All eyes on RBI policy meet on Tuesday; rate-sensitives in focus
Following today's negative performance, markets are likely to trade slightly in negative zone ahead of the RBI meet.
Majority of analysts interviewed by the ET Now are of the view that the central bank may cut the repo and reverse repo rate by 25 bps. Additionally, to ease liquidity situation, the RBI may look at easing the cash reserve ratio by 25 bps too.
The Nifty ended the first day of the week in the red and below 5,850 mark as weak cues from global peers after Cyprus bail-out plan hurt investor sentiment.
“Following today's negative performance, markets are likely to trade slightly in negative zone ahead of the key event. We are expecting some action especially on the rate sensitive side," says Mitesh Thacker of miteshthacker.com.
"Reserve Bank has traded a very careful path in the growth inflation dynamics. Consensus is building around the fact there will be a 25 bps cut and that is what all of us are expecting," says Diwakar Gupta, MD & CFO, State Bank of India.
"It is expected that liquidity situation might get deteriorates around 15th March when advance taxes paid out. So, to that extent the banking system certainly is stressed for liquidity," he added.
Gupta is of the view that on the CRR front we expect that there should be a 50 bps CRR cut.
|Source: Mitesh Thacker, miteshthacker.com|
The BSE Banking index closed 0.67 per cent lower, the BSE Auto Index slipped 1.4 per cent while the BSE Realty index was down 1.2 per cent on Monday.
Rate sensitive stocks will be in focus ahead of the RBI policy on Tuesday and the outcome of the policy meet is likely to give further direction to markets.
“The monetary policy interest rate decision would be keenly watched out for. A more than 25 bps cut in the rates would mean positive for the market,” says Nagji K Rita, Chairman & MD at Inventure Growth & Securities.
“Volatility has also increased in the market and this warrants caution. The Nifty has supports at 5800 in the short term and on the upside, 6000 remains psychological resistance,” added Rita.
Ashwani gujral of ashwanigujral.com advises an option strategy for investors to beat volatility ahead of the key event. Investors can ‘sell’ a 5800 put and sell a 5950 or a 6000 call option and collect premium as the market might move sideways
“The range in which market are moving is unlikely to breakdown unless we probably raise rates more than 25 bps,” he added. Gujral is of the view that if the RBI slashes rates by just 25 bps, the market is likely to move sideways and will wait for any further direction from global markets.
Top Two trading strategies to watch out for on Tuesday:
Reliance Infrastructure Ltd: On the weekly chart of Reliance Infrastructure, the stock has been trading sideways for past few months after falling from the highs of Rs 679.75 level.
Today, the stock has closed below the support trend line. “On the daily chart stock is finding resistance from its near term moving averages. The momentum indicator is taking resistance from higher levels and rolling downward,” Mitesh Thacker said in a report.
Thacker recommends selling the stock now with a stop loss placed above Rs 427.20 for the targets of Rs 398/385 levels.
BHEL: The share price of BHEL has been continuously taking support in the range of Rs 197--195 levels. Today, the stock has closed near that trading support zone.
“On the weekly chart, the stock has formed Engulfing pattern after a few weeks consolidation. The stock is currently finding resistance from cluster of moving averages,” Mitesh Thacker said in a report.
The momentum indicator is also finding resistance from higher levels and rolling downward. Traders can create short position closing below Rs 195 with a stop placed above Rs 201.60 levels (on the closing basis), for the targets of Rs 188/180 levels.