The Weekly Wrap | Keep the Guard Up

In this edition, we talk about why the RBI chose not to tinker with the benchmark lending rates for the seventh time on the trot. We also talk about why Elon Musk’s Tesla is scouting for space to set up a plant in India, why Vistara is grappling with a crisis, and the latest conundrum that India’s currency trading markets are dealing with.


Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.


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India’s central bank seems to have perfected the art of masterly inactivity. Or so it would seem at first glance if one were to look at its latest non-move on the benchmark lending rates.



You see, for the seventh time on the trot, the Reserve Bank of India (RBI) kept interest rates unchanged. But this deliberate inactivity seems to have been carried out deftly and with a great deal of craft and finesse, so as to meet its objectives without disturbing the apple cart and causing even a minor upheaval.


Simply put, the fact that the RBI has chosen to not change the repo rate does not mean that its policy has not been working. In fact, RBI chief Shaktikanta Das would like us to believe that the converse is true and that his mandarins have been waiting watchfully, simply because their policy play has been working well and has been showing desired results.


While the RBI’s move to keep the repo rate steady at 6.5% was on expected lines, the devil, as always, lay in the details that Das proffered while announcing the decision of the six-member monetary policy committee (MPC), which meets every couple of months to take a call. Das said that the decision was taken in the light of the fact that economic growth remains buoyant. But, he said, consumer price inflation (CPI) was the proverbial elephant in the room.


“The elephant has now gone out for a walk and appears to be returning to the forest. Core inflation has declined steadily over the last nine months to its lowest level in the series,” the RBI governor said.


The RBI projects that the inflation rate in FY25 will remain at 4.5% while economic growth will be 7%. As India goes to polls, things seem to be moving in the right direction even as far as rural India and the farm sector are concerned. Early indications of a normal monsoon, said Das, augurs well for a good kharif crop output. The global economy, too, has remained resilient.


But none of this is to say that the central bank did not flag any concerns. Das said that high public debt remains a dormant risk that could erupt.


So, will interest rates go down anytime soon? By the looks of it, a reduction in lending rates looks unlikely anytime soon, but we promise to keep a close eye on them and to let you know as soon as we get to hear!


FD Rates October 2023


Taking the Wheels


Last month, the Indian government changed its electric vehicle policy despite reservations from local automakers such as Tata Motors and Mahindra & Mahindra. The government cut the import tax rate on some electric vehicles if their manufacturers invest at least $500 million in India and start local production within three years.



The change was a big win for Tesla, the EV company owned by billionaire Elon Musk that had been lobbying for a more favourable policy environment before entering India. Musk even met Prime Minister Narendra Modi in New York last year. Its executives have visited India, too.


To take advantage of the policy change, Tesla has now started firming up its plans for India, the world’s third-largest car market.


Tesla has started producing right-hand drive cars at its Berlin factory for export to India later this year, Reuters reported. Tesla currently produces only the Model Y at the factory.


Separately, a Tesla team is likely to visit India this month to explore locations for a local factory that would need an investment of $2-3 billion. Tesla is looking at Tamil Nadu, Maharashtra, and Gujarat for the factory, and intends to build it in two years, the report said.


Tesla would be looking to offset slowing global EV sales through its India entry, but it may not find the going so easy. This is because Tata and M&M already have the first-mover advantage, and several other Asian companies are catching up. These include Chinese automakers MG Motor and BYD as well as Vietnam’s VinFast.


Hitting an Air Pocket


While Tesla is moving full speed ahead, another people mover plunged into turbulence this week.


Full-service airline Vistara found itself at the receiving end of passengers’ ire after it cancelled almost 125 flights and delayed many more as it faced a shortage of pilots and crew. The carrier, owned by Tata Group and Singapore Airlines, operates more than 300 flights a day.


Many pilots reportedly called in sick to protest a downward revision in their salary structure ahead of the airline’s merger with Air India, a full-service carrier that Tata Group acquired from the government two years ago.


