The week has seen one of the most long
awaited breakthroughs between India - US regarding Tarde Facilitation Agreement
(TFA) with WTO (World Trade Organisation). TFA is largely seen as an effort by
developed countries to access vast markets of the developing economies. The deal
is expected to add around $1 trillion to the global trade.
What is TFA?
TFA aims to smoothen any movements of
goods among the member countries by cutting down bureaucratic obligations. TFA
ran into a rough weather due to a unfair clause that restricts farm subsidies
to 10% based on 1986-88 prices when the prices of food grains were relatively
lower. If the cap is breached other members can challenge it and go on to
impose trade sanctions on the erring country. Also, this will open up the
country’s stock piling to International monitoring. Ironically, US provide $20
billion per annum as farm subsidies to its farmers.
How does it
benefit India?
We would gain immensely on ease of
doing business and higher market access. India currently has around USD 800
billion of merchandise trade. As per the market estimates, with uniform
standards at customs and port clearance, the transaction cost would reduce by
over 3% leading to a savings of approximately $20 -25 billion.
Macros Update
The YOY Consumer Price Index (CPI) for
October 2014 was at 5.52%, softer than 6.46% compared to the previous month
lead by sustained decline in the prices of vegetables and fruits. The latest
reading on inflation remains the lowest in the current series of CPI has given
a positive boost to the expectation on the interest rates. Debt market has
recently been trading bullish amidst expectations of easing in interest rates
earlier than what was projected before. It appears that the central bank may not
be in a hurry for any monetary softening now unless they see a more sustained
softening in inflation.
The IIP growth of 2.5% for the month
of September 2014 (YOY) was higher than the broad market consensus. The higher
reading was primarily a factor of improved manufacturing activity lead by
capital goods by 11.6%.Under manufacturing sector, 14 out of 22 industries
comprising 50% of the weight has showed improvement in production activity
during September compared to the previous month, pointing towards a sustained
economic demand. As per the recent Morgan Stanley estimates, India is expected
to grow by 6.3% in 2015 and would enjoy the fastest growth among the Asian
countries due to improved business confidence, proposed reforms and lower oil
prices.
Investment Recommendation
Despite a case
for easing of interest rates, Retail Investors shall avoid Long Duration Income
Funds due to its tactical nature, heightened volatility and the prevailing debt
taxation of 3 years to qualify LTCG benefit. One can spread his debt investment
between a fixed maturity plan and an accrual product with a 3 year investment
horizon. Given the bullish outlook, Equity continues to remain an attractive
option for investors with a long term horizon of 3 to 5 years.
Happy investing!
Disclaimer: Views
are personal. No content
on this blog should be construed to be investment advice. You should consult a
qualified financial advisor prior to making any actual investment or trading
decisions. All information is a point of view, and is for educational and
informational use only. The author accepts no liability for any interpretation
of articles or comments on this blog being used for actual investments.
