Global:

As expected, the ECB maintained its ultra-accommodative stance, reduced all policy rates (cut its deposit rate to -0.4% from - 0.3%), and expanded the quantum of asset purchase (to Euro 80 bn a month vs.60 bn earlier) as well as the universe of eligible assets. While the ECB delivered a bigger-than-expected stimulus plan, it also signaled that it isn’t likely to cut interest rates further —sending a mixed signal to investors.

The Euro is likely to weaken over the medium term amid monetary policy divergence with the Fed. However, the pace of Fed’s future policy rate action and Yuan moves will hold the key to the future course of currencies including the INR.

Domestic:

There was a flurry of moves on the policy front during the fag end of the week. The LokSabha (lower house) passed the Aadhar bill giving statutory status to the unique identity number scheme which paves the way for huge subsidy savings through direct transfers. Prior to that the Rajya Sabha (Upper House) passed the Real estate and the Inland Waterways Bill. The government also cleared the new hydrocarbon exploration policy along with amendments to the MMRDA Bill.

The Realty bill is a pro-buyer bill which aims to ensure accountability and transparency through more stringent rules and disclosures, along with penalties in cases of violations. We believe this law will result in an increase in working capital requirements and also push back cash flows for developers, impacting return ratios for all in the sector.

The National Waterways Bill 2015 was passed unopposed—it is among the few legislations that the opposition allowed to pass in the upper House. This can potentially provide an alternative form of transporting goods, which at present is dominated by road and rail, and open up economic opportunities to new regions. The Bill paves the way for conversion of 100+ rivers and creeks across India into transport waterways. However, the financial requirement and road map for development of waterways will only be known after preparation of techno-economic-feasibility studies and DPR etc. 

Hydrocarbon exploration: The Cabinet approved higher gas prices for undeveloped fields in difficult areas (deep-sea, high pressure and high temperature) along with a draft HELP (Hydrocarbon Exploration and Licencing Policy) policy for the upcoming auctions. The new policy would provide higher gas (linked to LNG and alternate fuels like coal, fuel oil and Naphtha) prices and incentivize higher E&P spending. Though we are unlikely to see incremental production from these areas in the next 3-4 years, clarity on pricing would imply higher spending and production in the long-run. The discoveries to benefit from the same would largely be in the KG Basin, including, GSPC’s DeenDayal fields, ONGC’s fields as well as RIL’s D6 (satellite fields) and NEC-25 fields.