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Due to dismal GDP, RBI may cut repo by 40 bps: Report



RBI repo rate cut

Mumbai, Sep 3 (IANS) Noting the gloomy start to the current fiscal with a dismal 5 per cent growth in the first quarter, broking house Kotak Equities on Tuesday also cut down India’s 2019-20 GDP gorwth estimate to 5.8 per cent and said it sees the RBI cutting its key interest rate by 40 basis points (bps) in the central bank’s October monetary policy review.

“On the policy front, after the dismal 1QFY20 growth performance and expectations of benign inflation, the monitory policy committee (MPC) will likely have space to cut rates by up to 75 bps through the rest of FY2020, with a cut of around 40 bps likely in the October MPC meeting itself”, a Kotak research note said.

At its previous policy review in August, the MPC cut the Reserve Bank of India (RBI) repo, or short-termn lending rate for commercial banks, by an unconventional 35 bps to support growth.

Kotak also further reduced India’s estimated GDP growth rate to 5.8 per cent for the current fiscal, from its earlier estimate of 6.3 per cent.

“GDP growth in 1QFY20 decelerated sharply to 5 per cent on the back of weakness in private consumption and investment. With a deeper-than-estimated trough and lack of significant impetus to the growth drivers in the near term, we further revise down our FY2020 GDP growth estimate by 50 bps to 5.8 per cent”, it said.

“We believe that growth will likely recover on the back of favourable base effects in 2QFY20, and pickup in the pace of Central government spending post elections. The surplus dividend of around Rs 1.76 lakh crore from the RBI will further aid the government in spending immediately,” it said.

“Construction could see some uptick as the government refocuses on capex. We note that our GDP growth estimate of 5.8 per cent is much lower than the RBI’s estimate of 6.9 percent, which would likely be revised down in the October policy,” the report added.

On the production side, the report said there is near-stagnant manufacturing sector growth. Real GDP growth slumped to a multi-year low owing to sluggish demand.

Manufacturing growth in the first quarter (Q1) slumped to 0.6 per cent (3.1 per cent in 4Q FY19) consistent with the trend witnessed in the activity indicators.

While construction activity slowed to 5.7 per cent (7.1 per cent in 4QFY19) amid limited government spending, the electricity segment expanded by 8.6 per cent.

Within services, financial, real estate, and professional services growth slowed to 5.9 per cent, according to latest official figures.

The report said there has been a sharp drop in private consumption and investment growth. Private consumption growth plummeted to 3.1 per cent (7.2 per cent in 4QFY19).

While rural consumption has been weak owing to near stagnant farm income growth, urban consumption has been under pressure owing to a trough in savings rate, worsening financing conditions and fading out of government salary adjustments.

Government expenditure growth in Q1 also slowed to 8.8 per cent (13.1 per cent in 4QFY19) primarily due to slower pace of expenditure during elections.

Investment growth remained sluggish at 4 per cent owing to election-related uncertainty and decline in government capex. Global growth and trade headwinds were visible in export growth slowing to 5.7 per cent (10.6 per cent in 4QFY19).


“How To Destroy An Economy”: Rahul Gandhi’s Latest Swipe At Government

Kaushik Basu, who served as Chief Economic Adviser to the Finance Ministry, tweeted a warning to the centre: “Don’t be in data denial… take corrective action…”



Rahul Gandhi Farmers

New Delhi: Congress MP Rahul Gandhi this afternoon cited figures collated by renowned economist Kaushik Basu – which project India’s GDP as contracting the most among a selection of 11 Asian nations, including China – to take yet another swipe at the government.

“How to completely destroy an economy and infect the maximum number of people really quickly,” Mr Gandhi tweeted, with a data table showing projected GDP growth (for 2020) for 11 Asian countries and the number of coronavirus-related deaths (per million) for each.

India, with a projected GDP contraction of 10.3 per cent (according to a IMF report released ealier last week) and 83 Covid-related deaths per million, is at the bottom of a list that includes China, Bangladesh, Pakistan, Nepal and Sri Lanka.

