The Reserve Bank of India, the Indian central bank, has just cut the repo rate -- the interest rate at which it lends short-term funds to commercial banks -- by 25 basis points to 6.5% from 6.75%, and one or even two cuts could follow this year.
Asia's third-largest economy and the continent's fastest-growing at the moment -- at 7.6% -- has been a success story for quite a while, and investors are looking positively to more easing from the central bank, because it can boost Indian stocks further.
Investors in the U.S. seeking exposure to Indian companies could take a look at the ADRs of Indian companies or at U.S. stocks with exposure to India. Infosys (INFY), Wipro (WIT), Cognizant Technology Solutions (CTSH), ICICI Bank (IBN) and HDFC Bank (HDB) are a few of them, and there are also India-focused ETFs.
Interest rates in India are currently at a five-year low and the RBI said that there is room for further cuts down the road if inflation stays within control. The RBI said that it was maintaining its accommodative stance going forward. The cash reserve ratio (CRR) was left unchanged at 4%.
RBI head honcho Raghuram Rajan and the RBI said in a statement: "Inflation has evolved along the projected trajectory and the target set for January 2016 was met with a marginal undershoot."
The central bank stated that inflation was expected to decelerate modestly and hover around the 5% level for the current fiscal year ending March 31, 2017. GDP growth for India for the fiscal year ending March 2016 was expected to come in at the 7.6% rate as per the Reserve Bank of India.
Raghuram Rajan said that the rate cut made sense, given the uncertainties in the economy at the moment and the fact that borrowing rates are decreasing rapidly.
The RBI chief stated that he has asked Indian banks, both private sector and public, to immediately lower their lending rates so as to pass on the decreased costs of borrowing to businesses and consumers, in order to spur spending and CapEx spending.
In a survey (Nikkei-Markit Manufacturing Purchasing Managers Index) of businesses in India, manufacturing activity in the country expanded for the third straight month in March and at the fastest pace since last July, thanks to stronger consumer demand.
Here at home, we had yet another Fed head, Boston President Eric Rosengren, shoot from the hip saying that he was surprised that the futures market was pricing in just one or no rate hikes in 2016. On the flip side, Neel Kashkari, Minneapolis Fed President, said that he was happy with the path of current monetary policy and expects "moderate" economic growth ahead in the U.S.
I am not sure why Janet Yellen continues to allow these various regional Federal Reserve head honchos to continue with their totally contrasting statements, but it is what it is. Till global investors learn to ignore these conflicting remarks designed to garner headlines in order to further their own agendas and post-Fed careers, markets will remain volatile and go into a tailspin every single time.
A more clear, unified and concise message from the U.S. Fed, my left foot!
C'est la vie.