Expect 50 bps rate cut in the next few quarters: experts

The Reserve Bank of India (RBI) cut interest rates on Thursday by 25 basis points to 7.75% in a surprise inter-meeting cut, yielding to signs of slowing inflation, while acknowledging the government's efforts to contain the fiscal deficit Stock Market Trading Tips

Expert comments:

KILLOL PANDYA, SENIOR FUND MANAGER, LIC NOMURA MUTUAL FUND

"It is very unorthodox to cut rates outside of policy reviews. Rajan has duly exercised his right. There will be rally in bonds, although in anticipation of more rate cut rates. This is a confirmation that we are in a interest rate softening cycle."

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"The timing of the RBI's decision to lower rates comes as a surprise. They had flagged the possibility of an inter-meeting cut back in December, but have front run market expectations.

"This demonstrates their confidence on the evolving inflationoutlook, much due to the way global commodity prices are shaping up.

"Simultaneously, the RBI has also put their faith in the government's fiscal consolidation efforts and that adequate corrective steps this quarter will keep targets in check.

"Today's cut possibly paves the way for another 50 bps cuts heading into FY16, provided the pre-conditions of quality fiscal correction and waning inflation risks hold. In the meantime, an eye needs to be kept on the narrowing (domestic) output gap and shifts in the US rate hike expectations Financial Astrology Trading Tips

NIRAKAR PRADHAN, CHIEF INVESTMENT OFFICER, FUTURE GENERALI INDIA LIFE INSURANCE

"A rate cut is partly priced in, but it will stoke expectations of more rate cuts to follow. Inflation would continue to fall for the next six months. This will be a huge boost for the economy.

"I am expecting 50-100 bps more cut in rates in next few quarters."

N R BHANUMURTHY, ECONOMIST, NATIONAL INSTITUTE OF PUBLIC FINANCE AND POLICY, NEW DELHI

"This is a surprise move in the middle of the war on inflation. This will only create more demand, but not really help on the credit uptake.

"I am very surprised because it goes against the current governor's philosophy that monetary policy should be predictable. It shows the governor is very pragmatic and can look at his own position and can change.

"I don't think it will have too much impact because investment is not dependent on interest rates alone Intraday Trading Tips

"The banking sector is not ready for revival because they are not well positioned. It is banks' balance sheets that need to be cleaned up first. We need bank capitalization in the current budget, otherwise business lending will not pick up

"I don't think it will be transmitted to the consumers at the moment. It will lead to a reduction in the deposit rate. I don't think the banking sector will pass on the benefits by reducing the lending rate. I think they will first reduce the deposit rate because they need to clean up their own books first."

SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI

"The cut was a bit early surprise although mostly in line with the policy easing tone mentioned by the central bank in its fifth bi-monthly policy.

"Largely, the falling crude, moderating demand pool inflationary forces and reform pro-activeness by the centre have led to this cut.

"With the budget round the corner, the central bank pro 25 basis points cut reflects a cautious ease and we might see another 25 bps cut in the April 2015 policy if current disinflationary pressure persists Commodity Trading Tips

DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS & RESEARCH, NEW DELHI

"RBI will closely look at government fiscal deficit targets and how credible they are along with how the inflation trajectory is. We expect another 50 basis points cut in FY16."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"I think this is entirely driven by crude oil prices decline, and also the fact prices across the food basket have also consistently declined for the last five to six months.

"In my opinion this is going to help sentiment more rather than actual investment. There is a very high likelihood that banks will have to pass it on because credit demand has collapsed. This has happened before budget. That's why it is entirely driven by whatever is happening globally: RBI cannot remain insensitive to that Nifty Trading Tips

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

"I think the inflation momentum from here on will give significant comfort to RBI, and we now could expect another round of rate cuts post-budget.

"In our opinion, we continue to believe that rate cuts are likely to be front loaded and we could see the next dose of rate cuts likely of a larger magnitude post-budget. We are expecting 50 bps rate cuts between now and June Jackpot Trading Tips

Corporate India cheers RBI's repo rate cut, says step in right direction

The Reserve Bank of India early on Thursday announced a 25 basis point reduction in the repo rate to 7.75%. The move, which had long been demanded by corporate India and more recently anticipated by economists, was met with swift approval from all quarters. 

