..... . VALI disclosures . .....: 17/02/25, BIZnews

Monday, February 17, 2025

17/02/25, BIZnews

Looks like RBI's regulatory stance has been vindicated. Just check out the latest inflation print for January, which at a 5-month low of 4.31 percent has stuck to the script. At its policy call in February, the central bank delivered the first rate cut in 5 years, confident of its assessment that the inflation trajectory will remain benign in the days to come.

But there is a catch. The probable spoiler in this entire game is the trade headwinds set off by Trump's string of tariff announcements, which shows no signs of a let-up. The latest buzz is reciprocal tariffs. The 25 percent tariff on all steel and aluminium imports without any exemption and exception, is going to redraw the global supply lines. Will this push up prices making the job difficult for Powell? Wait and watch. These are uncertain times!

In the Indian context, with the cushion of keeping a tight lid on prices, RBI is well placed to give growth a chance. Does that mean private investment and consumption are going to make a comeback in a big way? By extension, the 8 percent growth rate, from the current 6 percent, is a figure that seems very much doable. Is Corporate India listening?

A different scenario though is playing out in the US though. With strong growth and employment at a desired level, Fed's Powell says he is in no hurry to cut interest rates. He made such opening remarks during his appearance before the Senate Banking Committee in Capitol Hill in Washington.

Looking at market, the cup of woes is spilling over, going by the streak of losses. Much of the pain is coming from the disruptions caused by the tariff war, high stock valuations at home and FIIs making a great escape.

With so much of churn around, what should you take note of? Just relax, we take you through the investment map.

February 17 (Monday)

Earnings: ABB India
Fed Harker Speech: Federal Reserve's key member, Philadelphia Fed President, Patrick T. Harker is set to deliver his remarks on central bank policy. The Federal Reserve kept the funds rate steady at the 4.25-4.5 percent range during its January 2025 meeting, in line with expectations. Will Harker's speech throw more insights?

February 18 (Tuesday)

US Housing Market Index: The NAHB/Wells Fargo Housing Market Index in the US jumped to 47 in January 2025, the highest level in nine months, from 46 in the previous two months and above forecasts of 45. The barometer for current sales conditions rose three points to 51, a sign of demand firming up. The February data are slated for Tuesday.

February 19 (Wednesday)

ECB Non-Monetary Policy Meeting: The European Central Bank is set to hold a non-Monetary Policy Meeting on Wednesday. It had lowered its key interest rates by 25 bps in January 2025, in line with estimates. This move mirrors the ECB's updated inflation outlook, with price pressures easing in line with projections. What significance does this non-monetary policy meeting hold?
February 20 (Thursday)
FOMC Minutes: The US Fed showed patience by extending a hold on policy rate in its last meeting. Policymakers noted that recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid. The minutes of the meeting will be out on Thursday.
US Initial Jobless Claims: Initial jobless claims in the US firmed up by 11,000 from the previous week to 219,000 in the last week of January 2025, topping market expectations of 213,000. In the meantime, recurring claims rose by 26,000 to 1,886,000 in the previous week, ahead of market expectations of 1,870,000. The data up to February 15 are in the pipeline.
February 21 (Friday)

India PMI Flash: The HSBC India Manufacturing PMI for January 2025 came in at 57.7, below the initial estimate of 58, as against market forecasts of 57.8, and December's 56.4. Still, it turned out to be the fastest expansion since last July, with new orders rising at the sharpest pace in six months. This was driven by the steepest increase in exports in nearly 14 years.

Services PMI got revised lower to 56.5 in January 2025, down from 56.8 in the preliminary estimates and declining from the highest reading in four months in December of 59.3. Still, the latest figure marked the 42nd straight month of growth in services activity.

A PMI score above 50 marks expansion and below it denotes contraction.

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Trade Cycles

The four important features of Trade Cycle are (i) Recovery, (ii) Boom, (iii) Recession, and (iv) Depression!

The trades cycle or business cycle are cyclical fluctuations of an economy. A full trade cycle has got four phases: (i) Recovery, (ii) Boom, (iii) Recession, and (iv) depression. The upward phase of a trade cycle or prosperity is divided into two stages—recovery and boom, and the downward phase of a trade cycle is also divided into two stages—recession and depression.

Phases of Trade Cycle:

The phases of trade cycle are explained with a diagram:

(1) Recovery:

In the early period of recovery, entrepreneurs increase the level of investment which in turn increases employment and income. Employment increases purchasing power and this leads to an increase in demand for consumer goods.

As a result, demand for goods will press upon their supply and it shall, thereby, lead to a rise in prices. The demand for consumer’s goods shall encourage the demand for producer’s goods.

The rise in prices shall depend upon the gestation period of investment. The longer the period of investment, the higher shall be the price rise. The rise of prices shall bring about a change in the distribution of income. Rent, wages, interest do not rise in the same proportion as prices.

Consequently, the margin of profit improves. The wholesale prices rise more than retail prices. The prices of raw materials rise more than the prices of semi-finished goods and the prices of semi-finished goods use more than the prices of finished goods.

(2) Boom:

The rate of investment increases still further. Owing to the spread of a wave of optimism in business, the level of production increases and the boom gathers momentum. More investment is possible only through credit creation. During a period of boom, the economy surpasses the level of full employment and enters a stage of over full employment.

(3) Recession:

The orders for raw materials are reduced on the onset of a recession. The rate of investment in producers’ goods industries and housing construction declines. Liquidity preference rises in society and owing to a contraction of money supply, the prices falls. A wave of pessimism spreads in business and those markets which were sometime before sellers markets become buyer’s markets now.

