MONETARY POLICY : ONE MORE RATE CUT, BUT STANCE STILL NEUTRAL
As widely expected the RBI, in its first bi-monthly monetary policy reduced the repo rate by 25bps. The revised repo rate now stands at 6% from earlier 6.25% and consecutively the reverse repo rate stands reduced to 5.75%. The MSF rate stands at 6.25%. The MPC has however maintained a “Neutral” stance as against the market expectations of an accommodative stance. The decision to reduce the repo rate was favored by 4 out of 6 members of the monetary policy committee. However, the members were more inclined to keep a policy stance as “Neutral” with a ratio of 5:1. The key takeaways are as below:
INFLATION OUTLOOK
Consumer Price Inflation commonly referred to as retail inflation has been quite muted for the past few quarters, mostly on account of deflation in food prices. The CFPI has declined significantly causing retail inflation prints to collapse. Although the pace of deflation in food prices has comedown, the broad trajectory remains in negative as of now. However, the committee feels that there is risk of an abrupt reversal in vegetable prices, especially during the summer months due to possible “El Nino” effects in 2019.
KEY INFLATION PARAMETERS
The committee also feels that the short term outlook for food inflation remains benign, but there are several uncertainties that cloud the inflation outlook such as the trend in fuel prices globally, trade tensions and its impact on global demand, OPECs position on production cuts, core inflation remaining at elevated levels, fiscal position, etc. Keeping in view the comfortable position at the current juncture, the path of CPI inflation is revised downwards to 2.4 per cent in Q4:2018-19, 2.9-3.0 per cent in H1:2019-20 and 3.5-3.8 per cent in H2:2019-20, with risks broadly balanced.
LIQUIDITY POSITION
Average liquidity in the system has remained in deficit for most part of the second half of the financial year. In order to infuse liquidity in the system the RBI conducted several OMOs (Open Market Operations -Purchases). RBI infused liquidity to the tune of nearly 3lakh crores through OMO purchases. The liquidity crunch accentuated in the market post the NBFC crises apart from the usual reasons such as the high currency in demand and impact of interventions in the forex market. The RBI employed a new tool of forex swap to infuse more liquidity in the banking system. The Reserve Bank conducted long-term foreign exchange buy/sell swaps of US$ 5 billion for a tenor of 3 years on March 26, 2019, thereby injecting durable liquidity of ₹34,561 crore (₹346 billion) into the system.
The MPC remains determined to manage liquidity in the banking system through different tools. The RBI in its Statement on Developmental and Regulatory Policies made changes in the LCR. The MPC decided to permit banks to reckon an additional 2.0 percent of Government securities within the mandatory SLR requirement, as FALLCR for the purpose of computing LCR, in a phased manner, i.e 0.5% addition each quarter till Apr 2020. This regulatory change will free more liquidity for the banking system on a gradually basis but would also reduce the demand for government securities, considering its will be carved out from the SLR requirements.
LIQUIDITY ADJUSTMENT FACILITY (in crs.)
ECONOMIC GROWTH
The monetary policy committee feels that there are signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods. The moderation of growth in the global economy might impact India’s exports. With high public spending in rural areas and an increase in disposable incomes of households due to tax benefits, the rural consumption is expected to help the rural part of the growth. Certain high frequency indicators of industry, such as IIP, core industries growth, etc., points to tepid growth. High frequency indicators of the services sector also suggest significant moderation in activity. Taking into consideration the above factors, the GDP growth for 2019-20 is revised downwards to 7.2 per cent from an earlier projection of 7.4%, i.e. 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 – with risks evenly balanced.