Corporate leaders across sectors welcomed the timing of the cut, even as some of them questioned its size and the scope for impact. However, the general consensus is that Governor Raghuram Rajan, who had promised to effect an out-of-policy rate cut if inflation numbers held steady, has delivered and is moving in the right direction Free Stock Share Tips

COMPANIES

“This is a good development. Easing rate stance will help revive health of businesses which are highly sensitive to interest rate movements apart from improving the general sentiment towards investments,” said R Shankar Raman, chief financial officer at engineering and construction major L&T. 

Prabal Banerjee, president (international finance), Essar Group, was enthusiastic about the rate cut. “This is a very, very positive move and comes at the right time ... This step will reduce costs for corporates when they are in revival mode," he said, adding that he expects another rate cut by the next policy review Financial Astrology Trading Tips

"I see this as a step in the right direction, a signal. But a 25 bps cut may not be enough to spur the investment cycle," said Harsh Mariwala, chairman of FMCG major Marico. 

"There will have to be more cuts, lending rates have to come down by at least one or two percentage points to get investments going," he said, adding that he, too, expected more interest rate cuts in February or March. 

Venugopal Dhoot, chairman of domestic consumer goods firm Videocon Industries, said that while it was important where one is at the moment, "... what is important is the direction in which you are. So even though a quarter per cent is negligible, but this shows that inflation will definitely be under control and all other economic parameters are also showing sustained improvement and that's why everybody is happy about the positive surprise from RBI."

M S Unnikrishnan, MD & CEO of Thermax Limited said that the RBI action was on expected lines with both WPI and CPI under control. "With the credit offtake not galloping, RBI had to take this step so that the investment cycle is supported," he said. "However, this is only an initiation. With CPI expected to be under control for the next six months with crude oil price fall, we expect the RBI to progressively reduce rates and base rates could also come down by 100 basis points in the future Intraday Trading Tips

MARKETS AND FUNDS

Markets also took the surprise announcement as a sign that the economy was turning. 

 “RBI’s move was a big surprise. That’s why market has also opened with a huge gap up. Rate cut was long expected by the market. Now that it has come, stocks in the financials, real estate, infrastructure and consumer durables space should do well,” said Motilal Oswal, chairman of Motilal Oswal Financial Services.

“The next big trigger that the market will eye is the Budget. Investors want bold reforms from the government,” he added Commodity Trading Tips

"Foreign fund flows had dried up in the last couple of weeks. Now with the macro-economic scenario showing signs of recovery and the RBI rate cute, we believe foreign fund flows will resume. You should global investors increasing their asset allocation to India equities in 2015," said Prabodh Agrawal, President and Head of Research at IIFL Institutional Equities.

“The rate cut of 25bps comes in the wake of a visibly lower CPI and the confidence in being able to achieve the targets set for future . We believe that the current rate cut heralds a shift in monetary stance and creates a case for continued rate cuts in future. Fiscal developments would continue to play a key role in the quantum and timing of future rate cuts too,"said Lakshmi Iyer, Chief Investment Officer (Debt) & Head (Products), Kotak Mutual Fund Nifty Trading Tips

S Naren, chief investment officer at ICICI Pru, said that given the fall in global commodities prices - crude and metals, and disinflationary scenario globally, the rate cuts were not surprising. "it was in line with our expectations and the governor kept his promises of no unnecessary delays in rate cuts.But going forward we don't think RBI will cut in February policy as is widely expected.But RBI take another cuts in March policy. Infrastructure space looks very promising from a long term view."

"RBI had to act as global situation warranted for such an action. I am not surprised by the move. Cyclicals will be the big beneficiaries," noted Navneet Munot, CIO, SBI Funds Management Free Stock Share Tips

BANKS AND REALTORS

Meanwhile, it remains to be seen whether banks pick up the gauntlet and pass the cuts down the line to borrowers. 

“It is a good sign for the economy and confidence booster for the buyer. Hopefully banks will pass on the cut to home buyers. It will lead to more launches in real estate sector and projects getting completed on time,” said Rajeev Talwar, executive director, DLF Personal Numerology Trading Tips

T S Bhasin, chairman of industry body Indian Banks' Association (IBA), said RBI's action will set the tone for banks to reduce lending rates. Bhasin, who is also chairman and managing director of Chennai-based Indian Bank, said his bank has already brought down rates in last few months for few categories like home loans. 

