It is a big day that people have been waiting for in the bond and the stock market. The expectations may have got tempered over the last three weeks, but it is still a big monetary policy and most people on the street expect that this will not be a nonevent and this time something will happen.
Lots of important results like Crompton Greaves, Glenmark, Idea, Sterlite are slatedfor today. Global markets are flat, so today it is between the policy and the earnings that we need to carve out our market reaction, said Udayan Mukherjee, managing editor, CNBC-TV18.
In the last four weeks there have been intense discussions on what it will be from the Reserve Bank, but now that we are down to wire one should dispel probably notions of getting that big 50 basis point (bps) surprise – that seems less and less likely, as we get into the policy. If there was any doubt that the Reserve Bank will not pull that bigger trigger yesterday’s document of the review probably gives out that 50 bps is not coming today, if it does, it will hugely surprise the market. Infact it may even shock the market.
So, I think 50 bps you keep aside and say not more than 1-2 percent probability. If that happens all markets will rally, but it’s probably not going to happen – that leaves with the other two options to play around with which is the consensus 25 bps, but not the insignificant probability of getting nothing from the Reserve Bank of India (RBI) today.
A small window of that possibility is best toyed with this morning. There is a reasonable probability that the RBI probably on the back of current account deficit (CAD) and inflation concerns stays its hand even this time and wait for the Budget before it presses the trigger.
There is atleast a 25 percent probability of that happening if not higher. It is still majority chance of or highest probability outcome of getting 25 bps, markets are expecting that. But I don’t think between 0-25, we get something which leads to raptures in the market. So, I am hesitant about expecting the RBI to unleash a big rally in the stock and the bond markets today.
Yesterday’s trade was fair, we had a good pullback on Friday, market consolidated in the midcap space. They just paused ahead of the policy because it is really a fine call this time around from the RBI. Traders would not want to stick their neck out and play for that rate cut and then not get it and get disappointed.
One may still see a little bit of action in the first hour of trade playing for that 25 bps. I don’t think it is an earth shattering kind of event if we do get 25 bps it may well be baked into the price, little bit of edginess before the policy may be visible, but after that it is anybody’s guess depending on what the RBI delivers.
I still think today’s reaction for the market will not be a very big event unless it is a complete pause and then life carries on tomorrow onwards focusing on liquidity and global markets. Today is an important policy, but chances are that it will probably be one more of those well discussed nonevents.
There is no point making a prediction on the index. It will not be very fruitful. There is a big event and one may argue that it maybe a nonevent because it is being discussed ad nauseam – that’s perfectly fine. But even so on the day of the policy it will move the index 40-50 points in either direction. If the market gets 25 bps then the reaction will probably the least, there may be a 30 point flutter either way on the Nifty and then the action subsides depending on what the RBI says about the future. I do hope that’s what comes in 25 bps because that has been priced in, either way the reaction will not be great, life will carry on.
I hope we don’t get that shock of zero rate cut by the RBI because that will lead to quite a bit of selling in the market, particularly in the rate sensitives. But the immediate reaction today hinges squarely on the policy. Earlier people might have been expecting a massive breakout on the index, which takes it to 6,150, something which the index has been struggling to reach despite promising a lot earlier in the month.
People might have been hoping that we get 50 bps today and that is the trigger, which takes the Nifty to 6,150-6,200, but one should not bet on those expectations even if one keeps it at some corner of the mind, one should not take trading positions on the basis of that because chances of disappoint are very high with that trade. So, we will probably get some kind of a move, but it is a throw of a dice on which way we move today post 11 o'clock.
I don’t think it is a very meaningful thing to put out a Nifty analysis or projection today. The best one can say is that policy not withstanding. We have been in a range of say 6,020-6,100. We are still in that range and even 25 bps may just about keep us floating in that range today.
If we get nothing from the RBI, it says I have not seen enough and would rather wait for the budget to see if one can cut rates then one will probably see a breakdown on the Bank Nifty down to those 12,300-12,400 kind of levels and pretty swiftly. If we get 25 bps, then the Bank Nifty probably may inch up a little bit on the relief that we got something, but that may not last because 25 bps is probably in the price.
I am struggling to see how the Bank Nifty takes out 13,000 today on the back of what comes through in the policy. We will need more than 25 bps to do what, so maybe 12,500-13,000 is the range for the Bank Nifty. It is also a riskier trade than playing the Nifty just ahead of the policy.