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> Home > Research Reports

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Budget FY13: A balacning act between growth & fiscal consolidation

16 March, 2012

The Union Budget for 2012-13, on Friday (March 16, 2012), aims at four point agenda: to kick-start growth in the economy through both demand side boosters as well as private sector investment, to sort out supply-side bottlenecks (especially with regard to investment in infrastructure and core sectors), to accelerate the governmentâ??s inclusive growth agenda, and, to address various allegations regarding policy paralysis as well as corruption. However, the broad, reforms-based directional thrust of the Budget seems to be somewhat limited due to the political compulsions of the day, especially by the many-hued dimensions of coalition politics.

RBI's Third Quarter Monetary Policy

24 January, 2012

RBI’s policy document reflects RBI’s inability to assist growth due to risks to inflation, despite a clear slowdown in growth and falling investments. However, a CRR cut is pragmatic as it prevents further disruption in the economy due to liquidity stress. RBI has started weighing the weakening global economic scenario along with weakening demand pressures in the domestic economy, but gave conditional guidance for reversal of policy rates. The central bank cut GDP growth forecast further to 7% from 7.6% earlier, but left inflation projection unchanged due to pressure from commodity prices. We feel RBI will cut rates when two conditions are met. One, after non-food manufactured inflation shows signs of sustainable moderation and, second, when there are clear signs of fiscal consolidation. Two logical outcomes emerge: expect RBI to support rupee to contain core inflation pressures, and, rate cuts can now happen only after the Budget.

Banking Sector Review for Q2FY12

22 December, 2011

Banking sector performance in July-September, 2011, improved with improvement in net interest margins and stabilisation of costs. Banking sector gained with increase in net interest income, as banks passed on the higher interest costs. Performance of state-owned banks improved, but private sector banks outperformed public sector banks during the quarter, continuing the trend visible since April-June. Monetary transmission, as desired by the Reserve Bank of India, was followed aggressively by banks with increases in base rates. Our analysis of the banking sector includes only banks listed on stock exchanges – a total of 40 banks, of which 24 are public sector banks and 16 from the private sector.

RBI's Mid-Quarter Monetary Policy Review

16 December, 2011

RBI left interest rates unchanged but admitted rather candidly that the interest rate cycle is likely to reverse in the future given the downside risks to growth. RBI’s policy document clearly reflects a shift in focus — from inflation combat to growth promotion. As expected, RBI has started weighing the weakening global economic scenario along with the weakening demand pressures in the domestic economy and has, therefore, supplied a guidance for reversal of policy rates.  We feel this is a good sign as the economic slowdown is broad-based. Both the Q2 GDP growth number (at 6.9%) and the 5.1% contraction in October IIP seem to have served as a wake-up call. The slowdown in the corporate investments pipeline and deteriorating business confidence can jeopardise GDP growth in FY13 and therefore RBI’s change of policy stance augurs well for the economy. We feel that this could be the beginning of an easing cycle, subject to inflation behaving in the weeks ahead.

Second Quarter GDP (2011-12)

30 November, 2011

GDP growth in the second quarter (July-September) of this financial year (2011-12) came down to 6.9% on year -on-year basis compared with 8.4% in the same quarter a year ago. GDP growth is also lower on a sequential basis from 7.7%  in the previous quarter. With slowing economic growth the risk of slowdown is evident which was earlier denied by Government agencies. Monetary tightening coinciding with unfavourable global and domestic economic environment has resulted in sharper than expected slowdown in economic activity. The slowdown in growth is also broad-based,  with all sectors — namely agriculture, industry and services — registering lower growth, both on year-on-year basis and sequential basis.

Occasional Series: Capital formation in India

04 November, 2011

Capital formation is addition to productive capacity of the economy. It is the backbone of an economy. Investments, or capital formation, is perhaps one of the keys to realising India’s dream of high economic growth that is expected to hasten the process of increasing per capita incomes and emancipating millions of those living in economic deprivation. During the 2004-08 period, when India witnessed an annual average GDP growth rate of over 9% every year, this growth was powered primarily by investment. However, post the economic crisis of 2008, growth initially slowed down and then picked up in 2009-10. But, this growth was fleeting. India is once again grappling with slowing growth and low investment rates.

