The rationale to do so was because of the timing issue of the fortnightly reporting cycle and consequently brought some relief to the market.
Rates were left unchanged by the central bank at the March policy meet even as its tone sounded more hawkish although on April 17, it cut interest rates for the first time in 3 years by 50bps to 8% noting rising risks to growth and moderating inflation.
Growth
The monthly index of industrial production (IIP) ‘cycle’ switched directions once more as January IIP came in at 6.8%, in comparison to a December figure last year of just 1.8% (the consensus estimate was in the region of 2.1%). This positive surprise was led by a 93% rise in food products; however, a contraction in capital goods remains a worry. The economic survey, also released last month, pegged GDP for 2013 at an estimated 7.6% and 8.6% for 2014.
Inflation
February’s wholesale price index inflation rose to 6.95% (versus 6.6% in January) after seeing a declining trend in the past four months. This affected market sentiments and any expectations of an early rate cut. However, not all was gloomy; core inflation was 5.7% versus the previous number of 6.7%.
Currency
The rupee lost out on some of its year-to-date gains in March, depreciating 4% and trading at 51 rupees to the dollar. The rise in crude prices, a slowdown in the foreign institutional investment inflows and fiscal year-end adjustments also added to the selling pressure.
Party and political corner
The eagerly watched state election results came out negative as far as the incumbent government was concerned. The result in the largest state of Uttar Pradesh saw the regional party Samajwadi Party winning by a majority – contrary to the market expectations of a coalition with the Congress, which could have potentially shaped the structure of the central government in the days to come and reform moves thereafter.
Union Budget:
The Financial Ministry’s speech did little to cheer overall sentiment, with a fiscal deficit target for 2013 of 5.1% seen as optimistic. While sectors like infrastructure, utilities and materials saw some steps being taken, the overall measures did not live up to expectations. Additions included the increases in service tax and excise duty and the expansion in the ambit of the service tax net. The rail budget revealed challenges facing the government on the legislative front when coalition partners forced a partial rollback of proposed fare hikes.
General Anti-Avoidance Rules (GAAR):
Following a mention in the Finance Ministry’s speech, GAAR caught the market’s attention and continued to be an overhang for the rest of the month. The Finance Ministry took its time to provide some clarifications, and left a lot of unanswered issue. This is likely to weigh on markets until its eventual passage with the budget around May 2012.
