Market roundup: RBI liquidity management under focus as Mibor fails

Tyre firms set to ramp up two-wheeler capacity; Capital goods production index lowest since Apr ’08

Photo: Aniruddha Chowdhury/Mint
Photo: Aniruddha Chowdhury/Mint

RBI liquidity management under focus as Mibor falls

The recent currency ban by the government is getting banks awash with liquidity, which is eventually expected to flow to the government bond market as loan offtake is still depressed. The fixings of overnight Mumbai Interbank Offer Rate (Mibor) are slipping as Indians begin to deposit cash with banks. Mibor fell to 6.1% on Wednesday from 6.35% a week before. The accretion to systemic liquidity may see the Reserve Bank of India (RBI) resort to an array of measures, according to a note by Nomura Securities. Unlike past years when Mibor has been above the policy rate due to tighter liquidity conditions in the second half, the current year will see Mibor falling below the repo rate due to the currency ban, says the note.

Tyre firms set to ramp up two-wheeler capacity

Tyre firms have been quick to tail the strong increase in demand for two-wheelers. The tyre industry grew at an average of 7.5% between fiscal years 2014 and 2016. However, two-wheelers raced past at 13.1%, led by strong scooter sales, signalling healthy replacement demand in the years ahead. Tyre makers such as Apollo Tyres Ltd, Balkrishna Industries Ltd and Bridgestone India Pvt. Ltd are entering the market. JK Tyre and Industries Ltd entered the segment with the acquisition of Kesoram Industries Ltd’s tyre unit in April 2016. Even global tyre firm Michelin, which is present in the premium motorcycle tyre segment, is getting into the mass segment. A study by Icra Ltd foresees more competition and pricing pressure for firms in this segment. The addition to capacity could see utilization drop from 81-83% to about 75-77% in the future.

Capital goods production index lowest since Apr ’08

India’s Index of Industrial Production saw a marginal growth of 0.7% year-on-year in September; capital goods contracted 21.6%. The 12-month moving average of capital goods production was at 222 in September, the lowest since April 2008, points out a report by Motilal Oswal Securities Ltd. The capital goods sector also declined more than 20% for the third month in a row, and marked the 11th consecutive month of contraction, said the report. The sector is finding it difficult to get back on the path to recovery.

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