Weekend Highlights – 5th July, 2015

World Bank Update Says 10 Countries Move Up in Income Bracket

The World Banks latest estimates of Gross National Income per capita (GNI) continue to show improved economic performance in many low-income countries, with Bangladesh, Kenya, Myanmar, and Tajikistan now becoming lower-middle income countries, joining those with annual incomes of $1,046 to $4,125. Mongolia and Paraguay move from lower middle-income status to upper middle-income, a group with yearly income levels of $4,126 to $12,735.

Beset by civil war and a national oil industry at a standstill, South Sudan has fallen out of the lower middle-income classification and back into low-income status, where average per capita incomes are $1,045 or less. The new GNI per capita rankings show that Maldives and Mongolia were the highest movers in the rankings – up 13 and 8 places, respectively. Oman and Timor-Leste fell most from their 2013 ranking – down 15 places for both.

People living in low-income countries continue to fall behind those in the upper per capita GNI brackets, while they earn and consume significantly less than much of the worlds population.

Malawi has the worlds lowest reported GNI per capita at $250, while Monaco has the highest, at more than $100,000 – more than 400 times more per person on average than Malawi. In 1990, Malawis GNI per capita was $180 – in 24 years its average per-capita income has increased by just $70. In the same period Norway, one of the worlds wealthiest countries, has seen its per capita income increase from $26,010 to $103,050, an increase of $77,040.

Some countries have also made remarkable progress. In 1990, Vietnam was a low-income country at the bottom of the rankings, with a GNI per capita of $130. Today, the country is reliably lower-middle income, with a GNI per capita of $1,890 – moving up more than 50 places in the rankings over the last 25 years.

The new World Bank figures also show that Argentina, Hungary, Seychelles, and Venezuela have now moved from the upper middle income category to high income, with average per capita income levels now of $12,736 or more.

Economy recovering, signs of capital investments picking up: RBI

The 552nd meeting of the Central Board of Reserve Bank of India was held on 02 July 2015 at Chennai. Dr. Raghuram G. Rajan, Governor, Reserve Bank of India chaired the meeting. Besides Deputy Governors Harun R. Khan, Dr. Urjit R. Patel, R. Gandhi and S.S.Mundra of the Reserve Bank of India, the other Directors of the Central Board of the Reserve Bank present at the meeting included Y.H. Malegam, Dr. Anil Kakodkar, Kiran Karnik, Dr.Nachiket Mor, Dr. Indira Rajaraman, and Y.C.Deveshwar.

Later addressing the press conference, the Governor stated that the Board reviewed the state of the economy. He said that the economy was recovering and there were signs of capital investments picking up. The Government was trying to put stalled projects back on track and the monsoon, thus far, was above normal. Exports were relatively weak but the weakness was seen across many countries and was more on account of global factors. The Governor said that the Reserve Bank will continue to do spade work for sustainable growth in the coming year.

The Governor, in response to a query from media said that Greece was an evolving situation. Direct exposure to Greece for India was limited as indicated by a few reports done by the Reserve Bank. Given, the risk of sentiments of global investors changing, there might be initial burst of volatility in financial markets, if there are untoward developments in Greece, after which discerning investors will be able to distinguish the Indias story which is of growth and stability. He also indicated that Our macro policies were good and we had enough buffers, including foreign exchange reserves to protect against any possible eventuality.

The Governor also announced that the Reserve Bank will put in place a regulatory framework to allow a new kind of Non-Banking Finance Company (NBFC), which could act as an account aggregator to enable the common man to see all his accounts across financial institutions in a common format. The idea of such an NBFC had emanated from the Financial Stability and Development Council (FSDC).

Digital India, an ambitious umbrella programme to transform India into a digitally empowered society.

Several initiatives have been taken for introduction of Information Technology to empower people. Some of the initiatives have resulted in development of products to extend various services in areas relating to health, education, labour and employment, commerce etc. The Prime Minister Shri Narendra Modi would launch the Digital India Week this evening urging people to gain knowledge and to empower themselves through the Digital India Programme of his Government.

Digital India has been envisioned as an ambitious umbrella programme to transform India into a digitally empowered society and knowledge economy. It comprises of various initiatives under the single programme each targeted to prepare India for becoming a knowledge economy and for bringing good governance to citizens through synchronized and co-ordinated engagement of the entire Government.

