Third Quarter Review of Monetary Policy for 2008-09

Monetary Measures

• CRR - unchanged at 5.00%
• Reverse Repo rate - unchanged at 4.0%
• Repo Rate - unchanged at 5.5%
• Bank Rate - unchanged at 6.0%

Other Highlights
• GDP growth projection for FY09 revised to 7.0 % with a downward bias.
• M3 growth raised to 19.0% during FY09 from 16.5-17% in 2008.
• Aggregate Deposits projected to rise by around 19.0 per cent during 2008-09.

Stance of the Monetary Policy

3rd Quarter Monetary Review (Current)

1)To Provision comfortable liquidity to meet the required credit growth consistent with the overall projection of economic growth.

2)To respond swiftly and effectively with all possible measures as warranted by the evolving global and domestic situation impinging on growth and financial stability

3)To ensure a monetary and interest rate environment consistent with price stability, well-anchored inflation expectations and orderly conditions in financial markets.

The 3rd quarter monetary policy was seen as a status quo with RBI leaving all its major policy rates unchanged. Albeit! The rising RBI wariness regarding moderation in GDP growth and the declining credit flow in the commercial sector gives rise to studied speculation that RBI may further reduce the bank’s liquidity-premium. This can come by way of further reduction in reverse-repo rate or by placing ceiling/limitation on the investible sum through reverse-repo window.

The policy statement also reveals that RBI is of the opinion that the continued liquidity easing since Sept 08 has created ample room for the banks to respond proactively to market cues (and follow-through the rate decline to commercial borrowers).

However, the central banker also realizes that the drying-up of the external avenues of borrowing has had a limiting effect on the Indian commercial sector. In FY09, the aggregate financial resource inflow in the Indian commercial sector declined by nearly 3% over previous year. This is despite the higher credit offtake by the commercial sector in the present year. Consequently, a perception regarding the lack of credit availability has developed, which amongst other things, is contributing towards a high credit interest rate regime notwithstanding the liquidity relaxation in the money market


Outlook:-In this backdrop, we believe that the RBI policy has largely been neutral with a slightly dovish undertone. The RBI imperativeness on enhancing and augmenting the liquidity requirement to smoothen the credit off take gives reason to believe that central banker may resort to further rate cuts. The declining WPI based inflation provides additional headroom for RBI to act in this regard. Nonetheless, it is possible that some debt market participants may have build up their positions largely in view of a more accommodative policy - And therefore may unwind the resultant portfolio positions built on such view. In consequence, the 10-year Gsec is expected to remain in the 5.50-6% range in the near term.
Additionally, supply concerns because of increased borrowing from the centre could also exert pressure in the immediate. However, given the broad economic fundamentals & a declining inflation trend, we believe that interest rates would continue to display downward bias going forward.
********************************************************************************

Presenting the HSBC Tax Saver Equity Fund with FREE Critical Illness Cover

Why Equity Funds?

All of us aspire for enough wealth to be able to finance at least some of our dreams. Giving our family the very best, educating our children, indulging in a hobby - things that can make our lives more rewarding. One of the best chances of doing so is by investing wisely and regularly today. When one is investing for the long-term, one has to look at generating a return that is greater than inflation. For example, if you get a return of 10% from your investment and inflation is 8% then the real return you have made is 2%. Studies show that equity and equity linked instruments tend to outperform all other forms of investments in the long run. Hence you should look at investing some portion of your money in equity markets with an aim to meet future goals comfortably.


Presenting the HSBC Tax Saver Equity Fund with FREE Critical Illness Cover

HSBC Tax Saver Equity Fund (HTSF) is an Equity Linked Savings Scheme (ELSS) that offers an opportunity for tax saving by providing Sec 80C benefits. Moreover, it seeks to provide capital appreciation by investing in a diversified portfolio of equity and equity-related instruments of companies across various sectors and industries. With the Indian economy possessing strong fundamentals and corporate earnings showing great growth potential, equity as an asset class looks set to provide remarkable returns.

