that defines India’s engagement with Africa,” he said.

Goyal also recalled India’s support to Africa during the Covid-19 pandemic, when medicines, vaccines and pharmaceutical products were provided at affordable costs, unlike the highly-priced alternatives from developed nations.

He further said that India’s Unified Payments Interface (UPI) could help bring down transaction costs and strengthen Africa’s financial systems.

Calling the Global South the true voice of the developing world, Goyal urged African nations to work with India at multilateral platforms like the WTO to create common objectives and influence global decision-making.

He emphasised collaboration in agriculture technologies, renewable energy, generic medicines, critical minerals, and youth partnerships, noting that the young populations of India and Africa will define the future.

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India, Japan can diversify trade basket, open new frontiers with renewed efforts: PM Modi

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Tokyo, Aug 29: Hailing the robust India-Japan economic and trade partnership, Prime Minister Narendra Modi on Friday said with renewed efforts, both nations can diversify their trade basket, make it more balanced, and open up new frontiers as well.

In an interview with Japanese newspaper The Yomiuri Shimbun, the Prime Minister said we must aim bigger and remain ambitious.

“The synergies across governments, businesses and people can create scale and speed in our economic partnership. As the world’s leading economies, we have been contributing to each other’s growth, competitiveness and dynamism,” PM Modi told the publication.

Japan has been a trusted partner in India’s infrastructure development across generations. The country has also been a leading source of foreign direct investment (FDI) for India in key sectors, including automobiles, electronics, telecom, chemicals, finance, and pharmaceuticals.

According to PM Modi, the number of Japanese firms in India has grown steadily to around 1,500, while more than 400 Indian companies operate in Japan.

“Clearly, this is only the beginning — the real potential is much higher,” he noted.

“We maintain important trade relations, but it has not yet reached the levels envisaged under our CEPA (Comprehensive Economic Partnership Agreement)… The 20th century saw Japan emerge as a major partner in India’s infrastructure development. I am confident that the 21st century will see Japan as a major partner in India’s innovation, manufacturing, and global value chains,” the Prime Minister emphasised.

On semiconductors, PM Modi told the publication that India’s semiconductor sector is on the cusp of transformation.

“We have put in place a comprehensive regulatory and policy framework, backed by incentives, to build a strong semiconductor and display ecosystem. Already, six semiconductor units are taking root in India, with four more on the way. By the end of this very year, ‘Made in India’ chips will be in the market, a clear demonstration of India’s design and manufacturing capabilities,” the Prime Minister said.

Japanese companies, with their technological strengths and global leadership, can play a pivotal role in this journey, he said, adding that a strong beginning has already been made.

“By combining India’s scale and capabilities with Japan’s advanced technologies, we can build a resilient and trusted semiconductor value chain,” PM Modi stressed, adding that this collaboration will support the technological ambitions of both our countries and enhance global supply chain security.

“I see semiconductor cooperation emerging as a major pillar of the India–Japan partnership. After all, in this digital century, chips are not just about computers, they are about competitiveness, credibility and confidence in the future,” he mentioned.

Some Japanese companies are positioning their production bases in India as hubs for third-country markets such as Africa.

According to PM Modi, India has seen multi-faceted reforms which make manufacturing in India easier than ever before.

“We have removed compliance burdens, rolled out incentives and ensured a large skilled workforce for companies to set base in India. Many global companies, including those from Japan, are setting up their production in India not only to cater to our domestic market, but also for the world,” he highlighted in his response.

Japanese automaker Suzuki Motor Corporation this week announced it will invest Rs 70,000 crore in India over the next five to six years. The investment will be used to increase production, introduce new car models, and protect its leadership position in the world’s third-largest automobile market.

“Just a couple of days back, I was at the Suzuki plant in India where we flagged off electric vehicles to be exported to a hundred countries, including Japan,” said PM Modi.

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Indian equity indices decline sharply over US tariff concerns

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Mumbai, Aug 28 : The Indian equity indices fell sharply to end the session nearly one per cent lower on Thursday — a day after the 50 per cent US tariffs on Indian goods came into effect.

Sensex ended the session at 80,080.57, down 705 points or 0.87 per cent. The 30-share index started the session in negative territory at 80,754 against last session’s closing of 80,786.54 amid selling across the sectors. The Index further extended the losing momentum to hit an intra-day low at 80,013.02 following the implementation of US tariffs on Indian goods.

Nifty settled at 24,500.90, down 211.15 points or 0.85 per cent.

“Domestic equities ended lower as pessimism took hold following the implementation of tariffs on Indian goods, dampening investor sentiments. While the cotton import duty exemption briefly lifted hopes of policy support to counter tariff impacts, triggering a short-lived intraday recovery, investor mood remained fragile, with large caps declining and mid and small caps underperforming amid risk-off sentiment,” said Vinod Nair, Head of Research, Geojit Investments Limited.

Most sectors, including Auto, IT, FMCG, and Metals, traded in the red as investors turned to profit-booking from recent gains, while consumer durables outperformed, likely supported by GST rationalisation and expectations of festive demand, Nair added.

HCL Tech, TCS, Power Grid, Infosys, Hindustan Unilever, HDFC Bank, ICICI Bank, Bharati Airtel, Mahindra and Mahindra, Trent, Tata Motors, Sun Pharma, NTPC, BEL, Eternal and SBI were the top losers from the Sensex pack. While Titan, L&T, Maruti Suzuki, and Axis Bank were top gainers.

The majority of sectoral indices settled in negative territory amid selling pressure. Nifty Fin Services dropped 312.30 points or 1.20 per cent, Nifty Bank fell 630.10 points or 1.16 per cent, Nifty Auto declined 136.80 points or 0.54 per cent, Nifty FMCG closed 574.05 points or 1.02 per cent, and Nifty IT slipped 574.45 points or 1.59 per cent.

Broader indices followed suit as well. Nifty Small Cap 100 dipped 254.25 points or 1.45 per cent, Nifty Midcap 100 fell 718.70 per cent or 1.45 per cent, and Nifty 100 closed 235 points or 0.93 per cent lower.

Rupee traded weakly as selling pressure in capital markets deepened, with FII flows continuing to remain negative amid persistent concerns on India’s growth outlook and fiscal deficit.

“The imposition of a 50 per cent US tariff has raised uncertainty over exports, weighing on overall sentiment, until there is clarity on alternatives either through negotiations with the US or by striking trade agreements with other nations — investors are likely to stay cautious,” said Jateen Trivedi of LKP Securities.

The rupee is expected to remain under pressure with a near-term range of 87.25–88.25, he added.

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