Deposit and borrowing rates to remain at current levels
View(s):Interest rates will hover around current levels due to a loose monetary policy and lack of demand for credit, according to JB Securities Research report outlining its outlook for equities in 2013/14.
Deposit rates are at 10.5 per cent and borrowing rates at 16 per cent.
The report says that pawning which accounts for 22 per cent of private sector credit will contract by 20 per cent on the back of falling gold prices.
The cxchange rate is expected to be around (USD/Rupee) 132-134 for the rest of 2013, it said. “Higher import demand fuelled by credit growth can create pressure on the exchange rate. With tax revenue to GDP at 11 per cent and below peer countries, it is likely that further tax raising measures may be implemented in the upcoming budget that will impact both consumption and earnings of firms,” the report said. Higher GDP growth is possible if there is greater focus on improving productivity, greater fiscal consolidation and a stronger policy bias towards export industries.
According to the report, remittances will continue to grow albeit at a slower pace and this will relieve pressure on unemployment and boost household income aiding consumption, but it also warned that increasing foreign borrowings coupled with a slow down in economic growth can affect debt dynamics leading to a middle income debt trap.
A more nuanced strategy based on hunting for value stocks has the potential to yield superior returns, the report noted.
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