This programme has been envisaged and coordinated by the Department of Electronics and Information Technology (DeitY) in collaboration with various Central Ministries/Departments and State Governments. The Prime Minister as the Chairman of Monitoring Committee on Digital India, activities under the Digital India initiative is being carefully monitored. All the existing and ongoing e-Governance initiatives have been revamped to align them with the principles of Digital India.

The vision of Digital India programme also aims at inclusive growth in areas of electronic services, products, manufacturing and job opportunities etc. The vision of Digital India is centred on three key areas -

(i) Digital Infrastructure as a Utility to Every Citizen

(ii) Governance & Services on Demand and

(iii) Digital Empowerment of Citizens

Live Chat Event with Mayuresh Joshi – 2nd July, 2015

Dear All,

We regret the inconvenience caused to everyone yesterday who attended the live chat event on YouTube. Due to unforeseen technical difficulties, there were issues with audio and video experience.

We have always made it a point to check and test the technicalities involved before the event to ensure a smooth flow. However, due to things beyond our control, the event was interrupted. Despite this, we were able to work around and continue with our participants’ Q&A on chat.

Here are some excerpts from the Q&A session

Jitendra Barik: Could you please let us know about these shares please HPCL, BPCL, FSL, HSIL, Coal India, Alembic pharmaceuticals.

Mayuresh Joshi: Hi Jitendra….OMC companies have exhibited tremendous strength with inventory losses going down, debt levels reducing having a positive impact on interest costs and elimination of inventory losses…the implementation of marketing margins in terms of diesel shall have a positive effect on the eps in terms of sensitivity analysis

Santhosh Kumar: Andhra bank, Sail and nifty, Cipla, century text what will be the best position for short term or long term.

Mayuresh Joshi: The implementation of marketing margins in terms of diesel shall have a positive effect on the eps in terms of sensitivity analysis. Dishman looks very attractive in the pharma space along with Aurobindo on declines. Sail has done huge CAPEX and core realizations are still weak ..so return ratios wud get impacted…sail not at this point of time…let the commodity cycle show signs of revival

Lakshmi SPVM: What are the 5 best stocks talked about?

Mayuresh Joshi: Axis bank, Yes Bank, ICICI Bank, JK Cement and Mangalam Cement

Ajit Van: PSU banks real value to buy?

Mayuresh Joshi: PSU banks…attractive valuations but SBI remains preferred pick within the lot

Sagar Chatwani: Sir Gati and KPIT? As KPIT has fallen more than 50%, what can I do as I have bought KPIT at 140?

Mayuresh Joshi: Mid-cap IT has issued profit warnings and the client hit taken in the past qtr by KPIT and the commentary thereof means KPIT shall have issues in q1 and q2…

Kesarimal Oswal: what should be theory for intraday trading

Mayuresh Joshi: I am a fundamental analyst..albeit for intraday keeping strict stop losses wud be the key to minimize losses if any on the trade

Sagar Chatwani: And what about Gati?

Mayuresh Joshi: Within logistics transport corp is something I like for their asset light model…ROE  in excess of 13 percent and asset turnover in excess of 4.8 times

Sambhaji Pawar: Crompton greave or bajaj electricals ?? Ashok Leyland is a hold for mid or long term

Mayuresh Joshi: bajaj electricals is something I am bullish on…legacy order shud get resolved leading to margin improvement and decent order book and enhanced business outlook on the led. Ashok Leyland posted good numbers for the June qtr….mhcv holding well…lcv shud pick up steam….hold on to Ashok Leyland.Crompton shud show gradual improvement in Belgian and Hungarian units…the unlock of consumer durable business should unlock value…Crompton looks good.

Sauraeb Handigol: Hi Question from me 3 midcaps in Bank-IT-FMCG Sector?

Mayuresh Joshi: bank axis bank…IT HCL tech…FMCG  valuations expensive right now

We thank all participants for their patience during the event. We will continue our efforts to connect with you with more such webinars with our market experts.

Thanks again for being with us!

Tech Mahindra- Investor Update

This article has been authored by Ms. Sarabjit Kour Nangra.



Tech Mahindra- Investor Update:
Company indicated that in FY2016, organic communication growth which is the main domain of the company (~ 52% of sales in FY2015) could remain subdued due to delayed decision making, though the deal pipeline remains healthy. In the Enterprise business, which registered healthy organic growth in the year gone by. Management’s endeavour will be to grow Enterprise business in line or above Industry in FY2016.

