Economic Update _17th July 2012

31^st July is the date when RBI will review its monetary policy. It is expected that this time RBI may cut the Repo rate to boost the Economy. RBI decided not to cut the rate in its last review citing the resaon that interest rate is not the reason for Economic slowdown. The April IIP data which was only 0.01% has been further revised downward to (-0.9%) and May IIP growth is at 2.4%.  It is too early to say that Industrial activity has bounced back looking into this IIP data. April~ May 12 YTD growth is only at 0.8% as against growth of 5.8% at the same time last year .The chances of rate cut is high as June inflation has come down to 7.25%( five Months low )  from previous Month figure of 7.55% .

The other concerning point now is the rainfall. As per the IMD report rainfall is below expectation. A poor Monsoon will fuel the inflation further. Delayed/ poor monsoon has delayed the sowing of crop and has damaged vegetable crop like potatoes etc. Poor Agriculture will however not impact the Economic growth of the Country as its impact in GDP is only 17%.

In the Forex front Rupee has shifted its range from 56~57.25 to 54.50~56. It is better for rupee to consolidate at this point for some time. Any positive announcement from Government on FDI in Retail or any other sector will take the rupee to the next level of 52.50~54 level. As FII Money is pouring in both in Equity and Debt segment due to the positive sentiment INR is not likely to depreciate further beyond 56. Market is now looking towards Mr Bernanke who will give his view on the USA Economy and likelihood of QE3.

 RBI has been actively intervening in the Market in the forward segment. RBI has also relaxed the guidelines on cancellation of forward contract in the Capital account transaction for tenure of 1 Year and above. Now it has allowed cancellation and rebooking which was banned few Months back. RBI has also allowed QFI (Qualified Foreign Investor) to invest up to USD 1 Billion in Corporate Bond and Debt scheme of Mutual Fund without lock in .This 1Billion limit will be over and above the USD 20 Billion limit set for FII in investing in Corporate Bond.  

In the Equity front India is doing very good so far in 2012. India Equity has gained almost 12% YTD 2012 whereas major international stock market has given negative or single digit growth. Korea, China & Brazil stock market has degrown by -0.4%, -2.2% and -4.3% respectively. USA, UK, Japan, Euro Zone Market has also grown below 7%.