“The asset-liability committee will meet shortly,” he said, but did not indicate the extent of revision Nifty Trading Tips

Irda to revise agents' commission norms

The Insurance Laws (Amendment) Ordinance, which has suggested structural changes in the way the sector functions, has omitted Section 40A of the earlier Insurance Act, which talks about commission to insurance agents. So, the Insurance Regulatory and Development Authority of India (Irdai) is currently working on a revised commission structure.

Under Section 40A of the earlier Act, no insurance agentwould get a commission exceeding seven and a half per cent of the first year's premium, and two per cent of each renewal premium payable on the policy, where the latter grants a deferred annuity in consideration or more than one premium Stock Market Trading Tips

Rajeev Kumar, chief and appointed actuary at Bharti AXA Life Insurance, said it had been proposed to Irdai that there be a balance between the first-year and second-year commissions. “This will motivate the agent to persuade the customer to keep paying the premiums even in the second year, where the cases of lapsation are high,” he said.

Under the traditional product guidelines in force since January 1, 2014, commissions are linked to the tenure of a policy. The higher the duration, the higher is the commission. Irdai has said commission rates for policies with longer tenure would be higher than those for short-term policies. For policies with tenures of at least 12 years, the commissions would be 35 per cent of the premium Personal Numerology Trading Tips

There has also been talk about a fixed salary structure for agents, to retain them longer. The need has been suggested at several forums, said a senior executive in a private life insurance firm, but a consensus had not been arrived at.

“While further details are awaited on how the commissions would be structured after 40A was omitted, some re-framing of the guidelines would be done," he said. There are also proposals on having a commission expense cap, rather than a fixed percentage of commissions.

First-year commissions for life insurance premium are the highest, which then taper from the second and third year onwards. Hence, the bulk of first-year premiums in a policy go towards commissions. Tarun Chugh, managing director and chief operating officer, PNB MetLife said it appears Irdai would frame regulations  hopefully allowing a lot more flexibility for companies to design performance-based remuneration models, suiting each channel within an overall expense cap Commodity Trading Tips

“This is likely to help Insurers increase productivity of its channels further which will result in the overall increase of Insurance Penetration in the country,” he said.

Most insurance executives agree that there is a need to have a more balanced approach towards commission structures, so that they are not skewed towards the first year. Fixed salary structure doesn’t seem to have too many takers.

The chief distribution officer at a mid-size private life insurer said that with large public and private life insurance companies having a large agency-force, fixed salary can set them back by a huge expense. They would, then, have to drastically reduce the number of agents, affecting the overall business, he added Jackpot Trading Tips

During 2013-14, the life insurance sector reported an increase in the expenses of management in proportion to the rise in gross premium collected. Commission expenses as a percentage of premiums decreased marginally to 6.63 per cent from 6.71 per cent in 2012-13. While commission expenses rose in the case of regular premium and renewal premium, there has been a fall in the commission paid towards single-premium products.

According to Irda’s Annual Report for 2013-14, individual agents’ contribution to new business premium went up slightly to 78.40 per cent during 2013-14 from 77.53 per cent in 2012-13. The Life Insurance Corporation of India had procured 95.99 per cent of its individual new business premium through agents, while for private insurers, the share of individual agents was 40.09 per Nifty Trading Tips

Blackstone backed Embassy Office Parks to invest $400 million to ramp up portfolio

Embassy Office Parks (EOP), an equal joint venture between private equity major Blackstone Plc and Embassy Group, will spend $400 million (Rs 2,500 crore) to develop a record 12 million sqft of fresh office space across Bengaluru and Pune over the next 24 to 30 months. 

This development outlay tracks the widening demandsupply gap in both cities that are dominated by the services industry. Currently, Bengaluru and Pune enjoy the lowest office space vacancy levels of 8.3% and 7.1% respectively in the country Stock Market Trading Tips

Close to 85% of EOP's development will be focused in Bengaluru, which in the preceding sequential October to December quarter saw a record 5 million sqft of office space being absorbed as per data shared by consultancy firm CBRE. 

"Hiring is up and we are already seeing traction for office space given the crescendo in leasing activity over the last couple of months," said Mike Holland, CEO, Embassy Office Parks. At present EOP is engaging with potential clients who have plans to hire around 8,000 fresh hires added Holland. 

Last year EOP's lease portfolio grew by 44% with the joint venture firm adding 42 new clients, some of whom were setting up their operations for the first time in India. These included Lowe's, Mast Global, Rolls Royce, Souq.com, and Great West Financial among others Financial Astrology Trading Tips

EOP's 12-million sqft of development will encompass 48 capital projects, a small component of which will include construction of hotels and retail spaces. This project pipe line adds heft to EOP's stated objective of floating a real estate investment trust in the near future. 

