India Morning Report: GDP forecasts look for their pound of flesh, india inc reports (This week in Asia on The Banking and Strategy Initiative: advantages.us)

The Reserve Bank of India pulled up the bank lending rates for its MSF (the emergency lending by RBI at the top of the rate channel prescribed) from 8.25% to 10.25% yesterday and networks are agog with the presumptive lockdown on India’s money markets esp inter bank liquidity finally pushing the short end of the term structure up a couple of hoops to 8.15% at the open as visible in one year forwards. RBA had earlier shown in its minutes released that they considered the rate cuts to be done with, triggering a conventional run on the Dollar in that currency bringing it up by 1% . The Rupee has opened 1.5% stronger in morning trades but as pressure from Economist desks builds up to a crescendo and GDP forecasts are cut 75-100bps at Morgan Stanley among others to near 5% for 2014, we are witnessing a characteristic one time correction as policy locks in to the only possible market view while hoping for a trade led recovery down the line and acts on the limited dollar trade that continues to cause disruptions in our Economic cycle especially related to our dependence on imported fuels

Traders would hardly have been in place for the correction on Thursday and Friday as the markets are still positively rewarding good results which when they com are as big as over 20% sales and bottomline growth on a regular basis. However , the downward move also lacks momentum and like the rupee in the other direction, equities will only trade up the rest of the day after opening 100 points down on the Nifty. Some longer term shorts may stay in as characteristic hedges performed over the weekend and Monday when indices opened down today in differential performance terms to trading positions and long investment portfolios. ETF outflows from Emerging markets were just under $10 Bln in June with $6 Bln exiting the iShares MSCI EM fund but that is still 1 in 10 of the funds and funds will continue to be sticky in India where the growth paradigm is still relatively safe on th ground despite the consumption led industrial production going negative marking the toughest bottom for Indian prospects. Manufacturing makes less than 20% of India’s GDP but is on par with Exports and Global trade lacking growth claws would unhinge the one sided growth story that has always precluded a deeper range of opinions on India from global commentators instead shined by China.

India’s equity markets being deep makes it impossible for hot money to follow on this morning’s run and even as the spike in Fixed income markets unhinges bank business models the problems will likely be fied with a continuing positive bias before the end of the week unlike such runs in other Asian markets like indonesia, Korea or Thailand However a bottom in bank stocks is yet not known or targeted and ther emay be no directional trades in the interest sensitive sectors in India

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13 thoughts on “India Morning Report: GDP forecasts look for their pound of flesh, india inc reports (This week in Asia on The Banking and Strategy Initiative: advantages.us)

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