RBI Monetary Policy Review

Document Sample
RBI Monetary Policy Review Powered By Docstoc
					                                                                                             Monetary Policy Review | Banking
                                                                                                                    April 17, 2012

                                                                                             Vaibhav Agrawal
 Monetary Policy Review                                                                      022 – 3935 7800 Ext: 6808
 Repo rate cut by 50bp
                                                                                             Varun Varma
Key highlights                                                                               022 – 3935 7800 Ext: 6847
     Reduces repo rate by 50bp to 8.0% (Repo: 8.0%; Reverse Repo: 7.0%; MSF: 9.0%)

     Keeps SLR and CRR unchanged at 24.0% and 4.75%, respectively

Rate cuts justified; RBI’s move mirrors improved macroeconomic
environment conditions

The Reserve Bank of India (RBI) reduced the repo rate by 50bp as against market‘s
expectations of 25bp, citing slowdown in growth and headroom provided by
moderating core inflation as the primary motivators behind the larger-than-expected
reduction in policy rates. Inflation pressures have abated considerably over the past six
months (fall of ~300bp in WPI levels in 2HFY2012) and even average inflation levels
for FY2013 are expected to be down by 150bp (even after factoring in electricity and
fuel price hikes) compared to the levels prevailing during most part of FY2011 and
FY2012. The significant moderation in inflation levels, in our view, was clearly creating
headroom for interest rates to come down and we believe RBI’s move to reduce policy
rates by 50bp mirrors these macro conditions. We expect broader lending and deposit
rates to inch down by 50bp in the coming months, as lower inflation enables higher
financial savings and improved liquidity conditions for banks.

Although further scope for rate cuts limited, FY2013 estimated to be
healthier than FY2012

The RBI has appropriately also kept inflation within its radar to keep inflation
expectations anchored, pointing out that potential GDP growth is likely to be closer to
7.5%. Hence, we believe the overall headroom for interest rates to come down over the
course of the year is likely to be moderate 75-100bp. Having said that, declining
inflation levels (150bp decline further expected during FY2013) and consequent
reduction in interest rates and improvement in financial savings should lead to a
healthier macroeconomic environment in FY2013 compared to FY2012, which is
expected to be positive for the overall corporate earnings growth outlook, especially for
rate-sensitive sectors such as banks and infrastructure.

Banks set to benefit from lower interest rates

The 50bp reduction in repo rate is expected to translate into similar lending rate cuts by
banks in the coming months. The reduction in deposit rates could lag the reduction in
lending rates, which could create some pressures on the margins of banks in the
immediate next few months. However, on the back of expected pick up in deposit
accretion and improving liquidity, we expect cost of funds for banks to also head lower
with a slight lag, leading to an overall stable outlook for FY2013 margins. Also, lower
interest servicing costs for borrowers should eventually aid in reducing asset-quality
headwinds being currently faced by the sector, leading to improved earnings outlook for
the sector in FY2013.

Please refer to important disclosures at the end of this report                                                                 1
                                                                                                                                                     Monetary Policy Review

                 Exhibit 1: Credit and deposit growth trends
                                                                     Credit growth (%)                                       Deposit growth (%)






















                 Source: RBI, Angel Research

                 Exhibit 2: Liquidity pressures are considerably off peak levels
                    (` bn)






                  (2,500)                                                                                                                     Dec-11








                 Source: RBI, Angel Research

                 Exhibit 3: Inflation pressures eased off considerably in 2HFY2012
                                     Primary Articles                                             Fuel & Power                                   Manufactured Products






                                Mar-11                     May-11                  Jul-11                     Sep-11              Nov-11                   Jan-12                     Mar-12

                 Source: RBI, Angel Research

April 17, 2012                                                                                                                                                                                            2
                                                                                                                    Monetary Policy Review

  Research Team Tel: 022 - 39357800                   E-mail:                    Website:


  This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
  decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
  such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
  referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
  risks of such an investment.

  Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
  investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
  document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

  Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
  trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

  The information in this document has been printed on the basis of publicly available information, internal data and other reliable
  sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
  document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
  responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
  Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
  nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
  Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,
  compliance, or other reasons that prevent us from doing so.
  This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
  redistributed or passed on, directly or indirectly.

  Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
  other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
  the past.

  Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
  connection with the use of this information.

  Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
  latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have
  investment positions in the stocks recommended in this report.

April 17, 2012                                                                                                                              3
                                                                                                                                                                                                                   Monetary Policy Review

                    6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800

Research Team


Sarabjit Kour Nangra                                                        VP-Research, Pharmaceutical                                                          

Vaibhav Agrawal                                                             VP-Research, Banking                                                                 

Bhavesh Chauhan                                                             Sr. Analyst (Metals & Mining)                                                        

Sharan Lillaney                                                             Analyst (Mid-cap)                                                                    

V Srinivasan                                                                Analyst (Cement, Power, FMCG)                                                        

Yaresh Kothari                                                              Analyst (Automobile)                                                                 

Nitin Arora                                                                 Analyst (Infra, Cap Goods)                                                           

Ankita Somani                                                               Analyst (IT, Telecom)                                                                

Varun Varma                                                                 Analyst (Banking)                                                                    

Sourabh Taparia                                                             Analyst (Cement, Power, Media)                                                       

Shareen Batatawala                                                          Research Associate                                                                   

Twinkle Gosar                                                               Research Associate                                                                   

Tejashwini Kumari                                                           Research Associate                                                                   


Shardul Kulkarni                                                            Sr. Technical Analyst                                                                

Sameet Chavan                                                               Technical Analyst                                                                    

Sacchitanand Uttekar                                                        Technical Analyst                                                                    


Siddarth Bhamre                                                             Head - Derivatives                                                                   

Institutional Sales Team:

Mayuresh Joshi                                                              VP - Institutional Sales                                                             

Hiten Sampat                                                                Sr. A.V.P- Institution sales                                                         

Meenakshi Chavan                                                            Dealer                                                                               

Gaurang Tisani                                                              Dealer                                                                               

Akshay Shah                                                                 Sr. Executive                                                                        

Production Team:

Simran Kaur                                                                 Research Editor                                                                      

Dilip Patel                                                                 Production                                                                           

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
    Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

 April 17, 2012                                                                                                                                                                                                                                                4