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It is too early to feel comfortable about inflation

The Reserve Bank of India kept the key rates unchanged in its review of the Monetary commodity charts Policy on Monday. Gaurav Kapur, senior economist, Royal Bank of Scotland talks to Puneet Wadhwa on his interpretation of the Monetary Policy announcements and the road ahead for the economy. Edited excerpts:


What are your key takeaways from the Reserve Bank of India’s (RBI’s) statements while reviewing the Monetary nifty live chart with buy sell signals Policy? What can one now expect from the central bank in the July 31 review?

I am not surprised that the RBI has kept the repo rate unchanged. The case for a rate cut was not a straightforward one given the upside risks to already high inflation. The central bank has once again reiterated its focus on inflation for the time being. It has recognized the limited ability of Monetary Policy to prop up growth, especially considering that higher interest rates have played a relatively small role in the ongoing investment slowdown.

Domestic policy stasis and global investor risk aversion are the key factors behind the stalled investment activity. In the July nifty signals policy review, the RBI could take a more sympathetic view towards growth and cut the repo rate by 25 bps at least.

The limit of the Export Credit Refinance (ECR) facility for scheduled banks (excluding RRBs) has been enhanced from 15 per cent of the outstanding export credit eligible for refinance to 50 per cent. Does it come as a relief? How do you see the liquidity panning out going ahead?

This measure will have a favourable impact on banking sector liquidity, as higher proportion of INR-based export loans are now eligible for refinancing. Moreover, considering that the CRR is as a quasi monetary instrument, the RBI has refrained from explicitly cutting the CRR given its inflation concerns.

Liquidity is likely to remain in deficit mode considering the pick-up in bank credit vis-à-vis rate of deposit mobilisation. The overall injection by the RBI through the repo window has now stabilized in the range of Rs 800 – 900 billion. Unless there are large capital outflows which in turn squeeze out rupee liquidity further, overall liquidity conditions would tend to improve somewhat with this ECR measure. For more durable liquidity injection, the RBI will continue to use the open mcx commodity charts market purchase of government bonds.

The Consumer Price Index (CPI) numbers for May have come in at 10.36 per cent as compared to 10.26 per cent (M-o-M). Does this given any degree of comfort given the statements from the RBI today?

It is too early to feel comfortable about inflation in general. The RBI has noted that consumer price inflation and even headline remain higher, even as core inflation has trended lower. The central bank has also noted that upward risks to inflation remain strong.On the whole, the RBI is unlikely to draw too much comfort on the inflation front at this stage. Fiscal consolidation is another aspect, which will be critical for the RBI’s assessment of inflation.

Do you think that the central bank would be able to contain inflation to the desired nifty buy sell signals levels? Have you toned down your estimates of how much the RBI can slash key rates in FY13?

Our outlook for inflation suggests that upside risks to inflation are quiet strong and without a further decline in global crude oil prices and some appreciation in the INR, the RBI will find it difficult to keep inflation within the desired levels. I have not changed my rate cut expectations for FY13. The room for further cuts is limited to 25-50 bps at the most at this juncture.

Given announcements regarding the industrial production figures for April and inflation numbers for May and the outlook for interest rates, what the road ahead for the bond nifty buy sell signals market and the rupee?

Bond market will continue to seek RBI support for the government’s borrowing programme through open mcx charts market purchase of bonds. Given the tight liquidity conditions, constant supply of government bonds and sticky inflation, there is an upside risk to yields until the next monetary policy at least. The 10-year yield is likely to hover in the range of 8.15 – 8.50 per cent.

Rupee can remain under pressure as the pace of capital inflows remains sluggish in an environment characterized by severe global investor nifty signals risk aversion. However, further softening of oil prices and reduction in gold imports will help contain the pressure on the INR.

Overall, as long as the investor risk appetite remains weak, the rupee will remain prone to bouts of weakness. Any efforts from the government to curb the fiscal deficit or to improve the flow of foreign capital would be positive for the rupee. We expect the rupee-dollar pair to nifty buy sell signals trade in the range of 54.50 – 56.50 for the next quarter.

What is your assessment of how things have panned out for Greece and the euro-zone? Do you think that the election result is a temporary relief and the EU will eventually split over the next few years?

The situation in the euro-zone will continue to keep the markets in a risk aversion mode considering that there are no quick fixes to the debt crisis. The long-term resolution of the problem requires some form of fiscal union with common Euro-zone bonds and a banking union to back the monetary union and a common currency.

This is akin to a political union and requires consensus among the core Euro-zone economies. In the meantime, reviving growth would be critical in order to contain the sovereign debt spiral and reduce the pressure on bigger countries like Spain and Italy.

The endgame of this crisis is difficult to predict at this stage.  The Greek vote will prove to be a temporary relief. Whether immediate or delayed, the mcx charts markets will eventually return to unresolved issues for the euro-zone.