The flight cancellations and delays prompted the civil aviation ministry to intervene in an effort to ease the situation. The Directorate General of Civil Aviation, the aviation regulator, also sprang into action and sought daily information on flight disruptions. The DGCA also postponed a June 1 deadline to implement new rules that raised rest periods for flight crew to 48 hours a week from 36 hours previously after criticism from some airlines.


Vistara’s troubles come ahead of the busy summer travel season. So, if you are heading off to Europe to beat the heat, book your flight tickets carefully.


Currency Conundrum


If you don’t trade in currency derivatives, you probably missed all the action in India’s foreign exchange market this week. And thank heavens for that! For those who do trade in these complex instruments, the week was chaotic.


On January 5 this week, the Reserve Bank of India came out with a circular that requires traders to have exposure to the underlying currency to trade in currency derivatives. That rule was to go into effect this Friday, April 5. The RBI this week delayed its implementation until May 3, but only after a whole lot of confusion and commotion.


So, what exactly sent currency traders into a tizzy?


The RBI says that exchange-traded rupee derivative transactions can be used only for hedging, for example by importers and exporters. This prompted brokers to ask their clients to provide proof of such exposure or close their open positions. The forced unwinding of positions led to panic. The premium on dollar-rupee put options surged up to 250% on Wednesday, according to a Reuters report, even though spot dollar-rupee inched up 0.04%. This contrasts with typical movements as the premium on put options usually falls when spot prices rise.


After the turmoil, the RBI on Thursday allowed users to take positions of up to $100 million without providing proof of their underlying exposure. But traders still need to have the exposure. So, for the moment, they can breathe easy. But retail traders who still want to trade in currency derivatives, the path ahead is far too muddy.


Market Wrap


Indian stock markets touched new record highs this week as outlook on corporate earnings and the interest rate trajectory both in India and the US remained optimistic.


The 30-share Sensex and the broader Nifty 50 gained 0.8% each over the five-day period. Both benchmark indices hit new peaks on Thursday; the Sensex went past 74,500 while the Nifty crossed 22,600.


HDFC Bank and Shriram Finance were among the biggest gainers this week, climbing nearly 7% each. Drugmaker Divi’s Labs, state-run power producer NTPC and miner Coal India, steelmakers Tata Steel and JSW Steel, and automaker Mahindra & Mahindra were the other major winners. IT companies TCS, Tech Mahindra, and Wipro also inched higher, recovering from the previous week’s weakness.


Hero MotoCorp, India’s biggest two-wheeler maker, was the top loser after receiving a tax notice for Rs 605 crore. FMCG companies Nestle India, Britannia, drugmaker Cipla, telecom operator Bharti Airtel and heavyweight Reliance Industries were among the other laggards this week.


Other headlines


  • Dabur India expects tepid demand, slowing revenue growth in January-March quarter
  • Marico predicts sales growth in Q4 after three quarters of drop
  •  Vedanta to raise Rs 2,500 crore by issuing non-convertible debentures
  • HDFC Bank loan growth slows sequentially in Jan-March, deposits rise 7.5%
  • JSW Energy plans to raise Rs 5,000 crore by selling shares to institutional investors
  • Ultratech Cement plans capex of Rs 32,400 crore over three years
  • Haldia Petrochemicals plans $10 billion oil-to-chemical project in south India
  • Zee Entertainment CEO Punit Goenka takes 20% pay cut to cut costs
  • India’s services growth quickens to 61.2 in March from February’s 60.6, PMI data shows
  • Buyout firm Blackstone says to invest $2 billion in India every year for five years
  • NSE halves lot size for trading in Nifty 50 derivative contracts
  • BMW, Tata Technologies to jointly develop auto software
  • Aditya Birla Fashion to list Madura Fashion & Lifestyle as separate entity
  • Govt increases windfall tax on petroleum crude for fifth time since February


That’s all for this week. Until next week, happy investing!



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