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The economic value of cutting prices should not be underestimated. In March 2004, Procter & Gamble cut prices of Tide by 47% and Ariel by 28%, challenging Hindustan Lever’s pole position in this market. HLL responded in like and a furious battle ensued. How this ended is another story. What’s relevant is this: P&G’s volume growth did increase, but HLL’s growth did too, and so did its market share. Continue Reading →
The RBI is in no hurry to cut interest rates despite inflation trending low for several months now and there being no obvious immediate reason why it should move up sharply. Raghuram Rajan, the RBI governor, may have good reasons to be cautious though, considering what happened during the previous governor D. Subbarao’s tenure. He took charge as the governor in September 2008 and stayed on for 5 years. His tenure’s start coincided with the global financial crisis. The governor and the government joined hands with a monetary and fiscal stimulus to protect India’s economy and financial markets. Continue Reading →
In the previous article, the main problems facing the government and the RBI were listed –a falling rupee, slowing growth and rising inflation. What is needed at this stage is confidence-building measures rather than the fear-inducing steps taken, such as the one imposing capital controls. Foreign investors have been caught on the wrong foot in many countries, where they were prevented from taking their dollars out. They need to be reassured that option is not on the table. Continue Reading →
India’s stock markets crashed by 769 points on August 16, as investors reacted to good news in the US and bad news at home. Stock markets fell and the rupee has crossed the Rs 62-mark, as the RBI’s capital control and gold import restriction measures appear to have caused panic.
Equity markets in the emerging market sphere are celebrating after the US Federal Reserve’s statement issued on July 31. The Fed’s statement, that the US economy grew at a modest than expected pace in the first half, has been taken as a sign that the Quantitative Easing ‘taper’ is nowhere in sight. They may be right but they should also pay heed to the Fed’s statement about the improving health of the US economy, and if upcoming indicators point to a recovery on expected lines then the Fed may commence a taper.
The Telecom Regulatory Authority of India has proposed a hike in foreign direct investment limits in the broadcasting sectors, chiefly television and FM radio. The move follows the government’s desperation to bring in FDI follows to help bridge the balance of payments problem.
The Reserve Bank of India (link) did the predictable by holding on to rates at current levels in its quarterly monetary policy review. The repo rate has been retained at 7.25% and the reverse repo rate has been kept at 6.25%. Repo is when banks borrow from the RBI to meet temporary funds requirement and the reverse repo is when banks park surplus funds with the RBI.
The government announced on July 18 that it had issued an ordinance to give Sebi more powers against illegal collective investment schemes and to curb insider trading. The release went on to say that
A. Sebi would have powers to regulate any collective investment schemes with a corpus of Rs 100 crore or more,
B. Sebi could seek information, including call records, from anybody in connection with its investigations, and lastly
Are auctions the only method for allocating natural resources was a question that was hanging fire since the Supreme Court’s verdict on the 2G scam was issued. The government, through a presidential reference, requested the Supreme Court to give its opinion on this issue, and a few other issues related to the 2G judgement. The SC’s opinion was critical, as it would set to rest any doubts about interpreting the judgement.
The Reserve Bank of India disappointed those who were looking to it, to complete a troika of measures to lift up investor sentiment. Last week, the European Central Bank said it would buy sovereign euro bonds without any limit, and the US Federal Reserve said it would launch a quantitative easing program that would continue for as long as economic conditions remained weak. Then, the Indian government followed up with a series of reforms, including cutting diesel prices and allowing FDI in a few high profile sectors.