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Taking Stock: RBI's accommodative stance, liquidity measure boost sentiment; Nifty above 12,100

Short term weakness shall be expected on a close below 12084 levels and in such a scenario initial target can be towards 11950 levels

February 06, 2020 / 05:57 PM IST

Indian market gained momentum after the Monetary Policy Committee (MPC) kept rates stable at 5.15 percent on expected lines on Thursday, but incentivizing credit flow (retail loans) to certain stressed sectors like Auto, housing and MSMEs, by exempting them from CRR on incremental credit to these sectors till July 2020 boosted sentiment.

The S&P BSE Sensex rose for the fourth consecutive day in a row while Nifty50 reclaimed crucial 50-Days Moving Average (DMA) placed at 12,117. Rate sensitive stocks rallied on ease in liquidity measure introduced by the govt. and possibility of lower rates in the future.

"The RBI took off from where the government left off and has maintained its accommodative bias as a clear sign that rates can go lower once inflation is brought under control,” Sameer Kaul, MD and CEO, TrustPlutus told Moneycontrol.

“We welcome the decision to reduce CRR on incremental lending to auto and housing as well as the extended relief given to MSME and real estate sectors,” he said.


Key Policy decisions:

• Repo rate maintained at 5.15%. Stance remains “accommodative”, and reverse repo rate remains at 4.9% and MSF at 5.4%

• Next Monetary Policy Committee meeting is on March 31, April 1, and April 3, 2020

Loans to medium enterprises will now be externally benchmarked (to repo rate/any benchmark mkt interest rate given by FBIL)

Formation of SROs (Self-Regulatory Body) for digital payment systems

FY2021 GDP growth estimate at 6%

In terms of inflation estimates, RBI expects 4QFY20 CPI inflation at 6.5%, and 1HFY21 inflation at 5.4-5.0%

MPC recognises that there is policy space available for future action…

Experts feel that the RBI has delivered positively towards growth and credit without deviating from the inflation targeting framework.

"While the policy suggests that there is space for further rate action, a cut in the April policy would hinge on trends in food inflation. A 25 bps rate cut in the next 6 months is possible. We expect the RBI stance to remain liquidity accommodative," Mihir Vora, Director & Chief Investment Officer, Max Life Insurance told Moneycontrol.

How did the market react?

Let’s look at the final tally on D-Street – the S&P BSE Sensex rose 163 points to 41,306 while the Nifty50 closed 48 points higher at 12,137.

Sectorally, the action was seen in the S&P BSE Telecom which rose 1.9 percent, followed by the S&P BSE Public Sector that was up 1.5 percent, and the S&P BSE Oil & Gas index rose nearly 1 percent.

Nifty Bank rose nearly 1 percent outperforming the benchmark indices, supported by gains in IndusInd Bank, RBL Bank, Bank of Baroda, SBI, and PNB.

Profit taking was visible in the S&P BSE Consumer Durables that fell 1.1 percent, followed by the S&P BSE IT index that was down 0.8 percent, and the S&P BSE FMCG index was down 0.5 percent.

The broader market outperformed as the S&P BSE Midcap index rallied 0.8 percent, followed by the S&P BSE Smallcap index gained 0.52 percent.

Top Nifty gainers: SBI, ZEE Entertainment, Eicher Motors, SBI

Top Nifty losers: Titan Company, Infosys, Cipla, and Tata Motors

Stocks in news:

Banking names ended the session on a handsome note after RBI announced several measures to boost credit growth in stressed sectors such as realty, MSMEs and NBFCs. RBL Bank, IndusInd Bank, SBI, Bank of Baroda, PNB, YES Bank and IDFC First Bank ended with gains of 3-4 percent.

GE T&D India share price gained over 7 percent on February 6 after the company won an order from Power Grid Corporation.

Dilip Buildcon share price gained over 2 percent after the company was declared the lowest bidder for a Chhattisgarh project.

Granules India share price gained nearly 5 percent on February 6 after the pharma company received USFDA approval for Colchicine Tablets.

Share price of housing finance companies rose up to 15 percent on February 6 after the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) permitted the extension of project loans for commercial real estate.

Technical View:

Nifty formed a bullish candle on the daily charts which resemble a Spinning top kind of pattern

It surpassed its crucial 50-DMA placed at 12117

A close above 12,160 would trigger a buy signal on the Supertrend indicator

In the last 4 sessions, Nifty added around 550 points to its kitty thereby dragging some of the momentum oscillators into the overbought zones on lower time frame charts which suggest some consolidation in the offing

As long as it sustains above 12,084 levels it may try to drag on its feet towards its logical targets of 12,266 levels

Short term weakness shall be expected on a close below 12084 levels and in such a scenario initial target can be towards 11950 levels, suggest experts.

Three levels: 12084, 12160, 12266.
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Feb 6, 2020 04:27 pm
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