While part of EOP's development portfolio would see corporate tenants consolidating their offices spaces, a significantly higher proportion of the development will be catering to new growth. 

For example, Flipkart's deal to lease 3-million sqft of office space in Bengaluru from EOP will see a little over 2 million sqft cater to new growth. "Our numbers have been very positive last year and we feel similarly positive for the year ahead," said Holland Nifty Trading Tips

Much of EOP's planned development in Bengaluru will center on its two big business Parks, Embassy Manyata Business Park, and Embassy TechVillage that was acquired for $300 million (Rs 1,800 crore) early last year. 

Embassy GolfLinks, among the first CBD located business parks in the city, saw its entire built office space being fully leased out on December 31, when taxi-hailing firm Ola leased 20,000 sqft of space for its technology arm Personal Numerology Trading Tips

Hyundai sets sights on 5-lakh mark, to unveil new versions of Verna and i20

MUMBAI: South Korean carmaker Hyundai Motor has lined up a slew of new models, especially in the utility vehicle segment, for the Indian market this year as it seeks to cross the half-a-million sales mark in the country by 2016. To achieve the target, the Indian unit of the carmaker is aiming to grow its sales this year at 14% to 4.65 lakh units, or double the predicted growth rate of the market Stock Market Trading Tips

To outpace the market, the company will be launching the new Verna in February, followed by the i20 crossover in April and a compact sport-utility vehicle (SUV), codenamed GCi, in the festival season of 2015. 

Bo Shin Seo, CEO and MD at Hyundai Motor India, told ET in an exclusive interview that the company has set an aggressive target for itself as it expects the Indian automobile market to do better in 2015 compared with the previous year Nifty Trading Tips

"We increased our market share in 2014, but we are not satisfied as yet. With the new Verna and a compact SUV coming in, we will look at increasing the market share further. 

The improving sentiment and probable cut in interest rate on the anvil, we are hoping for an even better year in 2015," said Seo. Volumes at Hyundai Motor India grew 7.5% at 4.11 lakh units in 2014. 

At 21.6%, the company had the highest market share in the passenger cars segment. Hyundai, Maruti Suzuki and Honda Cars India were among the few automobile makers that outpaced the passenger vehicle market sales in 2014, which closed at sub-5% growth Commodity Trading Tips

Aware of the rising competition, Seo said he would be happy to hold on to the market share in the car space, but would like to improve the overall passenger vehicle market share with incremental volumes coming from SUV. 

Rakesh Srivasatava, senior vicepresident, sales & marketing at Hyundai Motor India, said just like the passenger car space, Hyundai will be a strong challenger in the utility vehicle (UV) segment "With our compact SUV coming in, we will be looking at a fairly significant share in the space," said Srivastava. "In the first year, we would like to grab at least 5% share, which may help us increase our passenger vehicle market share by 1% in 2015." 

Hyundai's i20 cross will take on the Fiat's Avventura and Etios Cross, whereas the compact SUV will take on Renault's Duster. As for MPV, which is planned for 2016, Hyundai is yet to finlaise the price point or segment it intends to cover the people mover Free Stock Share Tips

Gaurav Vangaal, senior analyst at IHS Automotive, said even though Hyundai Motor India has been aggressive with new product launches over the last two years, the growth rates have been a below expectation, given that it has had three blockbuster product launches over the last 12-18 months. 

"Last two years have been about the survival of the fittest and both Maruti and Hyundai have come out on top, but not without a challenge or pain," said Vangaal. "The target of half million sales for Hyundai is quite possible with new segment of affordable UVs opening up volumes for the company, but the sluggish sales of Xcent may offer a cause of concern." With exports of Europe being moved to Turkey, Seo said the company has enough capacity to meet the demand for the next two years, silencing speculations of the company investing in a new plant. Hyundai would look at utilising the complete capacity of 7 lakh by 2016-17, he said Intraday Trading Tips

"We are investing in new products and technologies, but we don't need to invest in new capacity. As for expansion of capacity, for the HQ, the priority is China, where two new plants coming up in 2015. We have adequate capacity to meet demand in India for both domestic and export," added Seo.

