RBI Maintains Status Quo

Tue, 9 Aug 11:30 am

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After opening the day on a flat note, the Indian indices have continued to trade near the dotted line. Sectoral indices are trading on a negative note with stocks from the metal, oil & gas and FMCG sector witnessing maximum selling pressure.

The BSE Sensex is trading down 68 points (down 0.2%) and the NSE Nifty is trading down 22 points (down 0.3%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 66.93 to the US$.

The Reserve Bank of India (RBI) kept the benchmark repo rate untouched in its third bi-monthly monetary policy review today. It kept the repo rate unchanged at 6.5% and Cash Reserve Ratio (CRR) at 4%. A recent increase in food prices and a pick-up in economic growth led RBI to stay put.

In his last policy statement, RBI Governor Raghuram Rajan stated that he expects inflation to stay within the RBI's target zone. However, the risks to inflation target of 5% by March 2017 continue to be on the upside.

Further, he suggested that the formation of the Monetary Policy Committee (MPC) will modernize India's monetary policy framework and build a platform for strong and sustainable growth. Some of the collateral benefits it will offer over and above low inflation will be a currency that is not depreciating constantly, higher real returns earned by savers, and lower nominal interest rates, including inflation risk premia, paid by borrowers.

Talking on his termination of RBI governorship, Raghuram Rajan said, 'This is my last policy statement, but there are still 28 days in my term which I intend to use fully.'

When asked about how he looks at the few controversies that marred his term he said 'I do not want to say anything about the critics. There have been support from a lot of people. At the end of the day, I look back at my tenure positively as we feel we were able to move the needle a little bit every day. I am leaving the office feeling I did something.'

We believed that the RBI was in good hands under Raghuram Rajan's leadership. So, his exit from RBI next month will be a big loss for us. To know more about our views on him, please read the The Honest Truth article : Why two-eyed Rajan is a King!

After getting a thumbs-up in the Rajya Sabha last week, the Lok Sabha yesterday unanimously passed a constitution amendment bill that enables the Goods and Services Tax (GST) Bill or GST. The Bill will now be sent to states assemblies for ratification.

Notably, all the 443 members present in the Lower House of the parliament voted in favor of the Bill. Speaking in the discussion in the Lok Sabha, Prime Minister Narendra Modi stated that GST is a major step ahead that will end tax terrorism. He further noted that the implementation of GST will incentivise traders to maintain clean accounts, make informal bills a thing of the past and empower the customer.

Also, Rahul Gandhi, whose Congress party has supported GST after stalling it for months, said that the GST is a good step for the country. He, however, noted that the Congress party still has an issue on the 18% cap on the rate of GST and the same will be discussed in December.

For the early implementation of the Bill, senior Union Ministers have spoken to chief-ministers of NDA-ruled states to ensure that the constitutional amendment is ratified by the state assemblies at the earliest.

Having said that, the tax is far from a done deal yet. Half the states still need to approve the legislation. Along with this, the GST council, a very important part of the process, will also need to be set up. It is this entity that will determine the GST rate and institute a dispute resolution mechanism.

The word is that the GST will be implemented from April 1, 2017. And if experts are to be believed, even this deadline might be ambitious. Only time will show ground realities regarding the passage of GST Bill and its implementation.

The questions for market participants is - With the approval of GST, is this the time to buy stocks by the fistful? Rahul Shah, co-head of Research at Equitymaster, answered this question in in a recent edition of The 5 Minute WrapUp.

Speaking of GST, my colleague Vivek Kaul, has brilliantly explained what you probably did not hear about GST from the mainstream media. I strongly recommend that you download Vivek's free report on the GST, 'What the Mainstream Media DID NOT TELL YOU About GST.'

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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