VIEW
As the street expectations were already running high for a rate cut, the bond markets was already pricing it in the curve. But the relief to the banks on the LCR front seems to have played a spoil sport, which apparently reduces the demand for government securities by the banks. The 10 year benchmark government security yield rose by 8bps post the policy. Moreover an already high government borrowing programme continues to instill concerns for the bond investors. However, the gradual positioning of policy stance towards growth, amidst ample leg from inflation front provides a positive setup for the debt markets. The longer end of the yield curve may continue to bear the pain of fiscal pressures and heightened borrowing, but the shot to medium end of the curve provides good opportunity of investment. The right funds in this section would be good quality short term and medium term funds. Exposure can also be considered in Banking & PSU Debt Funds from a quality and duration perspective. Investors are advised to take a cautious stance toward credit risk funds and invest only as per risk appetite. Investments in high yield good quality bonds and NCDs can also be considered to enhance the overall yield of the portfolio. A mix of good quality debt funds, credit risk funds, tax free bonds, FMPs, NCDs, etc., would be ideal for a moderate risk investor.
Disclaimer: The information provided herein, we believe, is from reliable sources. IndiaNivesh is not liable for the accuracy of the source data as well as the results of the calculations based on the same. We do not claim that the data provided herein is accurate and complete in all respects. This is not an offer or solicitation of any offer to buy or sell securities. No action is intended to be taken by the recipients based on this document. The recipients may take their decisions based on their own judgement and independent advice that they may receive before making any investment or disinvestment decisions. The recipients are advised not to take any decision only on the basis of this document. No portion of this document should be printed, reprinted, redistributed, reproduced, duplicated or sold.
Posted by Mehul Kothari | Published on 12-APR-2019
MARKET RECAP KEY MARKET DATA POINTS
It was sixth consecutive session where the domestic markets remained stuck in a band in the absence of any fresh triggers. The index Nifty spot, oscillated in a narrow band of 50 points to close extremely flat below the 11600 mark. Meanwhile, the Nifty Bank index too ended marginally in red.
The positive market breadth turned in the favour of declining counters as the day progressed which indicates broad based selling. On the sectoral front, NIFTY AUTO (+0.53%) and NIFTY FMCG (+0.52%) stocks managed to close in green. From the losers, NIFTY METAL (-1.22%) and NIFTY IT (-0.78%) stocks remained under pressure. From the F&O space, MANAPPURAM (+6.22%), MFSL (4.73%), and ADANIPOWER (+3.85%) were the biggest gainers.
MARKET OUTLOOK
NIFTY HOURLY CHART
Previously we discussed that on the hourly chart, we are witnessing that the index Nifty is stuck inside a channel as displayed above. A breakout from the same will get confirmed above 10710. On Wednesday Nifty tried its best for a breakout but failed and that resulted in a selling towards the lower band. During yesterday’s session Nifty retested the lower band by registering low of 11550 and closed higher. Hence, we continue to mention that only a sustainable move above 11685 (earlier 11710) or below 11550 might dictate the further trend.
A sustainable move above 11685 might bring in some optimism in the markets which could result in further upside towards 11760 - 11900. However, breach of 11550 might drag the index towards 11500 - 11450 mark. Traders are advised to avoid over leveraged positions and maintain strict stop loss on positional trades since the markets are now entering the phase of general election wherein we might observe surge in volatility.
Disclaimer)
Posted by Mehul Kothari | Published on 18-APR-2019
If one wishes to invest or trade in the stock market, there are two types of accounts that need to be opened. These accounts are demat and trading account. These two accounts are different in their uses but both are necessary for investing in the stock market.
What is trading account?
In earlier times, trades used to take place between brokers who acted on behalf of their clients. These trades used to happen on an open floor and brokers used to call out the prices of their orders. When two brokers found the right price for their orders, they would transfer the share certificates and the funds and the transaction would get complete. With the digital revolution and online trading, the open outcry method for transacting has become completely obsolete. With all the stock exchanges going completely online, these manual trades by brokers has been replaced by online trading through the trading account. Read more about online share trading here.
The trading account is an account used to purchase and sell –
1. Equity shares2. Equity, Debt and Hybrid mutual funds3. Bonds4. Government securities5. Derivatives6. Commodities7. Currencies8. ETFs9. Other instruments traded on the stock exchange
Using a trading account to buy and sell is extremely simple. Each broker offers their own trading system through their website or mobile application. These trading systems are connected to the stock market’s proprietary online systems. This offers a price matching system. An investor or trader just has to put in his order request and when the system matches the price and quantity for the order, the order gets executed. This order matching system provides seamless execution of transactions without any human intervention.