(4) Depression:

The main feature of a depression is a general fall in economic activity. Production, employment and income decline. The prices fall and the main factor responsible for it is, a fall in the purchasing power.

The distribution of national income changes. As the costs are rigid in nature, the margin of profit declines. Machines are not used to their full capacity in factories, because effective demand is much less. The prices of finished goods fall less than the prices of raw materials.

✳Reality Tips to Traders

1)Trading in the stock market is a marathon. 2)Protecting your capital is key. (Learn to protect first) 3)Making 0 on the day is better than losing 50k 4)Losses happen; they are part of this business. 5)It’s not you vs. the market. It’s you VS you. 6)You are your biggest enemy; learn to be mentally disciplined. 7)Don’t follow the majority; follow the correct path. 8)Traders without a stop loss end up not being traders for long. 9)There is always another trade. 10)The big money is made waiting for the right set-ups. 11)Waiting for the right trade is the most powerful strategy. 12)It is better to cut a loss than to wait to be proven right. 13)Position sizing can make or break you. 14)Worry about the downside before you even think about the upside. 15)Don’t listen to headlines

..BANKING TERMINOLOGY

There are various types of Banks: PSU Banks, Private Banks, Co-operative/Regional Banks, Small Finance Banks and Foreign Banks. When you deposit money in a bank, let's say the bank gives you an interest rate of 4%. But when the bank lends out this money, they lend it out at say, 12%. The difference of 8% in the above scenario is effectively the profit of the bank! The loans that do not pay interest for 90 days are known as Non-performing Assets. Banks have to provide for such bad loans. Structure of a Bank Asset for a Bank: The asset portion of a bank's capital includes cash, government securities, and interest-earning loans (e.g., mortgages, letters of credit, and inter-bank loans). Liabilities for a Bank: The bank's main liabilities are its capital (including cash reserves and, often, subordinated debt) and deposits. The latter may be from domestic or foreign sources (corporations and firms, private individuals, other banks, and even governments). Banks are required to maintain Liquidity with the Reserve Bank of India: SLR (Statutory Liquidity Ratio): It is the money a bank needs to preserve in the form of cash, gold or government Bonds before providing credit customers. This limitation is added by RBI on banks to make funds available to customers on-demand at your earliest convenience. Banks are required to maintain SLR at 18%. CRR (Cash Reserve Ratio): Banks are required to hold a certain proportion of their deposits in the form of cash. Banks don’t hold these as cash with themselves, but deposit such amounts with RBI / currency chests. CRR rate is at 4.5% currently. Repo Rate: The rate at which the RBI lends short-term money to the banks. The RBI through its Monetary Policy committee changes the repo rate to balance growth and Inflation. Reverse Repo rate: The rate at which banks park their short-term excess liquidity with the RBI. Now let us understand various terminologies for Banks Net Interest Income (NII): This is the spread the bank makes on its lending. It is calculated as Interest Income – Interest Expended Net Interest Margin (NIM): This is the spread the bank makes on its lending. It is the earning which is left after deducting the cost paid to depositors from its yields on Loans. This is denoted in % terms. The formula is Yield on Loans – Cost of funds Capital Adequacy Ratio (CAR): The capital adequacy ratio (CAR) is a measure of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. Essentially, it is the Capital that is available to lend. Tier I Capital – In simple words this capital is freely available with the bank to lend out. Tier II Capital- This is the capital tied up somewhere and is less freely available to lend. In case of an adverse event, the bank can use this capital to lend. Under Basel III norms, a bank’s tier 1+tier 2 capital must be a minimum of 8% of its risk-weighted holdings. The minimum capital adequacy ratio, also including the capital conservation buffer, is 10.5%. Current Account Saving Account (CASA)- There is no interest paid on the Current Account and a small interest rate is paid on a savings account. The combination of both is called CASA which shows the liabilities of the bank on which it pays relatively less interest. Deposits: Bank deposits are a savings product that customers can use to hold an amount of money at a bank for a specified length of time. In return, the financial institution will pay the customer the relevant amount of interest, based on how much they choose to deposit and for how long. Now let us come to NPA. Gross NPA (GNPA): It is the total loans on which no payment has been paid for 90 days or more. GNPA % is usually shown in each Bank’s quarterly results. The percentage is basically the GNPA amount as a % of the total advances. Slippages: Slippages denote the fresh amount of loans that have turned bad in a year. The slippage ratio of a bank is calculated as Fresh accretion of NPAs during the year /Total standard assets at the beginning of the year multiplied by 100. Provisioning Coverage Ratio (PCR): This is the ratio of provisioning to GNPA and indicates the extent of funds a bank has kept aside to cover loan losses. For Instance, a company has GNPAs of Rs 100 and they have set aside 50 Rs, then the PCR is 50%. Net NPA (NNPA): The total figure left after deducting provisions made for bad loans from GNPA. (GNPA – Provisions+upgrades/writeoffs = NNPA) Special Mention Account (SMA) SMA-0 is a category in which stress with respect to the principal and interest has remained overdue for a period of 0 to 30 days. SMA-1 is a category in which stress with respect to the principal and interest has remained overdue for a period of 30-60 days. SMA-2 is a category in which stress with respect to the principal and interest has remained overdue for a period of 60-90 days

..... . VALI disclosures . .....

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Monday, February 17, 2025

17/02/25, BIZnews

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Today's

26/08/25, India's stock markets will remain closed on the day 50% US tariffs take effect. That should come as a breather for equities after the large-scale today.

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