The Monetary Policy, along expected lines

The Monetary Policy, along with expected lines, maintained the status quo on the repo rates at 6.50%. This was necessitated by the inflation falling to 3.31% and the GDP growth falling to 7.1% in the second quarter. The decision to maintain status quo on rates was unanimous among the 6 members. The RBI also maintained its monetary stance as “Calibrated Tightening” with only Dr. Ravindra Dholakia voting for shifting the stance to neutral. While CRR remains constant, the SLR will be cut by 25 basis points per quarter starting from January 2019. The RBI has projected lower inflation in the coming quarters.

The RBI policy also announced that all retail and MSME loans will now shift to an external benchmark for rate setting. Currently, loans are priced based on the MCLR (Marginal cost based lending rate). The RBI plans to shift all retail and MSME loans to an external benchmark like the 91-day T-Bill or the 182-day T-Bill or the 364-day T-Bill. The focus will be more on the consistency of benchmarking. The bank will be allowed to charge a spread linked to credit quality. This would mean that most loans will become floating rate loans and if deposit rates are not floating then it could lead to a serious mismatch.

Markets have given a literal thumbs-up to the Hindustan Unilever decision to acquire the consumer business of GSK. With the acquisition of the Horlicks, Viva and Maltova brands, HUVR gets a major break into the lucrative consumer foods segment. Glaxo had been stuck in this segment due to its limited distribution reach and had been losing market share in the health drinks segment to Pediasure of Abbott. The markets have upgraded the price of the stock which touched a new high and the market cap of Hindustan Unilever crossed the Rs.4 trillion marks for the first time in its history.

The first signs of a truce between the US and China were visible as China agreed to restart the import of soybeans and LNG from the US. China had put a ban on specific imports from the US in the light of the tariffs imposed by the US. The world had been worried about the trade war since the impact on global growth was likely to be 30-40 bps as per IMF estimates. Both the US and China have been extremely cagey about the details of the discussion in Buenos Aires. However, it appears like China may be willing to go more than halfway to reduce the impact of the tariffs on its economic growth.

The sharp correction in the US markets by nearly 4% on Tuesday took the markets by surprise. There were some distinct reasons for the same. Firstly, the yield curve presented an inverted picture after a long time. An inverted yield curve represents a preference for a shorter-term debt due to uncertainty surrounding the longer end of the curve. Second, the disappointing results posted by Toll Brothers, a realty company, led to fears that the real estate market was not really showing signs of a bounce. Thirdly, there were concerns over slowing sales over most tech companies, led by Apple. Fourthly, markets experts have also been talking about cutting of leverage in the US markets by Quant funds. The inversion of the yield curve happened after almost 10 years and remains the top worry.

In a big thrust to India e-commerce, Amazon has invested $300 million into its India venture. This takes the total infusion by Amazon into its India unit to $4.7 billion. Amazon is likely to touch gross merchandising of $11.5 billion during the current year and India remains the biggest market for Amazon, outside of the US. The e-commerce market in India is now divided across four major players viz. Amazon, Wal-Mart owned Flipkart, Paytm supported by Softbank and the Mukesh Ambani online retail venture. For 2017-18, Amazon reported revenues of Rs.4,928 crore and losses of Rs.6,287 crore.