The trading account is basically a link between your demat account and the exchange’s order matching system. Once the trades get cleared at the exchange, the shares or other instruments are debited and credited from the respective demat accounts.
The trading account makes it extremely simple to buy and sell any investment. Since most of the investments are listed on the exchange, price discovery is easy and transparent. All you need to do is select the instrument you want to purchase and the price, and the exchange’s order matching system will ensure the transaction goes through.
Brokers charge brokerage for transactions executed through the trading account. Along with that, there are exchange fees and securities transaction tax that is levied on each transaction.
What is demat account?
A demat account is an electronic record or repository of the financial instruments owned by an investor or trader. It shows the different investments made, the date of purchase, the price at which it was purchased and the current market price. This account allows the investor to hold shares and securities in an online form. Physical securities held by a person can be dematerialised into their electronic form and held in the demat account. One of the primary advantage of a demat account is that your shares are safe. Shares in their physical form can get damaged or lost. But shares in your demat account are safe and you don’t need to fear losing them.
A demat account, like any other account, lets you easily scan all the transactions. A demat account will show the current market value of all investments held in that account as on a particular date. It also shows whether a share is partly paid up or fully paid up, thus providing clarity to the investor. However, unlike a bank account, a demat account can have zero shares or securities and still be functional.
A demat account is a very convenient way to handle all investments. Unlike earlier times where all securities were in physical form, a demat account holds everything in electronic form. This makes it very convenient to handle and operate.
A demat account offers all facilities like a normal bank account such as nomination facility, joint accounts, change in name and address etc. A bank account is usually linked to a demat account, which makes it easy for dividends and interest to get credited to the investor’s account directly. Read more about a Demat account here.
Trading account vs demat account
The difference between trading account and demat account is simple, a demat account is an online account for storing shares and securities. A trading account is an account for purchases and sales of investments.
A trading account inherently has no balance. It draws from the demat account once the purchase or sale transaction has gone through from the exchange’s side. A trading account also cannot exist in isolation. It has to be linked to a demat account from which the required shares or securities can be debited or credited.
A demat account can exist without having a trading account. An investor can just invest in IPOs or Mutual Funds through a broker and hold these units in his demat account. However, to sell these units, a trading account will be needed.
The difference between demat and trading account is very fine. However, it is essential to know how these two accounts operate and what their nature is. This understanding will help you open these accounts and get started with your investments.
How to open a trading account:
1. Select a broker of your choice like IndiaNivesh Securities Ltd. Bear in mind that each transaction requires a certain brokerage so be sure to research about the different brokerage rates for both delivery based trades and intraday trades. 2. Check the services offered by each broker. Make sure you choose a broker who provides extensive customer support, especially if you are a beginner. A good broker who provides detailed research reports could be the difference between earning profits and earning wealth. 3. Fill in the account opening form and provide the mandatory KYC details. If you have a demat account with the same broker, the KYC details may be exempted, but that depends on the broker. Some of the KYC documents required are:a. Identity proof (Aadhar Card, Passport, Voter ID, Driving License, PAN card)b. Address proof (Aadhar Card, Passport, Voter Id, Driving License, Electricity bill, Gas bill, Telephone bill, Rental agreement, Loan agreement)You will need to submit a proof of income i.e bank statements, income tax returns, Form 16 etc.
4. You will also need to submit passport size photographs. 5. Some brokers request a verification check and witnesses while filling up the account opening form6. Once the broker processes your application, you will get details about your trading account7. You also need to link your bank account to your trading account so that funds received from a sale can be credited into the bank account. 8. Once you receive these details, you can start trading.
However, before you execute any trades, you must know where you are investing and what your investment strategy is. Without knowing this, it is very easy to lose money in the stock market, especially while engaging in intraday trades which is susceptible to price fluctuations. Now that you know the difference between these accounts, why not open a demat and trading account with a reputed broker like IndiaNivesh Securities Ltd.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.)
