Indices Perk up Post RBI Policy Meet

Tue, 7 Jun 01:30 pm

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The Indian indices went on to book profits in the post-noon trading session after the RBI kept the benchmark repo rate unchanged at 6.5%. Sectoral indices are trading on a positive note with stocks from the banking, realty, FMCG and capital goods sectors leading the gains.

The BSE Sensex is trading up 271 points (up 1%) and the NSE Nifty is trading up 85 points (up 1%). The BSE Mid Cap index is trading up 0.5%, while the BSE Small Cap index is trading up by 1%. Gold prices, per 10 grams, are trading at Rs 29,360 levels. Silver price, per kilogram is trading at Rs 39,069 levels. Crude oil is trading at Rs 3,325 per barrel. The rupee is trading at 66.73 to the US$.

With the Reserve Bank of India (RBI) maintaining status quo at its third bi-monthly policy review today, all attention has now turned on whether Raghuram Rajan would keep his job as the RBI governor come September. When asked about this, Mr Rajan said that it would be cruel for him to spoil the fun the press is having. He added that the government and the RBI would collectively take the decision.

The government had earlier stated that it will take a call on extending Raghuram Rajan's tenure as Reserve Bank of India (RBI) governor in August, a month before his three-year term ends.

A senior official had said that the government acknowledges Rajan's role in heading a strong regulator and forcing banks to crack down on bad loans. It was also noted that Subramanian Swamy's letter to Prime Minister Narendra Modi complaining about the governor and arguing against an extension won't have any impact on the decision. Last month Subramanian Swamy accused Rajan of an apparently deliberate attempt to wreck the Indian economy. Vivek Kaul, editor of Vivek Kaul's Diary, has countered this and stated why the arguments made by Subramanian Swamy are silly.

Since the above accuses, at least seven online petitions have surfaced and collected more than 60,000 signatures in favor of Rajan's second term.

To take a note, Rajan was appointed by the previous United Progressive Alliance (UPA) government for a three-year term beginning September 4, 2013. Back then, India's macro-economic fundamentals were in poor shape. The current account deficit stood at a record high, coupled with rising inflation and concerns about fiscal targets being missed. These indicators are in much healthier shape now. One of the articles from The Honest Truth offers some insights on why Rajan is an outcast amongst the community of central bankers.

Stocks in the automobile space are trading on a positive note with Maharashtra Scooters and Ashik Leyland leading the gains. Tata Motors' UK subsidiary - Jaguar Land Rover (JLR) has reported its best ever retail sales for the month of May. The company sold 44,946 vehicles during the last month, an increase of 18% YoY. This was the company's fifth consecutive record-breaking month.

Retail sales for the month of May too were up across all regions. Sales in China were up by 28% YoY, while that of Europe, UK and North America were up by 24%, 23% and 8%, respectively on a YoY basis.

Also, the company sold 2,45,100 vehicles in the first five months of 2016, up 23% compared to the same period in the prior year.

Tata Motors is India's largest automobile company. In its results for the quarter ended March 2016, the company's consolidated revenues grew by 18.8% YoY to Rs 799.2 billion. The healthy growth was on the back of the strong performance of its Jaguar Land Rover (JLR) unit. The consolidated net profits of the company grew by 201% to Rs 51.7 billion during the quarter.

Moreover, the Indian operations too reported a profit of Rs 4.6 billion as compared to a net loss of Rs 11.6 billion a year ago. The Indian operations improved on the back of strong performance from the medium and heavy duty trucks.

Going forward, the traction from the newly launched model in passenger vehicle space such as 'Tiago' and a pick -up in the economic activity to boost the demand for commercial vehicles will be the key thing to watch out for pertaining to Indian operations. As far as the JLR unit is concerned, the demand from key geographies such as China and Europe will need to be closely tracked to assess its impact on its financial performance going forward.

Presently the stock of Tata Motors is trading marginally higher in the BSE.

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