L Capital Asia to invest $50 million in Indian e-commerce businesses

L Capital Asia, the private equity fund sponsored by the LVMH Group, will make a couple of investments of as much as $50 million each in India this year, eyeing e-commerce businesses with a "differentiated" model and old, family-run enterprises that have lost direction in the current scenario. "Online retail is a very attractive proposition, given the scope of growth in an emerging consumer market like India," said Bijou Kurien, member of the strategic advisory board of L Capital. 

There's a lot of excitement in the online retail space and growth is exceeding offline retail, he said. Prompted by the change in government and signs of economic recovery, L Capital has held talks and considered a few options and may make at least twothree investments this year. The minimum value of each investment will be $30 million to $50 million Free Stock Share Tips

"We are looking at niche online retailers which work on a differentiated model, unlike most e-commerce companies today," said Kurien. There will also be a shift in the entire online market in India in the next two years, according to him. "The focus will shift from topline and discounts-driven business model to improving quality of operations," he said. 

With regard to old Indian businesses, Kurien said there were many opportunities. "Many old family-run successful companies have lost direction and now the new generation wants to bring them back on track with outside professional and financial help," he said Personal Numerology Trading Tips

In Asia, rather than bet on pure luxury, L Capital is investing mostly in bridge-to-luxury brands and companies such as Charles and Keith, a ladies' footwear and accessories brand, Australian outfitter RM Williams and Seafolly, an Australian swimwear brand. In India, the company has invested over $100 million in Genesis Luxury, PVR Cinemas and Fab India. 

"Going ahead, at least $250 million worth of funds is likely to be directed to India, same as China," Kurien added, without specifying a timeframe. In the past 2-3 years, the company has been "wary" of making investments in India because of the slowing economy and lack of a significant growth environment. 

"Now, with the economic indicators showing up and the change of government, there is a renewed confidence," he said. About the existing investments in India, Kurien said, "They are all doing good and were growing well Commodity Trading Tips

Investors build a fortune with housing finance companies

Big banks have long been market darlings. It's the turn of housing finance companiesnow. 

Shares of GIC Housing Finance, Canfin Homes, Repco Home Finance, Gruh Finance, Dewan Housing Finance and Indiabulls Housing Finance have risen between 10% and 50% over the past month as cheap valuations, hope of rate cuts and strong growth potential have prompted large domestic investors to buy into them. 

"Housing finance companies have been the favourites of investors of late because they are the biggest beneficiaries among finance companies as the cost of funds is falling faster than lending rates and a rate cut is expected any time soon," said Santosh Singh, head of research at Espirito Santo Securities Stock Market Trading Tips

"These stocks underperformed in the past two years, though there was no slowdown in the home lending sector." 

Housing Finance has risen more than 50% in the past month, while the shares of Canfin Housing, which hit their lifetime high of Rs 695 on Monday, have surged nearly 37%. Both the stocks are currently trading at 15 times their earnings per share for the trailing 12 months. The market leader, Housing Development Finance Corporation, has moved just 2.7% in the past month, as investors remain neutral on the stock because of its expensive valuation. The benchmark Sensex has risen just 1% in the past month Commodity Trading Tips

"High growth and core profitability are the main valuation drivers for housing finance companies," Kotak Securities said in a report on Friday. Strong growth in housing, due to the government's impetus, and large latent demand will drive 19% compounded annual growth in housing loans through fiscal 2022 to Rs 35 trillion, it said. 

Billionaire investor Rakesh Jhunjhunwala is bullish on the stocks of home lenders, Bloomberg news reported recently. As per available data, he has a 3.89% stake in Dewan Housing. On Monday, CanFin Homes announced a rights issue — three equity shares for every 10 held — of about Rs 275 crore. The issue was priced at Rs 450 per share against the current market price of Rs 617 Nifty Trading Tips

Traders turn bearish on CIL, stock falls 4.5%

Traders created bearish bets on Coal India on Monday on news the government plans to sell a stake in the company in a month. Coal India shares dropped 4.5% on Monday to Rs 358 as investors expect the company's share sale will be priced at a steep discount to the current market price. 

The government plans to divest 10% stake in the company to garner about Rs 24,000 crore in a month. "Looking at the current market conditions, the divestment of Coal India may happen at 6-7% discount from the current market price. This may provide short-term investors a handsome opportunity for trading in Coal India shares," said Kunj Bansal, executive director & chief investment officer at CentrumBSE 4.58 %. The total traded volumes in Coal India on Monday was at 2.88 lakh shares on the BSE, more than double the two-week average of 1.27 lakh Stock Market Trading Tips

Analysts said the position build-up in Coal India futures shows the stock could be subdued in the coming days. "Coal India futures added 6 lakh shares of short positions on Monday, while February futures continue to trade at a discount of Rs 3, which suggests that the divestment overhang on the stock will remain going forward," said Hemant Nahata, derivatives analyst at IIFL. 