Second Quarter Review of Monetary Policy 2011-12

25 October, 2011

RBI’s rate hike of 25bps is in line with our expectations. Given the downgrade of growth target, and RBI’s assertion that its monetary policy is working, seems to suggest that the central bank might have reached the end of its monetary tightening cycle. As expected, RBI has started weighing the weakening global demand scenario along with the weakening demand pressures in the domestic economy and has, therefore, hinted at no rate action in December. We feel this is a good sign as slowing growth is starting to impact services too. The slowdown in pipeline corporate investments can also jeopardise GDP growth in FY13 and therefore the RBI stance augurs well for the economy.

Mid-Quarter Review of Monetary Policy

16 September, 2011

RBI stressed that demand pressures remain and inflation is far higher than expectations. The central bank’s policy document states unequivocally that “premature withdrawal of policy stance can impact inflationary expectations”. It, therefore, increased benchmark interest rates by 25 bps.

PRU's View : RBI’s rate hike of 25bps is in line with our expectations. RBI’s assertion that its monetary policy is working, suggests that RBI will continue with its anti-inflationary stance by tightening interest rates. However, RBI’s stance seems much less hawkish in this monetary policy. We expect that RBI will start weighing the weakening global demand scenario, and the weakening demand pressures in the domestic economy, increasingly in coming monetary policy meetings as inflation is likely to remain high and at elevated levels till the end of FY12.

RBI First Quarter FY12 Monetary Policy Review

26 July, 2011

RBI raised policy interest rates by 50bps and reiterated that demand pressures remain strong and inflation is far higher than expectations, especially in light of revisions made to provisional numbers. Considering the risk to sustainability of growth, RBI has persisted on continuing its anti inflationary stance.

Anti Inflationary stance to persist: RBI highlighted that upsides to inflation exists due to higher fuel and commodity prices. Overall performance of the south-west monsoons this year will also be a significant factor in controlling inflation. As upsides to WPI inflation remain accentuated, RBI will maintain its anti inflationary policy stance. Growth remains broad-based: RBI though admitted some moderation in economic activity as seen by IIP and PMI indices but pointed that moderation is not broad-based yet and demand pressures remain strong. Only some of the interest sensitive items have shown moderation as a result of lagged monetary transmissions.

Banking Sector Review: FY11 & Q4 FY11

30 June, 2011

Lacklustre performance in FY11 : In FY11 overall banking performance was lacklustre as the sector faced headwinds in H2 FY11 from an environment of higher interest rates and rising employee expenses. Poor performance of PSU banks impacted overall results. Our analysis of the banking sector includes only the banks listed on the stock exchanges – a total of 40 banks, of which 24 are public sector banks and 16 from the private sector. The key highlights of Q4FY11 and for full FY11 follows: H2 FY11 difficult for banking sector : Banking Sector overall performance deteriorated in the second half of the year. Higher interest costs due to rising policy interest rates impacted Public Sector Banks profitability along with higher employee provisions. Stellar performance by Private sector banks in FY11, especially in the troubled second half, lifted the wilting results. Q4 FY11 bad for Public Sector Banks: Total income grew slower by 11.5% YoY compared with 20% YoY in Q3 FY11. Net Interest Income grew by 18.6% YoY in Q4FY11 compared with 45% YoY growth in Q3 FY11. Net profit saw even further decline as higher costs -- such as pensions and provisioning -- impacted the growth in fourth quarter. Net profit growth declined by 9.5% YoY compared with 21% YoY growth a quarter ago. NIM declined in Q4 for Majority of Banks : NIMs declined in Q4FY11 for majority of banks due to higher cost of deposits. PSU banks were seen to be hardest hit compared with private sector banks. Major Banks -- such as SBI, Punjab National Bank -- saw decline in NIMS during Q4FY11. HDFC and Yes Bank saw no change in NIMS over the quarter. United Bank, Dhanlaxmi, ING Vysya saw sequential improvement in NIMs. Credit growth came down in Q4: Credit growth of Scheduled Commercial Banks (SCBs) in Q4 came down to 21.4% YoY compared with 26.7% YoY in Q3 FY11, but stood higher compared with RBI’s target of 20% YoY.

RBI Mid Quarterly Monetary Policy June 2011

16 June, 2011

RBI increased policy rates by 25 bps and outlined that inflation management will be its top priority even if " some short-run deceleration in growth may be unavoidable in bringing inflation under control."

