Reserve Bank of India’s annual policy scheduled on Friday is unlikely to astonish market participants as they have already factored in 25 bps repo rate cut; however the central bank’s commentary, especially its tone-hawkish or dovish is more likely to decide street’s mood going forward, experts believed.
“We should watch out for any strong statements from RBI whether it is on easing side or on a pause on the easing. That is one of the things that is going to determine the future action and that will impact markets to much more significant effect than the rate cut itself, because the rate cut is sort of already being priced in,” opined Gopi Suvanam of Investworks.
Agreeing to him Sudarshan Sukhani of s2analytics.com said, “Markets have run up far more in anticipation. So no matter what the RBI does tomorrow it is very difficult to surprise the markets. We have already factored in all sorts of goodies.”
With the last gross domestic product (GDP) number coming below 5 percent in FY13, lowest in 10 years and inflation coming below 6 percent for the first time in 40 months, market participants expect at least a 25 basis repo rate cut. The HSBC Manufacturing Purchasing Managers' Index (PMI), which came in today also shows that monetary tightening has taken toll on industrial growth.
While 25 bps cut appears to be given, the market would be eyeing RBI’s guidance on how many more rate cuts could be expected throughout this fiscal. In case RBI cuts rate by 50 bps, the market would react euphorically but no rate cut may result in severe selling.
Interestingly, in its macroeconomic survey, which came after market hours, RBI used a cautious language against inflation, striking a hawkish tone and warned of very limited space for further easing of monetary policy. This may disappoint market players which were expecting a dovish stance, after recent sharp fall in inflation.
RBI said that inflation was likely to remain range bound around current levels in the current fiscal (FY14), which is above RBI’s comfort levels. The central bank also sees inflation rising again during the second half of this fiscal due to increase in diesel, power and coal prices.
After a lukewarm start, benchmark indices rallied today. The 50-share Nifty topped the psychological 6000-mark, highest close since February. The Sensex also gained 231.59 points to end at 19735.77 as interest rate sensitive stocks gained ahead of RBI policy.
S P Tulsian of sptulsian.com said that given the expectation from the RBI, the bank stocks are likely to move up. “If the Bank Nifty for some reason moves past 12,750 - that should be a level one should really go short with intraday stop loss of maybe about 12, 800,” he suggested.
Given the recent sharp correction in commodity prices and slight strengthening of Indian currency RBI is likely to provide some strong indications of improving current account deficit. “Maybe we might see even numbers closer to 5 percent for the Q4, so that could be a very strong statement that could be positive for exports because then RBI can go ahead and ease and then maybe take some actions to devalue the currency which is what central banks world over are doing,” Suvanam noted.
Strategy for technology counters
Technology stocks today led the gains, after being bashed in past few sessions. TCS gained 3.8 percent and Infosys surged 2.3 percent. Tulsian suggests to go long on the IT index or and even on stocks like HCL Tech and TCS.
“HCL Tech and Infosys provide very good opportunity at the moment. They have been beaten down for various reasons, but now that everybody is talking about a global recovery and more spending on IT projects there could be some revaluation of these stocks,” Suvanam said.
He sees HCL Tech touching a level of Rs 800, and for Infosys a level of Rs 2,400.