MAGIC’S IN THE AIR Is It Us or The Rain?
Mumbai: Falling interest rates, lower EMIs on everything from cars to houses and falling prices of everyday items. You may not have to pay through your nose for pulses and vegetables this year and the stock that you bought last year at the height of the boom may start showing signs of revival after being down in the dumps so far. What’s not to like in the IMD’s monsoon forecast for 2016. Its prediction of abovenormalrainsacrossmuch of India boosted rural-focused stocks and stoked hopes of another interest rate cut this year.
Growth: Better monsoon means stronger agriculture growth. Monsoon may push farm growth higher to more than 3% which will add 25 to 50 basis points to India’s GDP.Spinoff effectsof higherrural demand could ensure that growth could cross the magical 8% mark.
Inflation: A better monsoon will ensure enough water for irrigation which will keep food prices down and lower food costs will ensure household inflation expectations are in check.
Interest Rates: Lower inflation will give the RBI more room to reduce its benchmark lending rate which means lower borrowing costs for companies. Markets expectations are that the RBI will reduce rates by at least another 25 basis points. If inflation is low, it could mean rate cuts will be more.
Government bonds: Lower rates could reflect on government bond yields. The yield on the 10-year benchmark bond has eased to 7.40% already. Lower rates and the recent liquidity measures by RBI could pull the yield down further.
Rupee: High growth and better corporate earnings could attract foreign investors to the local equity market which will push the rupee higher. The currency could rise towards ₹ 65 a dollar.