"We expect most of the action to happen in the February series as the share sale is unlikely to happen in the January series." 

If the government raises Rs 24,000 crore from Coal India this time, it would be India's biggest-ever share sale, beating the record set by the company in October 2010, when the government raised Rs 15,000 crore through an IPO Personal Numerology Trading Tips

Analysts recommend subscribing to the Coal India issue. "I would advise retail investors to participate in the share sale offer as the stock price will be available at a steep discount from the current price. I expect the Coal India stock price to fall another 5-7% from the current level, from which retail investor can get further discount of 5% on the stock price," said Arun Kejriwal, founder & CEO, Kris Research. 

The Coal India stock has risen 37% in the past year against the 35% gain in the Sensex. It is trading at 14 times price to earnings (P/E) based on 2014-15 estimated earnings. For traders looking to benefit from any stock weakness before the issue, Nahata advises selling Coal India's put option of either 320 or 330 strike price, or selling call option of either 380 or 400 strikes of the January series Intraday Trading Tips

RBI may cut policy rates by 0.25% in February: Bank of America

The Reserve Bank is likely to cut rates by 0.25% in February'smonetary policy review as its target of 6% inflation by January 2016 is likely to be met, Bank of America Merrill Lynch has said.

"In our view, inflation is well set to achieve RBI's 8% January 2015 and 6% January 2016 CPI inflation targets. We continue to expect Governor Raghuram Rajan to cut rates by 25 basis points on February 3," the investment bankingmajor said in a note Free Stock Share Tips

Expecting January Consumer Price Index (CPI) based inflation at 6.2%, it said there will be a greater visibility of close-to-normal winter wheat crop, adding that sowing is picking up after a delayed start due to late rains.

On rupee, it said RBI may continue to be defensive at a level of Rs 62-63 per USD Intraday Trading Tips

"We continue to expect the RBI to continue to mount a token defence at Rs 62-63 per $levels, selling $500 million-1 billion, as it is doing. It is only at Rs 65 per $that we see full-scale forex intervention of $15 billion.

"The RBI should ideally want to hold Rajan's preferred Rs 60-62/$ zone. At the same time, it will not spend too much of precious forex at a time the INR has outperformed mostBRICS currencies," it added Commodity Trading Tips

Jaitley denies pressuring RBI to cut rates

Finance Minister Arun Jaitley on Tuesday said he was not pressurising the central bank into cutting interest rates. His comment that the high cost of capital was stifling investment had sent markets into a tizzy.

Arun Jaitley, in a speech in Delhi on Monday, had said "costly capital" was one of the factors impacting manufacturers. Analysts said his remarks were the most public attempt yet by the government to press the Reserve Bank of India (RBI) governor into easing rates Stock Market Trading Tips

But Jaitley said on Tuesday the comment was meant to discuss the challenges facing the manufacturing sector. "The fact is that there was not a single sentence reference (not even a word) in my entire speech to either the RBI or its governor," Jaitley said.

"One of the many points that I made was that the cost of capital has to be cut down. Any one speaking on the subject of the Make in India into a manufacturing hub would necessarily suggest this."

Traders said Jaitley's comments on Monday had reinforced expectations that the government was keen for the RBI to lower borrowing costs rates to help economic growth Commodity Trading Tips

The finance minister said on Monday that when "credit offtake is slow, the infrastructure creation becomes slower, manufacturers find it difficult to afford costly capital."

Benchmark 10-year bond yields fell four basis points to 7.89 per cent on Tuesday, not far from a near one and a half year low of 7.82 per cent in mid-December.

Previously, Jaitley also had to clarify comments after a speech in which he was widely seen as chiding the country's auditor for sensationalising its findings, creating a political row. However, the finance minister later accused media of not properly relfecting "the spirit" of his speech.

Inflation has cooled markedly in recent months, but Rajan has indicated he would move cautiously on any rate cuts, seeking to avoid having to flip-flop on policy should price pressures pick up again.

RBI has also made rate cuts contingent on the government meeting its budget deficit and undertaking fiscal reforms to reduce borrowing Personal Numerology Trading Tips

Still, if inflation remains tame, most economists polled by Reuters expect RBI to lower rates at its next policy review in February or in April.