FREE Critical Illness Cover

Now with every HSBC Tax Saver Fund investment you get a FREE Critical Illness Cover (ICICI Lombard) for a minimum lump sum investment of Rs. 10,000. The Critical Illness Cover will insure you against six illnesses (on diagnosis) or in case of accidental death or accidental permanent total disability, the sum insured is paid. For investments below Rs. 10,000, normal HTSF is also available.
The scope of the cover is as follows:
Critical Illnesses
Cancer
End stage renal failure
Major organ transplant
Stroke
Heart valve replacement
Bypass surgery
Accidental death
Accidental permanent total disability


Important:

Applicable only for a minimum of
Lump sum investment of Rs 10,000 or
SIP of Rs 2,000 for 36 months**
Insurance tenure
3 years for lump sum
3, 4 or 5 years for SIP Plus, depending upon SIP tenure
Sum insured
In case of lump sum investment, equal to the value of investment
In case of HSBC SIP Plus it will be worth the total SIP investment amount for the SIP period. For example, if you decide to invest Rs 15,000 p.m. in HSBC SIP Plus for a period of 5 years you will get a Critical Illness Cover of Rs 900,000 for the said period.
Maximum sum insured is Rs 10,00,000 per person,irrespective of multiple investments. Not available to Non Resident Indians
Age limit is 20 years to 50 years of age completed
HSBC Tax Saver Equity Fund (HTSF) is an Equity Linked Savings Scheme (ELSS) that offers an opportunity for tax saving by providing Sec 80C benefits. Moreover, it seeks to provide capital appreciation by investing in a diversified portfolio of equity and equity-related instruments of companies across various sectors and industries. With the Indian economy possessing strong fundamentals and corporate earnings showing great growth potential, equity as an asset class looks set to provide remarkable returns.
FREE Critical Illness Cover
Now with every HSBC Tax Saver Fund investment you get a FREE Critical Illness Cover (ICICI Lombard) for a minimum lump sum investment of Rs. 10,000. The Critical Illness Cover will insure you against six illnesses (on diagnosis) or in case of accidental death or accidental permanent total disability, the sum insured is paid. For investments below Rs. 10,000, normal HTSF is also available.
The scope of the cover is as follows:
Critical Illnesses
Cancer
End stage renal failure
Major organ transplant
Stroke
Heart valve replacement
Bypass surgery
Accidental death
Accidental permanent total disability
Important:
Applicable only for a minimum of
Lump sum investment of Rs 10,000 or
SIP of Rs 2,000 for 36 months**
Insurance tenure
3 years for lump sum
3, 4 or 5 years for SIP Plus, depending upon SIP tenure
Sum insured
In case of lump sum investment, equal to the value of investment
In case of HSBC SIP Plus it will be worth the total SIP investment amount for the SIP period. For example, if you decide to invest Rs 15,000 p.m. in HSBC SIP Plus for a period of 5 years you will get a Critical Illness Cover of Rs 900,000 for the said period.
Maximum sum insured is Rs 10,00,000 per person,irrespective of multiple investments. Not available to Non Resident Indians
Age limit is 20 years to 50 years of age completed

** Investments of lower amounts can be made through regular HTSF and HSBC SIP

LIST OF COMPANIES AUDITED BY SATYAM COMPUTER AUDITOR-PRICE WATER COOPERS

LIST OF COMPANIES AUDITED BY PRICE WATER COOPERS(PWC)

