Sunday, November 16, 2014

TRADE FACILITATION AGREEMENT


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.






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