DR RAJAN COULD HAVE DONE MUCH MORE

The already spellbound markets have another reason to cheer. Dr Rajan’s reading of the economy and his monetary measures have further set the tone for atleast another dose of upside for the markets. After remaining volatile in the prelude to the monetary policy the markets took off on those measures where interest rates were left unchanged and a more benign growth scenario was built by the RBI.

According to the RBI, real GDP growth is projected to pick up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15 albeit with downside risks to the central estimate of 5.5 per cent. Easing of domestic supply bottlenecks and progress on the implementation of stalled projects already cleared should contribute to growth, as will stronger anticipated export growth as the world economy picks up. For the year as a whole, the CAD is expected to be about 2.0 per cent of GDP. Sustained inflows, augmented by repayments by public sector oil marketing companies of their foreign currency obligations to the Reserve Bank during March, have led to an increase in reserves.

The above two factors have a lot to say about the days to come. One, your growth, though on the moderate side, will be higher than what we saw during the whole of FY14. Two, CAD which has been the biggest worry is all set to come down to far more comfortable levels going forward. The augmentation of forex reserves is already reflecting in the gains that the rupee is registering against the dollar. A rupee at a sub 60 level to the dollar means a lot as it reflects on the dollar flow into India.

The debate between who contributes more to the dollar flows, the NRIs who have been repatriating huge chunks of money back home or the FIIs who have been investing heavily into India can go on forever. But right now, FII inflows to the markets have been driving it higher and that calls for measures to ensure that they continue investing in India. These measures too have come in adequate dosage in the monetary policy. From allowing them to hedge their currency risks through exchange traded currency futures to simplifying KYC norms, Dr Rajan has ensured that he keeps them in good spirits at least for now.

Now that the last of the triggers, or should we say the first trigger of FY15 has turned out to be quite on the moderate side, the markets will once again look for something more to focus on. Elections do remain the main plank but there are other things that need to be paid attention to. Among them global developments would have to be carefully watched.

 Growth in the US is firming up. Indications from data points are revealing this in a clear manner. Its manufacturing sector was reported to have picked up pace for the second consecutive month in March. The positivity surrounding this helped will help the US markets and in turn the European markets as well.

But the factor that is pushing up the western markets is exactly the factor that will be a drag on the Indian markets, if not managed well at this stage. Manufacturing has been in pain for quite some time and that is hurting the overall sentiment to some extent. Projects that have been stalled for long are slowly getting off the ground. But the real effect of that pick up is yet to be seen. Manufacturing has to improve if the overall economic growth is to pick up to decent levels from here on. Now let’s consider this. The governor has been thoroughly worried about inflation raising its ugly head once again. It is just a couple of months now that inflation has moderated to levels where it is not looking as dangerous as it once seemed to be. But the unseasonal rains and hailstorms in many parts of the country which are coming in as a part of the El Nino effect are seriously threatening the future. Bad crops and wipeouts will lead to higher inflation very soon.

The RBI governor should have ceased this opportunity to cut interest rates now and wait for inflation to go up to hike them again later. This could have served two purposes. The cry about growth being subdued due to higher interest rates could have died down considerably. Whether growth really could have picked up or would it only be an illusion would be something to think of in the future. It could at-least have had a placebo effect on the industrial sentiment, and thereby helped the markets psychologically.

That chance is lost at least for now. The future will now be completely dependent on the outcome of the elections to be held soon. The war cry is getting louder and the markets are getting impatient but also exuberant, hoping to see a stronger and decisive government at the centre. Till that happens and as results for FY14 and the March quarter start trickling in, here is something interesting. The IPO market is heating up. But this time it is different and distinct category of companies that is trying to enter the capital markets. These are the online retailers who have been capturing the imagination of the consumers. Many private equity players have invested in the Indian E- commerce companies in the past few years and are looking out for an exit route. With Alibaba IPO poised to debut on the US bourses, our story finds out whether the Indian E-commerce companies are likely to follow the footsteps of this E-Commerce giant and revive the dormant Indian IPO market.

Va Tech Wabag, a company specializing in water and waste water treatment space is our Choice Scrip this fortnight. A robust order book and presence in niche area provides better revenue visibility going forward. Torrent Power is the Low Price recommendation of the fortnight. The company has been faring as compared to its other listed peers and also is faring well on the fundamental parameters too. Do read the detailed analysis of it and invest as suggested by our team of expert analysts.

We carry out a detailed analysis of Kolte Patil Developers this fortnight. With the economic revival this stock is looking to be a promising candidate to reap the benefits out of the same. Read about the detailed rationale coming from our research side. The issue as usual rounds up with our other normal recommendations and features including those on commodities.

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