Anti Inflationary stance to persist: RBI highlighted that further upsides to inflation exists as domestic fuel prices have yet to  fully reflect the global price levels. Also with revisions of inflation numbers current inflation could be far higher as seen by provisional releases. As upsides to WPI inflation remain accentuated, RBI will maintain its anti inflationary policy stance. Important admission by RBI: RBI acknowledged deteriorating global growth scenario and its probable negative impact on the Indian economy. This is, therefore, the first time since the annual monetary policy review in May that RBI has admitted the need to balance the downside risks to growth while containing inflation. Thus, the need to contain inflation will be seen in the context of growth, which is a departure from its earlier stance.

Inflation Report for May 2011

14 June, 2011

WPI inflation for May 2011 rose to 9.06% YoY compared with 8.66% YoY in April due to 0.73% MoM rise in the index.

Across-the-board rise in prices: WPI inflation turned higher due to an across-the-board rise in prices. Barring non-food articles, all major subgroups registered a rise in prices. More rate hikes likely: May inflation numbers justify RBI’s anti-inflationary stance as core inflation has been impacted which threatens with price spiral. We, therefore, expect 25 bps rate hike in the coming monetary policy review on June 16, 2011. Likely upside to inflation : Inflation could be subjected to further pressure from not only revisions but also if fuel prices of items such as diesel or cooking gas are revised. Manufactured products have shown a significant rise in inflation due to price pressure emanating from fuel and primary articles and it can get further accentuated with an increase in diesel prices.

Sectoral Deployment of Credit in FY11: A PRU Study

13 May, 2011

Non-food bank credit in FY11 grew by an impressive 20.6% Credit growth to industry moderated marginally to 23.6% YoY Telecom, NBFCs and consumer durables witnessed high credit growth Higher lending to telecom sector due to 3G & BWA auctions resulted in higher credit growth to infrastructure and industry Services sector credit grew due to higher NBFCs lending Non MFI NBFCs removed from priority sector list

RBI Annual Monetary Policy for 2011-12, on 03 May 2011

03 May, 2011

Repo and reverse rates increased by 50 bps. Savings rate increased to 4% Marginal Standing Facility (MSF) instituted 100 bps above repo rate RBI to focus on price stability even at the cost of economic growth

Auto: Prodding The Giant

01 November, 2010

Tracking The Renewed Blossoming Of The Indian Automobile Market.

RBI Mid-Quarter Monetary Policy Review

16 September, 2010

Repo rate was increased by 25 bps to 6 percent Reverse repo rate was increased by 50 bps to 5 percent Cash reserve ratio was maintained at 6 percent

Special industry report on Cement

01 August, 2010

A brief description of the industry structure The peculiarities of this industry's cycles: seasonal as well as structural The current scenario in terms of demand, prices, costs and financial performance The regulatory framework The Outlook for the industry, and, A SWOT matrix analysis of the industry

RBI Q1 FY11 Monetary Policy Review

27 July, 2010

In its First Quarter Review of the Annual Monetary Policy for 2010-11, the Reserve Bank of India increased its policy rates with immediate effect.

Repo rate was increased by 25 bps to 5.75% Reverse repo rate was increased by 50 bps to 4.5% Cash reserve ratio was maintained at 6%

Special report on the Steel Sector

01 July, 2010

The industry's current production-pricing dilemma A back-grounder on demand drivers, raw materials and pricing trends The Industry structure The global impulses Growth potential and roadblocks, and, An analysis of the industry through the SWOT framework

(R)Evolution

01 July, 2010

The report has been prompted by the government's proposal to introduce Foreign Direct Investment in multi-brand retail. The report includes:

An overview of the industry, its structure and regulatory framework. A snapshot profile of all the major players in the sector with their financial numbers. A SWOT analysis of the industry.

Quarterly Results

01 June, 2010

The report uses BSE-200 as its sample set to provide an analysis of Corporate India's financial performance during 2009-10, a year that was marked by uncertainty and volatility. The report is structured in the following manner:

The report analyses the results in terms of key parameters -- such as, sales, raw materials consumed, profits, etc,. It then proceeds to examine the performance of major industries under each of these parameters.

Thirsty India

01 December, 2009

While the sustained economic growth of recent years has brought several wideranging and mostly positive changes to India, it has also resulted in a burgeoning appetite for energy to sustain that growth. DhanBank PRU looks at the broad contours of the energy industry in the country.