It has not been a good day for trade at all. Ever since the inflation numbers came out, the markets have lost their nerve a little bit and all the big push before the rate cuts or expected rate cuts on Monday have just unraveled a little bit, said CNBC-TV18's managing editor, Udayan Mukherjee.
The Nifty is back down to the 5,050 level and the Sensex has lost a couple of 100 points. European markets are also looking slightly iffy today and the market breadth has not been good at all. Political uncertainty, inflation and all that has weighed into the market which was running quite strongly over the last couple of days. Let’s see what the next day and a half look like, leading up to the important events of the weekend.
There has been a lot of newsflow from Delhi regarding the Presidential election and the upside risk to inflation has also not cooled down aggressively enough for the RBI to go ahead. Mukherjee emphasized that inflation itself will not let RBI move too much and today's number is an indication of that. The number is pretty high, core inflation is around 5% and it is not too low.
That by itself should not lead to aggressive cuts that the street was expecting. Whether it is because of the clamor for rate cuts, persuasion from Delhi, how worried the RBI is about growth will lead the central bank to cut, is anybody's call. But, today expectations have got tempered a little bit because till yesterday, people were talking about fairly outlandish kind of cuts from the RBI. Now people are saying that there maybe cuts but they may not be too aggressive.
At such times you go with the bond market more than the equity markets, which is far more excitable. Bonds have rallied quite consistently and sharply today and they had gone upto 7.96% and they have come back to 8.05%. It means, expectations got moderated and it is good that is happening today because otherwise, it might have led to a big shock on Monday if this realization had dawned then. It is good that some sense of neutrality and maybe even suspense is building up before the RBI, not quiet complacency.