RBI MPC minutes: While the Indian IPO market had been on fire in 2017, India’s central bank RBI notes that the large mobilisation of resources from the primary capital market should support investment activity further. Interestingly, Indian companies raised a record Rs 67,147 crore in 2017 through initial public offerings (IPOs), according to data from Prime Database. After stellar IPOs in 2017, V Jayasankar, head of equity capital markets at the investment banking unit of Kotak Mahindra Bank told Bloomberg that he expects the same trend to continue in 2018.
In what could signal positive cues for the stock market, RBI said that growth has been recovering and the output gap is closing. Further, this is also reflected in a pick-up in credit offtake in recent months. However, the stock market could turn volatile tracking global cues. “Even as global growth and trade have been strengthening, rising trade protectionism and financial market volatility could derail the ongoing global recovery,” RBI noted in its minutes.
Keeping this in view, the central bank has called for strengthening of domestic macroeconomic fundamentals and rebuilding of bank balance sheets and also deepening risk sharing across markets. Decoding the various risks, RBI said that rising international crude prices, rising raw material and other input prices, and the slow return of pricing power among corporates could weigh on the markets.
Taking stock of the Trump trade war, RBI said that equity markets globally have shed most of the gains of the previous quarter in a heavy sell off in February-March, due to US imposition of new tariffs on Chinese goods as well as optimistic US jobs reports. The apex bank said that this financial market volatility and potential trade wars pose a threat to the outlook.
Noting the impact of structural reforms introduced by the government in the recent past, RBI said that while the domestic cyclical recovery is underway, the long-term growth potential is expected to be reinforced due to their implementation.
Taking stock of RBI monetary policy minutes, IDFC said that minutes appear to be more hawkish than the policy. It appears that RBI’s pause horizon maybe coming off, it said. Notably, the central bank has kept the key policy rates unchanged for the fourth consecutive time at 6%.
HSBC said that upside risks to inflation dominate currency impact. The firm expects growth to be below consensus at 7%. HSBC said that it expects RBI to keep policy rates unchanged in June. According to the firm, MPC members seem comfortable with growth recovery and seem concerned about inflation outlook.