Seeking to avoid a repeat of Facebook Inc’s much-maligned public debut, Twitter Inc revealed more modest ambitions, saying its initial offering would raise up to $1.6 billion and value the company at up to about $11 billion.

The valuation was more conservative than the $15 billion some analysts had expected for the social media phenomenon, potentially attracting investors who might consider the money-losing company’s listing price a better deal, with room to rise.

Twitter had signaled for weeks it would price its IPO modestly to avoid the sort of stock plummet that spoiled Facebook’s coming-out party. It said on Thursday it intends to sell 70 million shares between $17 and $20 apiece, raking in up to $1.4 billion for the company.

If underwriters choose to sell an additional allotment of 10.5 million nifty buy sell signals shares, the offer could raise as much as $1.6 billion.

Twitter’s offering will be the most high-profile Internet IPO since Facebook’s May 2012 debut, when the social network giant's shares fell below their offering price and did not recover until a year later.

Still, the modest nifty buy sell chart pricing doesn't obscure questions about Twitter's profitability.

"The fact that the valuation is lower than expectations, I think was smart by the underwriters. I think it will help the pop," said Michael Yoshikami of Destinational Weath Management.

"But in the end, even for $11 billion, the question is can they come up with earnings to substantiate that number? And it's unclear that they're going to be able to do that."

At a roughly $11 billion valuation, Twitter would be worth more than Yelp Inc and AOL Inc combined, but only a fraction of tech giants like Google Inc and Apple Inc, worth $342 billion and $483 billion respectively. Facebook's market value is now $128 billion.

witter and its underwriters begin a two-week road show to woo investors next Monday in New York, with stops in Boston and the mid-Atlantic region before touching down in Chicago, San Francisco, Los Angeles and Denver, according to a source familiar with the offering.

"They're trying to price this for a very strong IPO, ideally creating the conditions for a solid after-market," said Pivotal Research Group's Brian Wieser, who valued the company at $19 billion.

The company could choose to raise the price of the offering during that period as it gauges interest.

Twitter is expected to set a final price on November 6, according to a document reviewed by Reuters, suggesting that the stock could begin trading as early as November 7.

Sam Hamadeh of PrivCo, a private company research firm, said Twitter could raise the price range and also the amount of shares being sold. But, he added: "Raising both the price and the size was Facebook's fatal mistake."

Twitter's debut will cap seven years of explosive growth for an online messaging service that counts heads of state and major celebrities among its 230 million active users - but still operates at a loss.

Twitter will sell roughly 13 percent of the company in the IPO and will have 544,696,816 shares outstanding after the offering. That figure could rise given the exercising of options, restricted stock units and the issuance of shares for compensation after the IPO.

The company plans to list its stock under the "TWTR" symbol on the New York Stock Exchange.

Among the biggest Twitter shareholders selling in the offering is Rizvi Traverse, a fund managed by secretive Connecticut-based nifty buy sell chart investor Suhail Rizvi, who has quietly amassed a 17.9 percent stake in Twitter with the help of Silicon Valley investor Chris Sacca.

Rizvi's stake will fall to 15.6 percent of total shares outstanding after the sale. JP Morgan Chase, which obtained Twitter shares through Rizvi and Sacca, will see its stake fall to 9 percent from 10.3 percent.

Twitter co-founder Evan Williams, the largest individual shareholder, will reduce his stake to 10.4 percent from 12 percent, while Chief Executive Dick Costolo will emerge with a 1.4 percent stake, compared with 1.6 percent currently.

Co-founder Jack Dorsey will also sell shares, as will early venture capital investors Spark Capital, Union Square Ventures and Benchmark Capital.

Because many early shareholders, including Williams, previously sold parts of their stake to other investors like Rizvi, Twitter's relatively fractured ownership structure looks markedly different from the likes of Facebook and other commodity charts tech companies dominated by their founders.

When Facebook went public last year, founder and chief executive Mark Zuckerberg kept 57 percent of the company's voting nifty live chart with buy sell signals shares, thanks to a scheme that gave him twice the voting power of ordinary shareholders.

Following Twitter's IPO, Costolo will be under pressure to improve its money-making ability. The eight-year-old mcx commodity charts company more than doubled its third-quarter revenue to $168.6 million, but net losses widened to $64.6 million in the September quarter, it disclosed in a filing earlier this month.

This month, Twitter secured a $1 billion credit line from its underwriters including Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America Merrill Lynch and Deutsche Bank.

In recent months the company has aggressively introduced a number of new advertising products, including packages with broadcasters CBS and ESPN that show ads on TV and Twitter simultaneously for the fall TV season.

Twitter has also sought to deepen its relationships with news organizations, which provide much of the content shared on the network. The company said Thursday that it hired NBC News digital executive Vivian Schiller as the head of news.