Apar Inds. Price Waterhouse 200803 1,698 85
Apeejay Tea Price Waterhouse 200703 93 1
APW President Price Waterhouse 200803 137 9
Arshiya Intl Pricewaterhouse 200803 202 12
Assam Carbon Pr Price Waterhouse 200803 30 -4
Automotive Stamp Price Waterhouse 200803 301 4
Bayer CropScien Price Waterhouse 200803 1,163 49
Beeyu Overseas Price Waterhouse 200803 20 -2
Bimetal Bearings Price Waterhouse 200803 100 9
Blue Dart Exp. Price Waterhouse 200712 809 70
Bosch Price Waterhouse & Co 200712 4,269 609
Bosch Rexroth Price Waterhouse & Co 200712 265 25
California Soft. Price Waterhouse 200803 71 7
Century Enka Price Waterhouse 200803 1,186 13
Chemplast Sanmar Price Waterhouse & Co 200803 640 7
Colgate Palmoliv Price Waterhouse 200803 1,475 232
Coromandel Fert Price Waterhouse 200803 3,795 210
Cummins India Price Waterhouse 200803 2,351 281
D P S C Price Waterhouse & Co 200803 320 1
Denso India Price Waterhouse 200803 466 28
Dynamatic Tech. Price Waterhouse & Co 200803 273 19
Elpro Intl. Price Waterhouse 200803 27 -17
English Ind.Clay Price Waterhouse 200703 240 18
Entertainment Nt Price Waterhouse & Co 200803 225 16
Gabriel India Price Waterhouse & Co 200803 467 8
Gateway Distpark Price Waterhouse 200803 165 75
Gillanders Arbut Price Waterhouse 200803 399 15
GIS Price Waterhouse 200403 80 0
Glaxosmit Pharma Price Waterhouse & Co 200712 1,570 538
GlaxoSmith C H L Price Waterhouse 200712 1,273 163
Glenmark Pharma Pricewaterhouse 200803 1,371 389
GMR Inds. Price Waterhouse & Co 200803 153 7
GMR Infra. Price Waterhouse 200803 103 63
Goodyear India Price Waterhouse 200712 890 40
Graphite India Price Waterhouse 200803 1,064 134
Great Eastern En Price Waterhouse 200803 0 -11
Guj Gas Company Price Waterhouse 200712 1,188 159
Harr. Malayalam Price Waterhouse 200803 202 6
HCL Infosystems Price Waterhouse 200806 12,411 305
HCL Technologies Price Waterhouse 200806 4,615 781
Hikal Pricewaterhouse 200803 301 50
Hind.Powerplus Price Waterhouse 200503 216 6
Hinduja Ventures Price Waterhouse 200803 12 42
Honeywell Auto Price Waterhouse & Co 200712 866 65
Hooghly Flour Price Waterhouse 199603 0 0
HTMT Global Price Waterhouse 200803 358 59
IFGL Refractor Price Waterhouse 200803 171 17
Ineos ABS (India Price Waterhouse 200712 557 35
Info Edge (India Price Waterhouse 200803 245 55
Infotech Enterpr Price Waterhouse 200803 435 59
Ingersoll-Rand Price Waterhouse 200803 487 281
Insilco Price Waterhouse 200803 69 -3
Jagran Prakashan Price Waterhouse 200803 750 98
Kanumanek Trad. Price Waterhouse 200803 0 0
Karamch.Thapar Price Waterhouse 200803 0 0
Kennametal India Price Waterhouse 200806 388 54
Kesoram Inds. Price Waterhouse 200803 2,986 383
Lanco Infratech Price Waterhouse 200803 1,575 200
Marico Price Waterhouse 200803 1,569 143
Maruti Suzuki Price Waterhouse 200803 17,892 1,731
Mastek Price Waterhouse 200806 583 99
Max India Price Waterhouse 200803 282 62
Mcleod Russel Price Waterhouse 200803 653 47
Millennium Beer Price Waterhouse 200803 188 -4
Morganite Crucib Price Waterhouse & Co 200803 19 1
Moser Baer (I) Price Waterhouse 200803 1,900 -79
Motherson Sumi Price Waterhouse 200803 1,303 128
NDTV Price Waterhouse 200803 363 4
Nicco Parks Price Waterhouse 200709 19 1
NIIT Price Waterhouse 200803 467 33
NIIT Tech. Price Waterhouse 200803 445 143
Northgate Techno Price Waterhouse 200803 62 41
Novartis India Price Water house 200803 553 97
Orissa Extrusion Price Waterhouse 199912 13 -8
Parry Agro Inds Price Waterhouse 200803 82 8
Perfect Circle I Price Waterhouse & Co 200803 77 -2
Phillips Carbon Price Waterhouse 200803 1,033 89
Piramal Health Price Waterhouse 200803 1,914 301
Piramal Life Price Waterhouse & Co 200803 0 -92
PVP Ventures Price Waterhouse 200803 0 -2
Rain Calcining Price Waterhouse 200703 696 70
Rain Commodities Price Waterhouse 200712 462 25
Rane (Madras) Price Waterhouse & Co 200803 350 37
Rane Brake Lin Price Waterhouse & Co 200803 181 9
Religare Enter Price Waterhouse 200803 32 23
Religare Global Price Waterhouse 200803 22 4
S.N. Sunderson Price Waterhouse 199903 10 -1
Saint-Gob. Sekur Price Waterhouse & Co 200712 67 0
Samtel Color Price Waterhouse 200806 777 -71
Sanderson Inds. Price Waterhouse 199403 13 1
Saregama India Price Waterhouse 200803 137 8
Satyam Computer Price Waterhouse 200803 8,137 1,716
Schrader Duncan Price Waterhouse & Co 200803 56 2
Simplex Infra Price Waterhouse 200803 2,808 90
South Asian Fin. Price Waterhouse 199803 5 -10
Sparsh BPO Price Waterhouse 200803 161 0
Spentex Inds. Price waterhouse 200803 736 -35
Stewarts & Lloyd Price Waterhouse 200803 111 4
Subhkam Capital Price Waterhouse 200803 50 -2
Sulzer India Price Waterhouse & Co 200712 125 15
Swaraj Mazda Price Waterhouse 200803 665 25
Swojas Energy Price Waterhouse & Co 199812 7 -6
T.V. Today Price Waterhouse 200803 231 44
TIL Price Waterhouse 200803 692 32
Tinplate Co. Price Waterhouse 200803 391 4
Trigyn Techno. Price Waterhouse 200803 14 4
Tudor India Price Waterhouse 200803 129 8
United Breweries Price Waterhouse 200803 1,367 62
United Spirits Price Waterhouse 200803 3,137 311
Usha Martin Price Waterhouse 200803 1,639 145
UT Price Waterhouse 200803 104 -7
UTV Software Price Waterhouse & Co 200803 286 4
Vijay Inds. Price Waterhouse 200409 63 -27
Warren Tea Price Waterhouse 200803 133 2
Welspun India Price Waterhouse & Co 200803 1,175 26
Wyeth Price Waterhouse 200803 330 81
Zensar Technolgs Price Waterhouse 200803 336 45