Retail Inflation Rises slightly for March in India
MONETARY POLICY : ONE MORE RATE CUT, BUT STANCE STILL NEUTRAL
As widely expected the RBI, in its first bi-monthly monetary policy reduced the repo rate by 25bps. The revised repo rate now stands at 6% from earlier 6.25% and consecutively the reverse repo rate stands reduced to 5.75%. The MSF rate stands at 6.25%. The MPC has however maintained a “Neutral” stance as against the market expectations of an accommodative stance. The decision to reduce the repo rate was favored by 4 out of 6 members of the monetary policy committee. However, the members were more inclined to keep a policy stance as “Neutral” with a ratio of 5:1. The key takeaways are as below:
INFLATION OUTLOOK
Consumer Price Inflation commonly referred to as retail inflation has been quite muted for the past few quarters, mostly on account of deflation in food prices. The CFPI has declined significantly causing retail inflation prints to collapse. Although the pace of deflation in food prices has comedown, the broad trajectory remains in negative as of now. However, the committee feels that there is risk of an abrupt reversal in vegetable prices, especially during the summer months due to possible “El Nino” effects in 2019.
KEY INFLATION PARAMETERS
The committee also feels that the short term outlook for food inflation remains benign, but there are several uncertainties that cloud the inflation outlook such as the trend in fuel prices globally, trade tensions and its impact on global demand, OPECs position on production cuts, core inflation remaining at elevated levels, fiscal position, etc. Keeping in view the comfortable position at the current juncture, the path of CPI inflation is revised downwards to 2.4 per cent in Q4:2018-19, 2.9-3.0 per cent in H1:2019-20 and 3.5-3.8 per cent in H2:2019-20, with risks broadly balanced.
LIQUIDITY POSITION
Average liquidity in the system has remained in deficit for most part of the second half of the financial year. In order to infuse liquidity in the system the RBI conducted several OMOs (Open Market Operations -Purchases). RBI infused liquidity to the tune of nearly 3lakh crores through OMO purchases. The liquidity crunch accentuated in the market post the NBFC crises apart from the usual reasons such as the high currency in demand and impact of interventions in the forex market. The RBI employed a new tool of forex swap to infuse more liquidity in the banking system. The Reserve Bank conducted long-term foreign exchange buy/sell swaps of US$ 5 billion for a tenor of 3 years on March 26, 2019, thereby injecting durable liquidity of ₹34,561 crore (₹346 billion) into the system.
The MPC remains determined to manage liquidity in the banking system through different tools. The RBI in its Statement on Developmental and Regulatory Policies made changes in the LCR. The MPC decided to permit banks to reckon an additional 2.0 percent of Government securities within the mandatory SLR requirement, as FALLCR for the purpose of computing LCR, in a phased manner, i.e 0.5% addition each quarter till Apr 2020. This regulatory change will free more liquidity for the banking system on a gradually basis but would also reduce the demand for government securities, considering its will be carved out from the SLR requirements.
LIQUIDITY ADJUSTMENT FACILITY (in crs.)
ECONOMIC GROWTH
The monetary policy committee feels that there are signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods. The moderation of growth in the global economy might impact India’s exports. With high public spending in rural areas and an increase in disposable incomes of households due to tax benefits, the rural consumption is expected to help the rural part of the growth. Certain high frequency indicators of industry, such as IIP, core industries growth, etc., points to tepid growth. High frequency indicators of the services sector also suggest significant moderation in activity. Taking into consideration the above factors, the GDP growth for 2019-20 is revised downwards to 7.2 per cent from an earlier projection of 7.4%, i.e. 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 – with risks evenly balanced.
