Saturday, 7 September 2013

Weekly Market Update - 02 Sep to 06 Sep 2013

The past week showed some signs of volatility in the beginning with the market positive on the first day but tanking on the second day. But the game changed with the new RBI governor taking office and immediately making his intentions and objectives clear.
From then on the market saw three straight trading sessions with upside and the rupee too appreciated significantly from earlier lows.
The highlights of the week are as follows :

  • SEBI not to encourage new gold ETFs in the present market situation.
  • India’s GDP forecast further downgraded by many foreign brokerages.
  • Raghuram Rajan assumes office as 23rd Governor of RBI.
  • RBI eases borrowing limits for banks. 
  • Overseas investment limit for companies rolled back to 400% from the recent 100%.
  • India and Japan enhance currency swap facility from $15bn to $50bn. This can be a huge positive push for the volatile INR.

The week can distinctly divided into two parts. The days before Rajan and after that.

The markets showed similar signs of volatility with positivity on the first day but a deep fall on the second day on fears of attack on Syria and oil import worries. Added to this, several foreign brokerages downgraded their GDP forecasts for India by 1% to 1.5% in the FY 2013-14 saying that they are not seeing any signs of economic recovery.

Then entered Raghuram Rajan as the 23rd governor of the RBI. As soon as he assumed office, there were a slew of announcements which went a long way to soothe the sentiments. The RBI moved to tackle the problem head-on, i.e. stabilising the rupee, by announcing easing of borrowing limits for banks. Banks’ overseas borrowing limit has been increased to 100% of Tier-1 capital from the earlier 50%.  Also, a special window till Nov 30th has been opened wherein the banks can swap their dollar liabilities with FCNR(B) deposits at 3.5% per annum for three years. The RBI further relaxed the norms by saying that banks need not maintain CRR and SLR for incremental FCNR(B) deposits. Experts are of the opinion that this will immediately lead to strong dollar inflows.

Following these steps the markets reacted positively with three straight sessions of gains. The rupee too revived from the lows of 67/$ to 65.24/$ by the end of the week.

Later in the week the RBI also relaxed the norms for foreign promoters of Indian companies. NRI and foreign promoters can now raise stakes in Indian listed companies through registered Indian brokerages. The acquisition of stakes can also be funded with dividend amount received by the NRIs. Analysts believe that this step also has the potential to increase dollar inflows in the immediate future.

The markets have decidedly taken to Raghuram Rajan in a very positive way. It is still premature to say anything about economy in the coming weeks but with the out of the box solutions being offered by the new RBI governor, one can only hope for a speedy and decisive revival of the economy.