"RBI is very clear that they need to see reforms from the government," said Jayesh Mehta, managing director and country treasurer at Bank of America-Merrill Lynch in Mumbai.

"So now with every reform such as the ordinance on land acquisition passed, there will be pressure on RBI to cut rates." Rajan has frequently lauded his good relationship with the finance minister in media interviews. The central bank is not independent from the finance ministry although it has long enjoyed autonomy in setting interest rates Nifty Trading Tips

TMB strives for growth despite troubles

There seems to be no end in sight for the boardroom battles of the Tuticorin-based Tamilnad Mercantile Bank (TMB). The 93-year-old bank founded by a group of Nadar families to foster development of the community is in fresh trouble with the Enforcement Directorate issuing a show-cause notice last week to the bank for violating foreign exchange rules in the transfer of TMB shares in 2007.

The shares were sold by businessman C Sivasankaran to a clutch of foreign investors led by Rajat Gupta, Ravi Trehan and Cuna Group Mauritius, among others. This led to a few non-Nadars being included on the board of the bank for the first time in its history, even though the Nadars still hold a controlling stake Stock Market Trading Tips

The foreign investors, who shelled out nearly four times more than the original buyers, have infused around Rs 150 crore in the bank, and their investment is believed to have grown three fold. However, according to the Enforcement Directorate, the shares of the bank were transferred without the permission of the Reserve Bank of India and, therefore, violated the Foreign Exchange Management Act (Fema), 1999. With similar transfers in December 2011 and June 2012, overall, the Fema violations are estimated to be around Rs 608 crore. The bank refused to comment on the issue.

The bank's problems started in 1994 when a factional feud within the Nadars led to two shareholder groups selling their 25 per cent stake to the Ruias of Essar. Subsequently, the Ruias raised their stake to 67 per cent with an eye on management control. However, in view of RBI's objection to an industrial group holding a stake in a community-led bank, the Ruias decided to rethink their plan. As the Nadars didn't have the money for the buyback, businessman C Sivasankaran stepped in on behalf of the community and bought Essar's stake for Rs 65 crore. His plan was to sell the shares back to the Nadars for Rs 155 crore. For nearly 10 years, the Nadars struggled to pay him off and in 2007, Sivasankaran sold the share to a clutch of FIIs, sparking a string of protests and legal battles at the bank Personal Numerology Trading Tips

For investors, TMB is one of the most sought-after banks for its steady profitable streak since inception. Despite a string of problems, including RBI restrictions on opening branches in metros and Tier I cities because of its ongoing ownership battles, the bank's profit has shot up from Rs 6,984 in 1921 to Rs 301 crore in 2013-14. Its reserve base and earnings per share remain among the highest in the country. TMB declared a dividend of 1,000 per cent for 2005-06 and 2006-7, and of 5,000 per cent in 2007-08. The dividends, however, have not been paid yet because of a case pending at the Madras High Court on the constitution of the bank's board.

Analysts say the reason for TMB's success, which has a paid-up capital of Rs 26 lakh and net worth of Rs 1800-1900 crore, has been its focus on non-corporate banking, which has helped it keep its non-performing assets in check. A former managing director and CEO of the bank says TMB has a banking system that runs on "autopilot". "The well placed systems, including the way the loans are disbursed, ensures that the bank's operations are not affected by its ownership."

TKR Thamilarasu, a former director and a member of one of the founder families, says the strong emotional connect that the Nadar community still has with the bank is another factor in its success. He says about 80 per cent of the bank's 3,500 employees are from the community. TMB has been behind the success of many entrepreneurs in the region. The seed money for many companies, including the Rs 2,500-crore Hatsun Agro, which owns Arun ice cream brand, and the Idhayam Group of companies, which makes branded sesame oil, was provided by TMB Commodity Trading Tips

Still, the future is not without any bumps. The bank's profit dropped 31 per cent in 2013-14. "The bank would have become one of the top most in the country if there were no legal issues facing it," says Thamilarasu.

One of the directors, who did not want to be named, says the ownership issue has slowed the bank's expansion plans, which is reflected in its growth. TMB has been unable to list itself at the stock exchange because of the legal issues facing it. Senior officials are also worried about the lack of succession planning, especially at the top level Nifty Trading Tips

As TMB gets mired in fresh trouble, bank officials say they will focus on smaller cities beyond the metros where income levels and prosperity have been on the rise to get the first-mover advantage. They are also hoping for a speedy end to the ongoing legal issues for the bank to be able to file for a public issue. A senior official says TMB will initiate the process as soon as its court cases are resolved.

