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Impact ![]()
After the Bombay Stock Exchange's (BSE's) move of reducing its membership fee by 90% (from Rs 1 crore to Rs 10 lakh), now the country's top bourse - the National Stock Exchange (NSE) is contemplating to reduce its deposit-based membership fee in the coming months.
The NSE is planning a reduction of 50% - 60% in its fee, both in the equity cash and the derivative segment. At present, the fee for the equity cash segment (which has around 1,500 registered brokers) is Rs 1.25 crore, while the cash market plus derivatives membership is available for Rs 1.5 crore. Thus if the proposal is implemented, it will bring down the cash segment fee at Rs 50 lakh and the cash plus derivatives fee at Rs 75 lakh.
In our opinion if NSE implements such plans, it would hurt the oldest stock exchange in the country – the BSE; as brokers and traders too would prefer an exchange having more liquidity. At present, on an average cash and equity derivative trades worth Rs 1.2 - 1.5 lakh crore are recorded daily. However, NSE has a monopoly in equity derivatives, with very few or no trades being conducted on BSE. In the cash segment too, BSE generates only 25% - 27% of total volumes.
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With stronger U.S. output based on the tax concessions this year, the International Monetary Fund (IMF) has raised its forecast for the global economic growth this year, and believes that the emerging nations would lead the recovery.
The world economy will grow 4.4%, more than the 4.2% expected in October. Expansion next year is projected to reach 4.5%, unchanged from October, the IMF said in an update to its World Economic Outlook report.
While a faster-than-expected second half of 2010 helped put the world on a stronger foothold this year, the IMF warned that risks to its predictions remain "elevated". It pressed Euro zone Governments to build a comprehensive plan to prevent sovereign-debt "financial stresses" from spreading out to other countries and urged emerging countries to closely watch the rise of asset price bubbles as inflation risks increase.
At PersonalFN we believe that economic recovery in most of the developed nations is still supported by huge stimulus packages provided by their respective central banks. In the U.S. QEII efforts brought in by the Fed is an attempt to the get the economy in the growth trajectory by fuelling in consumer confidence in the U.S. economy. Talking about the Euro zone crisis, they would be closely watched by the most developed and emerging economies, who would consequentially take cue from the news emerging there. The bail-out program announced for the burgeoning debt crisis in Greece, Ireland and Spain may seem less unpalatable choice as the aforementioned Euro economies are experiencing a situation of "debt overhang". And it would be irrelevant whether debts are private or public. So, given that now the Euro zone crisis would play a spoil sport on the global economic front going forward. As far as India is concerned we think that the Indian economy would sustain the GDP growth over 8.0% mark, given India's consumption story being strong. However, inflationary pressures building in due to spiralling prices food articles and crude oil may impede growth, as cost of borrowing may go up.
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The Reserve Bank of India (RBI) being worried about the WPI inflation still remaining above their tolerance levels, increased the policy rates by 25 basis points (both on the repo rate as well as the reverse repo rate). Thus now the policy rates are as under:
Repo rate increased from 6.25% to 6.50%
Reverse repo rate increased from 5.25% to 5.50%
 (Source: Office of the Economic Advisor, PersonalFN Research)
Moreover the chances of "spill over effect" in generalised inflation taking place due to following factors fuelled such a move:
- Spiralling prices of primary food articles (Food inflation was at 15.52% for the week ended January 8, 2011)
- Stickiness of non-food manufacturing articles
- Surging crude oil prices, and chances of them crossing U.S.$ 100 per barrel mark
And thus the RBI also revised its baseline projection of WPI inflation for March 2011, from 5.50% to 7.00%.
The robust economic growth rate posted (8.9% GDP growth in the first half of 2010-11) by our country, along with improvement in the global economic situation in the recent times, also encouraged the central bank to take such stance.
We think as long as the Indian economy continues to trail on the growth path, core inflationary pressures will continue to exist. Thus in the next mid-quarter review of monetary policy 2010-11 (scheduled on March 17, 2011), tackling inflation would again be a dominant policy concern. But in the meanwhile liquidity situation (which is at present tight) has to improve for RBI to adopt any hawkish monetary policy stance.
| | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 18,395.97 | (611.6)![]() | -3.22% | | Re/US$ | 45.57 | (0.0)![]() | -0.09% | Gold /10g | 19,925.00 | (345.0)![]() | -1.70% | | Crude ($/barrel) | 97.64 | 0.3 ![]() | 0.32% | | FD Rates (1-Yr) | 7.00% - 8.75% | Weekly change as on January 27, 2011
*BSE Sensex as on January 28, 2011 | |
In this issue
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In an interview with the Business Standard, Dr. Mark Mobius - Executive Chairman of Franklin Templeton Investments shared his views on India as an investment destination and key risks to emerging markets.
Dr. Mark Mobius is quite optimistic about India and believes that the Indian equity market will continue to attract interest from local as well as foreign investors. He's also of the opinion that the Indian economy will continue to record sustained economic growth and over the long term, which in effect will offer a good platform for Indian companies to deliver stellar results. He also believes that the emerging markets are expected to grow at about three times the rate of developed markets, and hence thinks even more money will be diverted to emerging markets such as India, as opposed to outflows.
According to him, the emerging markets like most other global equity markets will experience corrections going forward, since they are likely to be subjected to significant volatility; given the prevalence of short-selling, increase in the use of derivatives and expansion of markets globally. He further cautions that inflation and sovereign debt issues are other potential risks which could dampen the emerging markets. He explains that managing inflation without endangering economic growth is a complicated and difficult problem, which will continue to pose a challenge to emerging markets in 2011.
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Debt Overhang : A situation where the debt stock of a country exceeds the country's future capacity to repay it. Such a situation occurs when the cost of debt is combined with a fall in a country's trade and economic health.
(Source: Investopedia) |
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