For 1QFY2016, the company has indicated some headwinds and tailwinds, which could see of the risk of marginal decline in both revenue & EBDITA Margins on a sequential basis. Seasonally weak mobility business is expected to be a drag on the on the organic 1QFY2016 revenues and margins. H1B visa costs will be another drag on the margins. Favourable currency movements could help both revenue and Margins. However, the company has indicated that it has renewed focus on improving operational leverages and cost control parameters, however, the impact of the same would be visible only from 3QFY2016 onwards.

The company expects the improved performance, coming in through the 3QFY2016, thus an improved FY2017, both in terms of revenue visibility and profitability. Thus we maintain our numbers and target for FY2017, though FY2016 could be tweaked. Also after factoring in marginal improvement in the margins in FY2017, the stock is attractively valued. We have reduced the FY2016 sales and net profit numbers by 5% and 6% respectively. We maintain our buy with a price target of ₹646.

Weekend Highlishts – 27th June, 2015

Sebi eases IPO norms

SEBI Board took various decisions making IPO process easier. Highlights of the decisions taken are as follows:1. Streamlining process of public issues- Obviating the need to issue cheques:

Initial Public Offering (IPO) process streamlined to, reduce time period for listing of issues from T+12 days to T+6 days, increase reach of retail investors to access the IPO and reduce the cost of public issues. With this issuers will have faster access to the capital raised and investors will have early liquidity.

2. Simplified framework for capital raising by technological start-ups and other companies:

Enabling provisions approved for capital raising by technological start-ups and other companies through Institutional Trading Platform-Under the new norms now approved by the regulatory board, stock exchanges would have a separate institutional trading platform for listing of start-up s from the new age sectors, including e-commerce firms, while the minimum investment requirement would be Rs. 10 lakh.

3. Fast Track Issuances through FPOs or Rights Issue:

Requirement of market capitalization of public shareholding of the issuer for Fast Track Issues (FTI) reduced to Rs. 1000 crore in case of Follow on public offering (FPO) and Rs. 250 crore in case of rights issue. This will help more listed companies to raise further capital using fast track route.

4. Review of Offer for Sale (OFS) through stock exchange mechanism:

Changes proposed to encourage greater retail participation in OFS.

5. Reclassification of Promoters as Public:

A rationalised, simple framework put in place for reclassification of promoters as public. The proposed framework will bring in consistency and also enable investors to take informed decisions based on any such move by the company / promoters.

Bank credit growth flat at 9.8% for third straight month

The credit growth for Scheduled commercial banks (SCBs) has continued to moderate and flat for third straight month at 9.8% to Rs 66538.4 billion as on 12 June 2015 over a year earlier. The credit growth also remains in single digit for sixth straight month.Non-food credit, accounting for 98.2% of the share of the total credit, grew 9.8% to Rs 65369.8 billion as on 12 June 2015 as against a rise of 12.8% a year ago. The overall credit-deposit ratio declined to 75.9% as on 12 June 2015 from 77.2% a year ago, while improved from recent lows of 75.4% in April 2015.

Aggregate deposits of the scheduled banks increased 11.7% to Rs 87664.6 billion as on 12 June, compared with 11.7% increase a year ago. The deposits growth touched historic low levels of 11.4% in FY2015, while it continues to hover in the range of 11-13% for last thirteen sequential months. The time deposits moved up 11.8% at Rs 79700.4 billion, while demand deposits increased 10.4% to Rs 7964.3 billion as 12 June 2015 over a year ago.

Banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio (SLR) increased 15.7% to Rs 26384.9 billion as on 12 June 2015 over a year ago, showing acceleration in the pace of growth from 7% growth in June 2014. The investment-deposit ratio increased to 30.1% as on 12 June 2015, compared with 28.9% a year ago. The investment-deposit ratio remains much higher above the statutory liquidity ratio of 21.5%.

Financial inclusion continues to gather pace: CRISIL

CRISIL released updated scores for CRISIL Inclusix, an index that measures financial inclusion up to the level of each of the 652 districts in India. The index is based not only on the latest data (March 2013) provided by the Reserve Bank of India (RBI), but also for the first time includes the contribution of microfinance institutions (MFIs) with effect from fiscal 2013. Data on MFIs was provided by the Micro Finance Institution Network (MFIN), the self-regulatory body recognised by the RBI.Continued progress in banking services and addition of MFI data helped CRISIL Inclusix register a score of 50.1 at the end of fiscal 2013. The index stood at 42.8* at the end of fiscal 2012.