VIEW
As the street expectations were already running high for a rate cut, the bond markets was already pricing it in the curve. But the relief to the banks on the LCR front seems to have played a spoil sport, which apparently reduces the demand for government securities by the banks. The 10 year benchmark government security yield rose by 8bps post the policy. Moreover an already high government borrowing programme continues to instill concerns for the bond investors. However, the gradual positioning of policy stance towards growth, amidst ample leg from inflation front provides a positive setup for the debt markets. The longer end of the yield curve may continue to bear the pain of fiscal pressures and heightened borrowing, but the shot to medium end of the curve provides good opportunity of investment. The right funds in this section would be good quality short term and medium term funds. Exposure can also be considered in Banking & PSU Debt Funds from a quality and duration perspective. Investors are advised to take a cautious stance toward credit risk funds and invest only as per risk appetite. Investments in high yield good quality bonds and NCDs can also be considered to enhance the overall yield of the portfolio. A mix of good quality debt funds, credit risk funds, tax free bonds, FMPs, NCDs, etc., would be ideal for a moderate risk investor.
Disclaimer: The information provided herein, we believe, is from reliable sources. IndiaNivesh is not liable for the accuracy of the source data as well as the results of the calculations based on the same. We do not claim that the data provided herein is accurate and complete in all respects. This is not an offer or solicitation of any offer to buy or sell securities. No action is intended to be taken by the recipients based on this document. The recipients may take their decisions based on their own judgement and independent advice that they may receive before making any investment or disinvestment decisions. The recipients are advised not to take any decision only on the basis of this document. No portion of this document should be printed, reprinted, redistributed, reproduced, duplicated or sold.
Previous Story
Share Market Today - 12th April 2019
MARKET RECAP KEY MARKET DATA POINTS It was sixth consecutive session where the domestic markets remained stuck in a band in the absence of any fresh triggers. The index Nifty spot, oscillated in a narrow band of 50 points to close extremely flat below the 11600 mark. Meanwhile, the Nifty Bank index too ended marginally in red. The positive market breadth turned in the favour of declining counters as the day progressed which indicates broad based selling. On the sectoral front, NIFTY AUTO (+0.53%) and NIFTY FMCG (+0.52%) stocks managed to close in green. From the losers, NIFTY METAL (-1.22%) and NIFTY IT (-0.78%) stocks remained under pressure. From the F&O space, MANAPPURAM (+6.22%), MFSL (4.73%), and ADANIPOWER (+3.85%) were the biggest gainers. MARKET OUTLOOK NIFTY HOURLY CHART Previously we discussed that on the hourly chart, we are witnessing that the index Nifty is stuck inside a channel as displayed above. A breakout from the same will get confirmed above 10710. On Wednesday Nifty tried its best for a breakout but failed and that resulted in a selling towards the lower band. During yesterday’s session Nifty retested the lower band by registering low of 11550 and closed higher. Hence, we continue to mention that only a sustainable move above 11685 (earlier 11710) or below 11550 might dictate the further trend. A sustainable move above 11685 might bring in some optimism in the markets which could result in further upside towards 11760 - 11900. However, breach of 11550 might drag the index towards 11500 - 11450 mark. Traders are advised to avoid over leveraged positions and maintain strict stop loss on positional trades since the markets are now entering the phase of general election wherein we might observe surge in volatility. Disclaimer)
Next Story
Know the difference between Demat Account and Trading Account
If one wishes to invest or trade in the stock market, there are two types of accounts that need to be opened. These accounts are demat and trading account. These two accounts are different in their uses but both are necessary for investing in the stock market. What is trading account? In earlier times, trades used to take place between brokers who acted on behalf of their clients. These trades used to happen on an open floor and brokers used to call out the prices of their orders. When two brokers found the right price for their orders, they would transfer the share certificates and the funds and the transaction would get complete. With the digital revolution and online trading, the open outcry method for transacting has become completely obsolete. With all the stock exchanges going completely online, these manual trades by brokers has been replaced by online trading through the trading account. Read more about online share trading here. The trading account is an account used to purchase and sell – 1. Equity shares2. Equity, Debt and Hybrid mutual funds3. Bonds4. Government securities5. Derivatives6. Commodities7. Currencies8. ETFs9. Other instruments traded on the stock exchange Using a trading account to buy and sell is extremely simple. Each broker offers their own trading system through their website or mobile application. These trading systems are connected to the stock market’s proprietary online systems. This offers a price matching system. An investor or trader just has to put in his order request and when the system matches the price and quantity