"It is not for money that we will go to the market, its more to meet RBI's compliance and to expand the board," says a senior executive Jackpot Trading Tips

Total external debt goes up in first half of FY15

India's short-term debt declined by 3.2 per cent to $86.4 billion in the six months ended September, the first half or H1 in this financial year, from $89.2 billion at the end of March.

The ratio of short-term external debt to foreign exchange (forex) reserves was 27.5 per cent at end-September from 29.3 per cent at end-March Free Stock Share Tips

India's forex reserves provided a cover of 68.9 per cent to the total external debt stock at end-September as against 68.8 per cent at end-March.

Long-term debt was $369.5 billion at end-September, a rise of 4.7 per cent over end-March.

At end-September, total external debt was $455.9 billion, a rise of $13.7 billion (3.1 per cent) over the level at end-March. The rise was primarily due to long-term external debt, particularly commercial borrowing and deposits of non-resident Indians (NRIs), the government stated Personal Numerology Trading Tips

Short-term debt accounted for 18.9 per cent of total external debt at end-September. The remaining 81.1 per cent was long-term debt.

Component-wise, the share of commercial borrowings was highest at 35.4 per cent of total external debt, followed by NRI deposits (23.8 per cent) and multilateral debt (11.7 per cent).

The Reserve Bank of India (RBI) has also issued the data on India's international investment position. It said net claims of non-residents on India rose by $6.8 billion to $353.7 billion as at end-September, from $346.9 billion in the quarter ended June Commodity Trading Tips

This change reflected a $3.5 billion increase in the value of foreign-owned assets in India vis-à-vis a $3.3 billion decrease in the value of Indian residents' financial assets abroad, RBI said. The latter total was $488.5 billion as at end-September.

Foreign-owned assets in India grew $3.5 billion over the previous quarter to $842.1 billion, mainly due to a rise of $1.9 billion in direct investment in India and an increase of $0.9 billion in portfolio investment in India. Among other investment liabilities, currency and deposits increased by $2.5 billion and loans (mainly external commercial borrowing) decreased by $0.9 billion Nifty Trading Tips

Re-rating likely for PSBs as asset quality issues abate

Last year was spectacular for the banking sector, with theBankex returning 71 per cent over 12 months, while the benchmark BSE Sensex returned only half of that. Banking stocks, a proxy for the economy at large, have rallied though economic growth did not pick up significantly in the period. Will this hope rally to sustain or will sector lose steam in 2015? The Street continues to be optimistic on the sector, for a number of reasons. While the well-capitalised private banks are obviously geared to further capture share from state-owned ones, the Street is turning cautiously optimistic on the much-maligned public sector banks (PSBs), too Stock Market Trading Tips

In the middle of December, banking stocks saw some heavy selling as the rupee weakened; these rarely perform well in currency weakness. Analysts believe any correction is an opportunity to buy these. JPMorgan claims it has seen more interest in PSB names, than in the past three to four years, even in the smaller and cheaper stocks. Interest is back and there are murmur on re-rating the sector as a whole, as return ratios, argue some, are set to improve.

Like some others, JPMorgan is betting on this re-rating ofPSBs as one theme in 2015. While some like Bank of India and Punjab National Bank are slated to benefit if the rate cycle turns in 2015, the credit cycle has to turn for a sustained improvement in earnings. If rate cuts commence, credit demand is expected to revive from the second quarter of 2015. Credit growth would average 14-15 per cent in 2015, believe analysts, as the economy revives gradually Commodity Trading Tips

What is driving talk of a re-rating is the Reserve Bank of India's norms on restructuring. Analysts expect bad loan formation to drop dramatically from April, thanks to the norms on infrastructure and core sector lending. Despite an accretion of stressed assets over the past few years, Morgan Stanley sees evidence of asset quality improving.

Earnings for PSBs are set to improve, too, as credit costs would moderate marginally. Prabhudas Lilladher believes the trend of declining earnings for PSBs has abated. The brokerage says: "Consensus earnings imply compounded annual earnings growth of 24 per cent for private banks and PSBs alike, against 19 per cent for non-banking financial companies, over FY15-17 Nifty Trading Tips