MFIs play a key role in financial inclusion by lending to the poor in deep hinterland. They boost the credit penetration score, bringing it closer to the two other dimensions of financial inclusion – branch penetration and deposit penetration. Says Raman Uberoi, President, Corporate Affairs, CRISIL: n++With the incorporation of MFI data, CRISIL Inclusix now better represents the ground-level picture of financial inclusion in India.n++ The indexs scalable and modular architecture facilitated the inclusion of MFI data.

The highlights of Indias financial inclusion march in fiscal 2013 are:

1. Banking services continues to gain ground, with the number of savings accounts and bank branches registering their fastest growth in 4 years

2. Deposit penetration remains the key driver of financial inclusion

3. MFIs have helped underpenetrated regions of east and north-east to play catch-up with north.

4. Among states, West Bengal benefited the most because of the presence of large MFIs, while Jammu & Kashmir improved substantially as credit accounts surged. Tamil Nadu moved into the top three for the first time driven by an increase in deposits

5. In as many as nine districts, CRISIL Inclusix hit the maximum score of 100

Overall, however, basic financial services remains underpenetrated. One-third Indians did not have a bank savings account at the end of fiscal 2013, while only one in seven had access to credit.

Alembic Pharmaceuticals: Gets tentative approval from USFDA for Celecoxib

Alembic Pharmaceuticals: Gets tentative approval from USFDA for Celecoxib: Alembic Pharmaceuticals got tentative approval from US Food and Drug Administration (USFDA) for its generic anti-inflammatory drug Celecoxib oral capsules, 50 mg, 100mg, 200 mg, 400 mg. GD Searle LLC division of Pfizer Inc is the innovator of this drug. Companies like Teva, Mylan, Watson, Lupin and Apotex have been selling Celecoxib drug, which is one of Pfizer’s billion dollar drugs and has a US$2bn size. Through the drug is tentatively approved and already being sold by many competitors, we believe the drug can contribute to the overall sales of the company given the size of the company, when approved. We retain our numbers and neutral rating on the stock.

Views on Tech Mahindra and Circle Health sign 10-year strategic deal

The views of Ms. Sarabjit Kour Nangra (VP Research – IT, Angel Broking)

Tech Mahindra and Circle Health sign 10-year strategic deal:

Tech Mahindra announced that it has been selected by Circle Health after a competitive procurement process to become their chosen technology partner for the next 10 years. The project will be delivered by nth Dimension, a newly formed wholly-owned subsidiary of Tech Mahindra in the United Kingdom. The deal was signed today and is worth a projected £50mn (US $80mn) over the 10 years. The news is positive for the company has it will further augment its Healthcare business. Under the new deal, Tech Mahindra, which gets about 10% of its sales from healthcare clients now will develop technologies for patient care and operational delivery and also reduce costs for the UK firm. We maintain our BUY with a price target of ₹683.

NPPA Update

NPPA update- In has been reported that in its continued effort to make companies adhere to practices, the drug price regulator National Pharmaceutical Pricing Authority (NPPA) has asked 19 out of 100 companies to register for online database, failing which they have to appear in person before the NPPA member secretary with a valid reason for not doing so.

Amongst the 19 companies include Wockhardt, Ipca Laboratories, British Biological, Danone, Dabur India, Indoco Remedies and Alkem Laboratories. Last September, the NPPA had asked all pharma companies to register online with Integrated Pharmaceutical Database Management System (IPDMS).

In a notification in September, 2014, the price regulator had said that availability of reliable database was a necessary pre-requisite for carrying out the functions of price fixation and price revision in respect of scheduled drugs, price fixation in respect of new drugs. It was also needed for monitoring the production and availability of scheduled formulations and the active pharmaceutical ingredients contained in the scheduled formulations and monitoring the prices of non-scheduled formulations. With the transition from DPCO 1995, which followed cost-based mechanism for price fixation, to the DPCO 2013, which follows market-based mechanism for price fixation, reference data and source of market-based data has assumed critical importance. Hence the initiative and directive.

We believe that such issues do crop up, when new initiatives are taken; however given the importance of the initiatives we believe the companies will have to comply with the same. Hence, we don’t see this as nay negative for the companies or Industry and maintain our recommendations, with Dr Reddys, IPCA Lab and Sun Pharma being our Top picks for the sector.

