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The benefits of falling oil prices for India

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

The fall in global oil prices couldn’t have come at a more opportune time for India. In August, oil imports dropped 15 percent year-on-year, driven primarily by a fall of $10 per barrel in prices. Brent has fallen below $100 over the past month, and could slip further. Increasing supplies from the United States and slowing demand are contributing to the weakness in prices.

This offers India several benefits. First, the scope for elimination of diesel subsidy. While the government has been steadily increasing the retail price of diesel in the domestic market, the fall in oil prices has nearly wiped off the need for subsidised support. Assuming the rupee stays stable, the government has a golden opportunity to market-link diesel prices.

Secondly, this would help tame inflation. Falling fuel prices have a direct effect on inflation, whereas indirectly they lower production costs for firms with petroleum-based primary input. Many industries such as paints and packaging are beneficiaries. While we can expect companies from these sectors to retain part of the gains, the rest will get passed on downstream and help lower inflation.

Little chance of an RBI rate cut

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

At the Reserve Bank of India (RBI) monetary policy review in August, India’s policy parameters looked encouraging but the central bank was not eager to make any significant change to monetary policy – and none at all to the interest rate. Since then, perspectives have changed. And yet, it is unlikely that the RBI will make any cut, though desirable, to the interest rate.

India Markets Weekahead: Continue pruning your portfolio

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

Markets began the week on an optimistic note with the Nifty touching a new high of 8,178 but fatigue was noticeable in frontline stocks as action shifted to the mid- and small-caps.

How falling crude prices affect India

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

Brent crude prices have dropped below $100 a barrel, causing anxiety within the Organization of the Petroleum Exporting Countries (OPEC) and giving some relief to India and China. The market is bearish at present but the future is unpredictable.

Where the growth in Q1 came from

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

GA man walks his cow under high-tension power lines leading from a Tata Power sub station in Mumbai's suburbs February 10, 2013. REUTERS/Vivek Prakash/FilesDP growth of 5.7 percent in the April-June quarter was unexpected in view of the southward drift of India’s economy over the past two years. No wonder it pepped up the Bharatiya Janata Party-led government at a time when the ruling coalition is listing its achievements after 100 days in office. The question is where this growth came from and whether it will be sustained in future.

India’s economy has been slowing after achieving 9 percent growth three years ago. That was because the Congress-led government failed to fuel the economy. The absence of policy reforms, paralytic governance – combined with persistent inflation – discouraged investment. Growth tapered to 4.7 percent last year.

India Markets Weekahead: Time to prune positions in an extended honeymoon

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Nifty closed at a new closing high of 7,954 amid volatility in an eventful week that started with the Supreme Court ruling that the allocation of more than 200 coal blocks over the past two decades was illegal.

With nearly 3 trillion rupees at stake, this had a direct effect on the metals and power sector. It also affected banking, which has exposure to the two sectors.

‎India Markets Weekahead: Correction could follow budget week

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Last week’s robust pre-budget rally belied expectations, with the Nifty closing up more than 3 percent at a record high of 7,751‎. Automobile sales, manufacturing PMI as well as services PMI showed an uptick. The Iraq turmoil seems to have taken a back seat with oil prices receding from a nine-month peak. A rally in world markets, with life highs for the DJIA and S&P 500, also aided sentiment.

India’s fiscal deficit in the first two months has already touched 45.6 percent of the full-year target. Though this would have been a negative indicator, the markets welcomed Finance Minister Arun Jaitley’s remarks about focusing on fiscal consolidation against “mindless populism“.

Higher tax revenue from higher growth

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The 2013-14 budget got completely out of hand because of a whopping shortfall in tax revenue. Development outlays had to be drastically cut to manage the fiscal deficit.

The key to the budget is revenue. The ratio of gross tax revenue to GDP reached a high of 11.9 percent when GDP growth was at its peak of more than 9 percent in 2007-08. Since then, both declined and the ratio has been in the narrow range of 10-10.7 percent. GDP growth is a painless way of raising revenue.

India Markets Weekahead: Pre-budget rally may be muted

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A man looks at a screen across the road displaying the election results on the facade of the Bombay Stock Exchange (BSE) building in Mumbai May 16, 2014. REUTERS/Danish Siddiqui/Files(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Nifty touched a new high of 7,700 before cracking on Friday to slip about 0.5 percent for the week. This was primarily triggered by the unrest in Iraq and the subsequent rise in crude prices.

The markets were also overbought aided by a relentless rally since May 9‎, with the CNX Nifty climbing about 16 percent, S&P BSE Midcap Index rising 26 percent and the S&P BSE Small cap index jumping 35 percent. The last one-month saw 115 multi-baggers with 92 percent of traded stocks gaining during the period. The probability of picking a loser was minimal. It seemed making money had never been so easy.

How to get India on the highway to high growth

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The president’s address to parliament this week lays out the new government’s roadmap to get India’s economy back to high growth. That will take time and is not easy either.

True, the BJP government led by Narendra Modi inherited a weak economy – growth was a mere 4.7 percent; industry was static; there was no employment generation; and inflation was at over 8 percent. The only comfort was that foreign exchange reserves exceeded $312 billion.

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