Debt Markets– An Opportunity

Global Scenario

Risk aversions due to banking crisis is resulting in withdrawal of money from equities and other risk assets across the globe

Central Banks are pumping up liquidity and cutting interest rates, but not achieving desired results because of extreme risk aversion

Central Banks may have to cut interest rates to zero or near zero level to induce risk taking

Globally Declining Rates

US, Japan, U.K, Euro Zone are all cutting rates and
pumping liquidity to keep their economy from sinking

Indian Context

Inflation has started declining rapidly

RBI is keeping adequate liquidity

RBI is cutting interest rates

Election bound government will follow loose monetary policy to support growth

Further policy action in line with global markets and local conditions will be most probably on the softer side

All Components of WPI are also falling

CRR is being Cut

Repo rate is cut

Growth is softening

RBI have revised downwards Real GDP Growth target for FY 09 from 8 % plus to 7.5-8 %

CMIE have revised downwards Real GDP Growth target for FY 09 from 9.5 % to 8.2 %

Citigroup , Morgan Stanley and other analysts are now estimating FY 09 Real GDP growth between 6-7 % vs earlier estimate of 8-9 %.

The RBI will be now biased towards supporting growth

Gilt Yields have declined rapidly

But Corporate and PSU Bond Yields have not followed

10 year Bond Spread is at high level

Spread Contraction can happen
We expect Policy stance to be biased towards Pro Growth and on the softer side

PF Trusts post SDS interest payment in Jan 09 will invest in PSU Bonds

Low leverage of Indian Corporates Keep default risk under check

Borrowing rate needs to be reduced for revival of corporate sector and GDP growth in India like in other parts of the world

