Money Morning….


RBI monetary policy neutral to marginally hawkish- Keeps Repo rate and CRR unchanged at 8% and 4% respectively; Cuts SLR by 50 bps to 22% and reduces the ceiling of HTM investment to 24%

The Repo rate and CRR were kept unchanged at 8% and 4% respectively while SLR was cut by 50 bps to 22% which will release Rs. 400 bn of liquidity. Similarly, the ceiling of bank’s total holding of SLR securities in HTM category was cut from 24.5% to 24%. RBI has reduced the SLR requirement to provide liquidity to banks as and when credit growth picks up from the medium term perspective.

The tone of RBI was marginally more hawkish in this monetary policy as it emphasized on the inflation target of 6% by January 2016. Overall, we believe the G-sec yields are likely to stay sticky at elevated level as cut in SLR requirement may lead to excess market borrowing by government. RBI is comfortable with CPI inflation of 8% by January 2015 and 6% by January 2016. The last reading of CPI inflation was 7.3%. The next couple of readings of CPI inflation remains the key to guide the future policy action. We expect interest rate cut to begin in Q4FY15.

Crompton announces muted set of results; Management commentary positive though. Accumulate from medium to long term perspective.

Crompton Greaves(CG) standalone sales increased by 3.5% YoY to ~Rs.19.0bn while its operating margin improved by 300bps YoY to 9%. CG reported a PAT of ~1.3bn which grew by a mere 1.5% YoY led by higher depreciation and higher interest costs YoY. The results were below street estimated led by lower growth in the industrial segment; however power systems and consumer durables systems witnessed strong growth.

Management expects the power systems and industrial segment to recover going forward and also expects its international subsidiaries to improve operationally and reduce the losses going forward. The results were announced during market hours yesterday and have already factored in majority of the negatives and hence we recommend investors to “Accumulate” the stock from medium to long term perspective.

RBI Leaves Key Rates Unchanged; Cuts SLR By 50 Bps

India’s central bank retained its key interest rates unchanged, as widely expected, with policymakers awaiting more signs to confirm that inflation shifted into downward trend. The bank reduced the proportion of deposits that banks should invest in bonds in order to prop up lending to productive sectors. The repo rate was maintained at 8.00% and reverse repo rate at 7.00% for the third straight policy meeting. The rate has been raised by 75 bps since last September.

PMI services growth slows in July

Growth in services slowed in July compared with a 17-month high in June. Both orders and sentiment moderated, the widely-tracked HSBC PMI survey showed. However, prices rose at a faster rate over the period, justifying the RBI’s cautious stance on interest rates. The PMI stood at 52.2 points in July against 54.4 in the previous month. The July reading was an expansion in services for a third month in a row, after the tertiary sector contracted for 10 consecutive months.

U.S. Factory Orders Jump 1.1% In June, Much More Than Expected

After reporting a drop in new orders for U.S. manufactured goods in the previous month, factory orders rebounded by much more than expected in the month of June. The factory orders jumped by 1.1% in June following a revised 0.6% decrease in May. Economists had been expecting orders to increase by about 0.6% compared to the 0.5% drop originally reported for the previous month.

U.S. Service Sector Expands At Notably Faster Rate In July

Activity in the U.S. service sector expanded at a notably faster rate in the month of July. The ISM said its non-manufacturing index climbed to 58.7 in July from 56.0 in June. Economists had been expecting the index to edge up to a reading of 56.5.

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