Indian share market is eyeing a liquidity boost from the Reserve Bank of India's (RBI) bi-monthly monetary policy announcement due later today (Friday, December 6). While Sensex and Nifty surged 1 percent on Thursday, markets are keenly watching if RBI Governor Shaktikanta Das and the Monetary Policy Committee (MPC) will opt for a repo rate or cash reserve ratio (CRR) cut amid signs of an economic slowdown.
Policy, liquidity anticipation builds ahead of RBI policy
The majority of economists surveyed by Bloomberg and Moneycontrol expect the RBI to keep the repo rate unchanged at 6.5 percent, citing persistently high inflation and a neutral policy stance adopted in the October meeting. However, a few anticipate a 50 basis point CRR cut, which could infuse Rs 1-1.25 lakh crore into the banking system, potentially supporting credit growth and investments.
Recent economic data showing a sharper-than-expected slowdown in GDP growth to 5.4 percent for the July-September period has raised questions about whether restrictive monetary policies are dampening activity. Experts said this has heightened the need for liquidity-enhancing measures.
Market looking for liquidity boost, if not outright rate cut
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said, "The rate cut cycle has begun in the US, though it is yet to start in India. The RBI will also start easing rates soon, even if not in tomorrow’s monetary policy announcement. With likely rate cuts in the second half, interest rate-sensitive sectors can benefit."
Markets are anticipating liquidity measures, said Ajit Mishra, SVP-Research at Religare Broking. But he warned of a "knee-jerk reaction, especially in the banking pack, if it turns out otherwise."
Dovish policy expectations are already priced in, said Kunal Rambhia, Fund Manager and Trading Strategist, The Streets. "If things don’t really turn out as expected, we might see decent profit booking. Indices might not offer good risk-reward at such elevated levels, but a stock-specific approach is more logical," he added.
Narendra Solanki, Head of Fundamental Research, Anand Rathi, shared a similar view. "Markets have already priced in no rate cuts in December. The commentary from the Governor will be closely monitored."
Sensex, Nifty show resilience despite uncertainty
Despite the uncertainty, Indian equity markets surged on Thursday amid a highly volatile session, buoyed by global optimism and strong foreign institutional investor (FII) inflows. The BSE Sensex jumped over 800 points to end at 81,765, while the NSE Nifty gained over 240 points to close above 24,700, driven by renewed buying in heavyweight stocks. FIIs net bought Indian equities worth Rs 8,540 crore yesterday.
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Aurodeep Nandi, India Economist at Nomura, said he expects a potential 25 basis point repo rate cut and a 50 basis point CRR cut, though he acknowledged broader challenges. "The Indian economy is in a cyclical slowdown. Lower credit growth will impact domestic demand, and government spending needs to ramp up to meet targets," he said in an interaction with CNBC TV18.
The market's trajectory post-policy announcement will hinge on whether Governor Das signals an imminent easing cycle or maintains a cautious stance to address inflationary concerns, said Kranthi Bathini. A CRR cut, even without a repo rate reduction, could provide the liquidity boost markets are seeking.
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