Summary

We expect Interest rates to decline globally

We expect Interest rates to decline in India

We expect Higher Rated PSU Bonds and Corporate Bond spreads to decline

Income Funds provide an excellent opportunity to capture this trend

New Year Bonanza from Govt and RBI

Fiscal Stimulus
Govt announced 2nd stimulus package today. The current measures together with earlier package constitute a
substantial counter-cyclical stimulus in the current year.
Some of the measures announced in 2nd fiscal stimulus include:
• External Commercial Borrowing (ECB)
– Ceilings on ECB borrowing removed under the approval route of RBI
– ECB can be used for the ‘development of integrated townships’
– NBFCs, dealing exclusively with infrastructure financing, would be allowed to access ECB.
• FII investment in Corporate bonds
– FII investment limit in rupee denominated corporate bonds in India would be increased from $ 6 bn to
$ 15 bn.
• Improvement in credit flow– An special purpose vehicle to provide liquidity (Rs.25,000 cr) support against investment grade paper
to Non Banking Finance Companies (NBFCs).
– PSU banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.
– Credit targets of PSU banks are revised upward.
• Small and micro enterprise
– Increase the guarantee cover for micro-enterprises extended by Credit Guarantee Fund Trust to 85%
for credit facility upto Rs.5 lakh. This will benefit about 84% of total number of accounts.
• Borrowings– To meet expenditures, states will be allowed to raise in the current financial year additional market
borrowings of 0.5% of their GDP, amounting to about Rs 30,000 cr, for capital expenditures.
– India Infrastructure Finance Company (IIFCL) will be allowed to access in tranches an additional
Rs.30,000 cr by way of tax free bonds after utilization of Rs.10,000 cr. announced earlier for
refinancing bank lending to PPP infrastructure projects.
• Export Sector
– Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools
and specified categories of yarn are being enhanced.
– RBI to offer EXIM Bank a line of credit of Rs.5,000 cr and will provide pre-shipment and postshipment
credit, in rupees or dollars, to Indian exporters at competitive rates.
• Other measures
– As inflation is declining significantly, exemptions from CVD on TMT bars and structurals, and from
CVD and Special CVD on cement are being withdrawn. Full exemption from basic customs duty on
zinc and ferro alloys is also withdrawn.
– Accelerated depreciation of 50% will be provided for commercial vehicles to be purchased on or after
1.1.2009 upto 31.03.09.
• Recapitalization of banks
– The Plan for the next year will include proposals for recapitalization of the public sector banks. The
recapitalization is expected to be of the order of Rs.20000 crore over the next two years. This will
help to ensure that the banking system will not suffer from capital adequacy constraints in order to
provide credit growth needed to sustain the economic momentum in 2009-10


Monetary stimulus by RBI
Repo Rate
•Repo rate cut by 100 basis points from 6.5% to 5.5% with immediate effect.
Reverse Repo Rate
•Reverse repo rate cut by 100 basis points from 5.0% to 4.0% with immediate effect.
Cash Reserve Ratio
•Cash reserve ratio (CRR) of scheduled banks cut by 50bps from 5.5% to 5.0% from the fortnight
beginning January 17, 2009.

Bottomline:• Reduction of reverse repo to 4% will prompt banks to increase lending and not park money with RBI.
Also Repo rate cut is a clear signal to bring down lending rate. Both deposit and lending rates are
expected to come down.
• Three pronged action to unfreeze the credit market: 1) infuse liquidity Rs. 20,000 cr by CRR cut, 2) lower
cost of fund by slashing the policy rate, 3) increase credit target of PSU banks as well as recapitalization
of these banks.
• Funds to flow into infrastructure sector. The question here is how much money can be raised in current
global condition. Also whether developers will come up with bankable projects on which these funds can
be deployed.
• A positive for bond market. Increase in FII investment limit in corporate bonds will develop this market.
Rupee may be under pressure but positive long term impact.
• We expect monetary policy to do much of the heavy lifting in coming months as this was the last fiscal
stimulus announced by the Govt. Overall, very encouraging move. But, as Montek Singh Ahluwalia said
“Key is implementation of these projects”. Going by past records, our project implementation record
leaves a huge slip between cup and the lip.

NIFTY FUTURES OUTLOOK IN 2009

OUTLOOK: As it is clearly visible that trendline starting from bottom of 9th oct 2007clearly acts as a major support and resistance of nifty futures.So as of now if nifty futures can move with good volumes it can make a good rally otherwise it can't sustain in the higher levels