Aurobindo Pharma gets USFDA approval for Azithromycin

Aurobindo Pharma- gets USFDA approval for Azithromycin: Aurobindo Pharma has received final approvals from the US Food & Drug Administration (USFDA) to manufacture and market Azithromycin for Injection USP, 500mg /vial (ANDA 203294). Azithromycin for Injection USP, 500mg /vial is bioequivalent and therapeutically equivalent to the reference listed drug product (RLD) Zithromax® (Azithromycin for Injection) 500mg/vial of Pfizer, Inc. Azithromycin for injection, USP is a macrolide antibacterial drug indicated for the treatment of patients with infections caused by susceptible strains of the designated microorganisms in the conditions such as Community-Acquired Pneumonia and Pelvic Inflammatory Disease. We maintain our buy with a price target of  ₹1654.

Weekend Highlights – 13th June, 2015

Countries support Indias labour inspection reforms

The emphasis of the government is on quality and effectiveness of the labour inspection system rather than mere numbers. We want to bring in an efficient system of compliance for labour legislation with the help of information technology. This was stated by Shri Shankar Aggarwal, Secretary, Labour and Employment, Govt of India in the 104th International Labour Conference in Geneva. Responding to the observations of the Committee of Experts on Application of Conventions and Recommendations, he said that Government of India has taken a major good governance initiative to avoid malpractices in labour inspections. He reiterated that the rights of the inspection authority have not been curtailed at all. The phrase end of Inspector Raj does not mean end of inspection system but ending malpractices and arbitrariness in the current inspection system. Ministry of Labour and Employment is mandated to safeguard the interest of working class while promoting a conducive working environment for inclusive growth and industrial harmony. We are one of the fastest growing nations with the largest proportion of youth population. Therefore, creation of decent employment for all is the top priority for the government. This means that all avoidable transaction costs and in-efficiencies must be eliminated. Review and updating of labour laws is a continuous process in order to bring them in tune with the emerging needs of globalised and knowledge-based economy.

MoU Between Indian Army and Punjab National Bank

On 09th June 2015, a Memorandum of Understanding (MoU) was signed between the Indian Army and Punjab National Bank (PNB) on the Defence Salary Package.The first MoU between PNB and the Indian Army was signed in 2011 and was valid for a period of three years. The MoU is tailor made to suit the requirements of serving soldiers, pensioners and families. Number of additional facilities have been incorporated in the revised MoU after due consultation between Bank & Army authorities. Speaking on the occasion Lt Gen Sharma expressed confidence that the MoU will benefit a large number of serving and retired Army personnel who are having their accounts with PNB; and also provide them an opportunity to access modern banking facilities.

The basic features of the earlier MoU have been retained which includes the standard package of services including free drafts, cheque books, funds transfers to any bank in India through RTGS / NEFT, ATM cards etc.

Some features which have been improved from the previous MoU are that the Personal Accidental Insurance(PAI) cover has been extended to Rs 2 lacs and Rs 5 lacs from Rs 50,000/- and Rs 2 lacs respectively. Two major additions are the applicability of PAI and overdraft facility to pensioners and PAI cover for deaths occurring in the course of any active Army Operations. The MoU also has a provision for yearly review of specific features and requests.

Only Air-Conditioned or Air-Heated Restaurants to Pay Service Tax

At present, Service Tax is chargeable on services provided by restaurants, eating-joints or messes which have the facility of air-conditioning or central air-heating in any part of the establishment at any time during the year in relation to serving of food or beverages. Restaurants, eating-joints or messes which do not have the facility of air-conditioning or central air-heating in any part of the establishment are exempt from service tax. In other words, only air-conditioned or air-heated restaurants are required to pay Service Tax.In respect of such air-conditioned or air-heated restaurants which are required to pay Service Tax, 60% of the value is to be deducted from the total amount charged while applying the rate of Service Tax and tax is to be calculated on the balance 40%. With the increase in the rate of Service Tax to 14% (subsuming the Education Cesses) with effect from 1.6.2015, the effective rate of tax will be 5.6% of the total amount charged. Prior to 1.6.2015, when the rate of Service Tax was 12.36% (including Education Cesses), the effective rate was 4.94%.

Weekend Highlights – 6th June, 2015

Ministry of Coal has announced auction of ten (10) coal mines in the third tranche.

The Ministry has issued instructions to the Nominated Authority to conduct the auctions for these ten mines classified for Iron & Steel, Cement and Captive Power Plant sector.