for the order, the order gets executed. This order matching system provides seamless execution of transactions without any human intervention. The trading account is basically a link between your demat account and the exchange’s order matching system. Once the trades get cleared at the exchange, the shares or other instruments are debited and credited from the respective demat accounts. The trading account makes it extremely simple to buy and sell any investment. Since most of the investments are listed on the exchange, price discovery is easy and transparent. All you need to do is select the instrument you want to purchase and the price, and the exchange’s order matching system will ensure the transaction goes through. Brokers charge brokerage for transactions executed through the trading account. Along with that, there are exchange fees and securities transaction tax that is levied on each transaction. What is demat account? A demat account is an electronic record or repository of the financial instruments owned by an investor or trader. It shows the different investments made, the date of purchase, the price at which it was purchased and the current market price. This account allows the investor to hold shares and securities in an online form. Physical securities held by a person can be dematerialised into their electronic form and held in the demat account. One of the primary advantage of a demat account is that your shares are safe. Shares in their physical form can get damaged or lost. But shares in your demat account are safe and you don’t need to fear losing them. A demat account, like any other account, lets you easily scan all the transactions. A demat account will show the current market value of all investments held in that account as on a particular date. It also shows whether a share is partly paid up or fully paid up, thus providing clarity to the investor. However, unlike a bank account, a demat account can have zero shares or securities and still be functional. A demat account is a very convenient way to handle all investments. Unlike earlier times where all securities were in physical form, a demat account holds everything in electronic form. This makes it very convenient to handle and operate. A demat account offers all facilities like a normal bank account such as nomination facility, joint accounts, change in name and address etc. A bank account is usually linked to a demat account, which makes it easy for dividends and interest to get credited to the investor’s account directly. Read more about a Demat account here. Trading account vs demat account The difference between trading account and demat account is simple, a demat account is an online account for storing shares and securities. A trading account is an account for purchases and sales of investments. A trading account inherently has no balance. It draws from the demat account once the purchase or sale transaction has gone through from the exchange’s side. A trading account also cannot exist in isolation. It has to be linked to a demat account from which the required shares or securities can be debited or credited. A demat account can exist without having a trading account. An investor can just invest in IPOs or Mutual Funds through a broker and hold these units in his demat account. However, to sell these units, a trading account will be needed. The difference between demat and trading account is very fine. However, it is essential to know how these two accounts operate and what their nature is. This understanding will help you open these accounts and get started with your investments. How to open a trading account: 1. Select a broker of your choice like IndiaNivesh Securities Ltd. Bear in mind that each transaction requires a certain brokerage so be sure to research about the different brokerage rates for both delivery based trades and intraday trades. 2. Check the services offered by each broker. Make sure you choose a broker who provides extensive customer support, especially if you are a beginner. A good broker who provides detailed research reports could be the difference between earning profits and earning wealth. 3. Fill in the account opening form and provide the mandatory KYC details. If you have a demat account with the same broker, the KYC details may be exempted, but that depends on the broker. Some of the KYC documents required are:a. Identity proof (Aadhar Card, Passport, Voter ID, Driving License, PAN card)b. Address proof (Aadhar Card, Passport, Voter Id, Driving License, Electricity bill, Gas bill, Telephone bill, Rental agreement, Loan agreement)You will need to submit a proof of income i.e bank statements, income tax returns, Form 16 etc. 4. You will also need to submit passport size photographs. 5. Some brokers request a verification check and witnesses while filling up the account opening form6. Once the broker processes your application, you will get details about your trading account7. You also need to link your bank account to your trading account so that funds received from a sale can be credited into the bank account. 8. Once you receive these details, you can start trading. However, before you execute any trades, you must know where you are investing and what your investment strategy is. Without knowing this, it is very easy to lose money in the stock market, especially while engaging in intraday trades which is susceptible to price fluctuations. Now that you know the difference between these accounts, why not open a demat and trading account with a reputed broker like IndiaNivesh Securities Ltd.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.)