indian stock market

September 20, 2013 by NewsMaker

JAKARTA — India’s central bank announced on Friday a complex series of changes to its interest rate policies, aimed at maintaining control of inflation while also making credit more available to the troubled industrial sector.

The Reserve Bank of India cut by three-quarters of a percentage point the short-term interest rate that has had the most effect on bank lending rates lately, while, in an unexpected move, raising by a quarter of a percentage point a separate interest rate that many banks rely on for their underlying financing.

The United States Federal Reserve’s decision on Wednesday not to begin decreasing its level of economic stimulus has given India a respite during which to pursue slightly less stringent monetary policies of its own. The Reserve Bank of India tightened policy sharply in mid-July in an effort to halt the fall of the rupee in currency markets.

The rupee continued to drop until the end of August, when a move by the central bank to provide dollars from its reserves to the country’s state-controlled oil distribution companies finally halted the tumble. The rupee and the Indian stock market, like currencies and shares in other emerging markets, rallied sharply on Thursday after the Fed’s decision on Wednesday.

The Reserve Bank of India has two short-term interest rates. Commercial banks are allowed to borrow part of their funds at the repurchase, or repo, rate, which was raised on Friday to 7.5 percent, from 7.25 percent.

Many in the Indian financial markets have long focused on the repo rate, even though it has been less important lately, and were disappointed to see it rise instead of fall on Friday.

“India’s core inflationary requirements mean that the market can no longer expect a complete rollback of interest rates,” said Vaibhav Agrawal, vice president for research and banking at Angel Broking.

Further borrowing by commercial banks comes from the so-called marginal standing facility, whose interest rate was cut on Friday to 9.5 percent, from 10.25 percent. Because the cost of borrowing for banks to make additional loans is essentially the interest rate on the marginal standing facility, that rate tends to have a greater effect on the interest rates that banks charge customers for loans.

The reduction of the marginal standing facility by 0.75 percentage point “is encouraging, as this is working as the short-term interest rate,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry.

After the central bank’s action, the Mumbai stock exchange sagged 1.9 percent, wiping out much of the gain it had posted the previous day. The rupee fell to 62.44 per dollar, from about 62 just before the announcement.

While short-term interest rates may sound high in India, they are only slightly above inflation, with prices up 9.5 percent in August from a year ago at the consumer level and up 6.1 percent at the wholesale level.

Neha Thirani Bagri contributed reporting from Mumbai.

Article source: http://www.nytimes.com/2013/09/21/business/global/india-adjusts-short-term-interest-rates.html?partner=rss&emc=rss

Rule Change Would Allow Some Foreign-Owned Stores to Open in India

The government said it would lift the current 51 percent ownership limit on foreign companies that sell just one brand of products — a group that would also include companies like Apple and Starbucks — if they met certain strict conditions. Many foreign chains, most notably Ikea, which buys a lot of furniture and furnishings from India, have not opened stores in the country because they did not want to take on Indian partners.

The decision is one of a series of steps Indian officials took in recent weeks to bolster flagging investor confidence and increase the flow of foreign money to support its slowing economy and the falling rupee. This month, for instance, policy makers allowed individual investors who live in other countries to trade directly in the Indian stock market, rather than go through intermediaries like offshore funds.

One of those market-opening proposals, though, was recently tabled after meeting political opposition.

The government, led by the Congress Party, last month reversed a decision to allow 51 percent foreign investment in multibrand retailing — a category that includes companies like Walmart, Tesco and Carrefour. Many Indian political leaders, including some members of the Congress Party and its allies, opposed letting foreign retailers own controlling stakes of stores, saying they would decimate small shopkeepers and wholesale traders that employ about 34 million people. Much of that criticism was aimed at so-called big-box retailers like Walmart, which has a wholesale business in India.

But the decision Tuesday to further open up single-brand retailing to foreign competition — a move officials had signaled in early December — suggests that Prime Minister Manmohan Singh and his aides believe there will not be significant political resistance to the niche foreign retailers, which will largely cater to the middle and upper classes of Indian society.

Still, the approval comes with some strict conditions that may be difficult for some companies to meet. Among them is a requirement that single-brand retailers buy 30 percent of the value of their products from small Indian businesses and artisans — defined as businesses and individuals that have invested less than $1 million in factories or equipment. Previously, some analysts said that such a purchasing condition would violate World Trade Organization rules.

The new rules also say that investors wishing to hold 100 percent of single-brand stores must own the brands that their stores sell, a provision that would preclude franchisers.

Article source: http://feeds.nytimes.com/click.phdo?i=3400226485929a2daa985d67d1c92026

India Adjusts Short-Term Interest Rates

Rule Change Would Allow Some Foreign-Owned Stores to Open in India

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