The details of the coal mines to be e-auctioned in the third tranche are as follows:

Auction of Ten Coal Mines – Third Tranche Announced

SI.No Name of the Coal Mine (State) Status of Exploration (Explored/Unexplored/ Regionally Explored / Partially Explored) Geological / Extractable Reserves (In Million Tonne) Peak rated capacity(Million Tonnes per annum)
Schedule -II
1 MarkiMangli-I (Maharashtra) Explored 24.26 / 9.96 0.30
2 Parbatpur-Central (Jharkhand) Explored 235.71 / 52.16 1.24
Schedule -III
3 Dongri Tal – II (MP) Explored 43.27 / 37.98 2.90
4 KosarDongergaon (Maharashtra) Explored 22.63 / 5.25 0.30
5 Margi Mangli-IV (Maharashtra) Explored 3.42 / 3.04 0.20
6 Majra (Maharashtra) Explored 31 / 14.92 0.48
7 Chitarpur (Jharkhand) Explored 222.41 / 61.155 3.45
8 Bhaskarpara (Chhattisgarh) Explored 46.9 / 24.06 1.00
9 Sondiha (Chhattisgarh) Explored 50.18 / 32.74 1.00
10 Jamkhani (Odisha) Explored 178.41 / 114.98 2.60
858.19 /356.245 13.47

The Notice Inviting Tender (NIT) will be issued on 08th June, 2015. The e-Auctions for these mines will be held from 11th August, 2015 to 17th August, 2015.

BSNL to Launch Free Roaming From 15 June, 2015

Ministry of Communications & IT was in the news in the past unfortunately for the wrong reasons for a variety of factors. After the new Government took over, it was important to create optimism and confidence to generate hope for growth-these are the opening statement of Sh. Ravi Shankar Prasad, Minister of Communication & IT at the press conference on one year performance.He further said: This, in return, required transparency, good governance and faster decision-making. By the collective effort of all, we can say with assurance that all these elements have become integral to decision making and policy formulation which has created a conducive atmosphere for investment and growth.

RBI cuts repo rate by 25 bps

The Reserve Bank of India (RBI) has announced the second bi-monthly monetary policy review, announcing the reduction in repo rate by 25 bps to 7.25%.Highlights

* Reduce repo rate by 25 bps to 7.25%

* CRR unchanged at 4.0%

Assessment

* Global recovery is still slow and getting increasingly differentiated across regions.

* Global financial markets have also been volatile, with risk-on risk-off shifts induced by changing perceptions of monetary policies in the advanced economies.

* Global currency markets continue to be dominated by the strength of the US dollar

* CSO has revised downwards estimate of Indias gross value added (GVA) for 2014-15 by 30 bps from the advance estimates.

* Domestic economic activity remains moderate in Q1 of 2015-16.

* Unseasonal rains impacted estimated 94 lakh hectares of area sown under the rabi crop, third advance estimates indicate at a contraction in foodgrains production by more than 5% in relation to the preceding years level.

* India Meteorological Department (IMD), predicting that the southwest monsoon will be 7% below the long period average.

* Industrial production has been recovering, albeit unevenly.

* The sustained weakness of consumption spending,

* Corporate sales have contracted.

* Capacity utilization has been falling in several industries, indicative of the slack in the economy.

* While an upturn in capital goods production seems underway

* Leading indicators of services sector activity are emitting mixed signals.

* Reduction in the current account deficit resulting from the sharp decline in oil prices has begun to reverse, though the size of the deficit is expected to be contained to about 1.5% of GDP this year.

* 2015-16 has begun with net portfolio outflows in the wake of a reduction in global portfolio allocations to India.

* Foreign exchange reserves are around US$ 350 billion, providing a strong second line of defence to good macroeconomic policies if external markets turn significantly volatile.

Policy Stance and Rationale

* Banks passing past rate cuts, inflation along the projected path, moderate impact of unseasonal rains, muted administered price, and the timing of normalisation of US monetary policy seems to have been pushed back.

* With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today.

* Risks to inflation: IMD predicting a below-normal southwest monsoon, firming up crude prices, and geo-political risks are ever present.

* With still weak investment and the need to reduce supply constraints, a more appropriate stance is to front-load a rate cut.

* Meanwhile banks should pass through the sequence of rate cuts into lending rates.

Projections

* Inflation to be pulled down by base effects till August but to start rising thereafter to about 6.0% by January 2016. IMDs weak monsoon projection and increases in the service tax rate to 14%, the risks to the central trajectory are tilted to the upside.

* Projection for output growth for 2015-16 marked down from 7.8% in April to 7.6% with a downward bias to reflect the uncertainties surrounding these various risks.

* Next policy on 04 August 2015.

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