The International Monetary Fund (IMF), in a report released last Tuesday, said it expected India’s economy to shrink by 10.3 per cent – a huge downward revision from its June prediction for a government under pressure over its handling of the pandemic and the economic fallout.

Kaushik Basu, who served as Chief Economic Adviser to the Finance Ministry, tweeted another warning today: “Don’t be in data denial. Mistakes happen-admit & take corrective action…”

In August the government said India’s GDP had contracted by 23.9 per cent – much worse than expected – in April-June, as the pandemic brought key industries to a halt and left millions jobless.

Mr Gandhi tore into that revelation, accusing the government of ignoring repeated warnings from experts on the extent to which the coronavirus pandemic had affected the economy

The government has since claimed a recovery of sorts – on both fronts.

Earlier this month the Finance Ministry said “demand resurgence is palpable in many sectors” and yesterday a government-appointed committee said the country had crossed the coronavirus peak.

One of the points claimed by the committee was that the early lockdown, which triggered the economic problems – had significantly helped reduce the number of deaths due to the virus.

Meanwhile, apart from highlighting a potentially difficult 2020 for India’s GDP (something several economists and reports have already flagged), the IMF report triggered another row when it suggested that India’s per capita GDP is set to drop below that of Bangladesh.

Rahul Gandhi pounced on that as well, tweeting: “Solid achievement of 6 years of BJP’s hate-filled cultural nationalism. Bangladesh set to overtake India”.

Shortly after that government sources issued a clarification, claiming that in terms of purchasing power parity – a measure of GDP that accounts for relative differences between countries – India’s per capita GDP in 2019 was actually 11 times higher than that of Bangladesh.

China, which according to the data sheet shared first by Mr Basu and then Mr Gandhi, is projected to record positive GDP growth – 1.9 per cent – this year.

Bangladesh, meanwhile, is to record an impressive 3.8 per cent GDP growth for 2020.

This afternoon China released its July-September GDP figures and said its economy had grown by 4.9 per cent – the same as last year and only marginally below the expected 5.2 per cent.

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Adani, Piramal among bidders for bankrupt DHFL

In November last year, the Reserve Bank of India referred DHFL for bankruptcy under the Insolvency and Bankruptcy Code at the National Company Law Tribunal (NCLT).





Mumbai, Oct 18 : Adani Group, Piramal Enterprises, US-based Oaktree and Hong Kong-headquartered SC Lowy have submitted their bids for the insolvent Dewan Housing Finance Corporation Ltd (DHFL), sources said.

The deadline to submit bids for DHFL ended on Saturday.

According to sources, Adani Group has bid for the wholesale and slum rehabilitation authority portfolio. Piramal Enterprises, on the other hand, has bid for its retail business.

Further, Oaktree has submitted a resolution proposal for the entire company with a bid value of Rs 20,000 crore.

The admitted debt of the insolvent NBFC is over Rs 90,000 crore.

In November last year, the Reserve Bank of India referred DHFL for bankruptcy under the Insolvency and Bankruptcy Code at the National Company Law Tribunal (NCLT). Its resolution is now underway at the Mumbai bench of NCLT.

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Weak institutional participation leading to consolidation of equity markets




rupee dollar

Mumbai, Oct 18 : Weak institutional investment from domestic institutional investors (DII) and foreign portfolio investors (FPI) since September have led the Indian equity markets into a consolidation phase, according to a report by ICICI Securities.

The report noted that the sharp bounce back by the market after the lows in March was in anticipation of normalising economic activity, which has shown up in terms of high frequency data in September including PMI, GST collection, electricity demand, improving exports, wholesale auto sales.

“Institutional flows both from DIIs and FPI’s have turned weak since Sep as sharp upside in stocks since March lows turns equity valuations expensive. Weak institutional participation is resulting in a consolidation phase for equity markets currently,” it said.

It noted that current market behaviour of muted flows by institutional investors and the resultant consolidation in stock prices imply economic activity may plateau going forward after normalising to pre-Covid levels.

Expecting economic activity to rise beyond pre-Covid level without large fiscal and monetary stimulus would be erroneous as aggregate demand in the economy was already weak before the impact of the pandemic, it said.

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