RBI Statement

The Reserve Bank of India left the bank rate and reverse repo rates unchanged at 6.0% and repo rate unchanged at 7.75%. The cash reserve ratio was left unchanged at 7.5%.

The RBI said that the recent uncertainty in the global credit markets were not ‘entirely unanticipated’.

The statement further stated that turmoil “intensity appears to be severe and the duration uncertain. It appears that a process of reordering of global economic balances is underway and hence, the process is likely to continue to be complex with significant implications for trade flows, financial flows, asset prices and balance sheets. In terms of the impact of such a process on India, our external trade is, relative to many other EMEs, well diversified.
Similarly, on a systemic basis, most parts of the balance sheets of both the public sector and the private sector are relatively less exposed to foreign currencies. However, more recently, several large corporations have expanded their foreign currency exposures which have to be managed carefully. The major source of impact is through the financial flows, in particular, in the equity markets and, consequently, on the foreign exchange market in India. The second order effects on account of financial contagion or real sector developments are somewhat indeterminate at this stage.”

The Bank added that the money supply has been growing rapidly and is above the target of 17% and 17.5% but below the estimate in the mid-term review of 24% to 25%.

The Bank also cited that headline inflation has picked up since the beginning of December 2007 and it is the banks’ policy to target the inflation close to 5% and in the medium term at 3%.

The bank assessed that the economic growth and health of the economy for the fourth quarter to be in line of its expectations.

The Bank added, “On balance, the prospects for the domestic economy over the remaining part of 2007-08 are consistent with policy expectations. First, there has been a modest deceleration in output growth in the second and third quarters. Second, aggregate supply conditions have continued to expand in all constituent sectors and the ongoing investment boom should entrench the improvement in supply elasticities, going forward.

Third, corporate profitability and business confidence continue to be sustained by the underlying macroeconomic fundamentals, positive sentiment in financial markets and resilient export demand, especially in view of the global economic and financial environment.

Fourth, inflation has so far been within tolerance thresholds at the wholesale level. Fifth, prudential and profitability indicators suggest that banks'' balance sheets have become stronger and sounder than before.

Sixth, domestic financial markets have been orderly and insulated so far from the turmoil in global markets on account of the subprime crisis though there has been unusual volatility in equity markets that is to some extent influenced by global developments. Seventh, in the external sector, the current account deficit remains well within sustainable limits, with net invisible surpluses offsetting the merchandise trade deficit to a considerable degree.”

Gainers and Losers in the Market

Of the BSE share, ICICI Bank lost 3.9% to 1,224 rupees and led the declines in the Sensex index. Hindustan Unilever surged 4.3% to 207.95 rupees and led the advancers in the Sensex index.

State Bank of India fell 3.5% to 2,226 rupees.

DLF slid 0.8% to 885.8 rupees. Larsen & Toubro shed 2% to 3,769.45.

Reliance Industries rose 0.1% to 2,565.8 rupees.

Earnings

Maruti Suzuki India 0.2% lost at 860.8 rupees. The company today posted 24.1% rise in net profit to 467.04 crore rupees on 27.2% rise in total income rose 27.2% to 4,844.8 crore rupees in third quarter of December 2007 over the third quarter of December 2006.

Software Services Stocks

Infosys Technologies gained 3.34% to 1,495 rupees, Wipro rose 1.6% to 412.5 rupees, TCS surged 0.8% to 861 rupees.