Two reasons markets cheered RBI policy before closing the day on a flat note
The market had surged 250 points after the policy meeting; led by gains in rate sensitive sectors such as capital goods, banks, auto and realty.
However, the market has surged higher after the policy meeting led by gains in rate sensitive sectors such as capital goods, banks, auto and realty.
The market is taking cues from Reserve Bank of India Governor Raghuram Rajan’s comments that CPI target of 6 per cent by January 2016 can be met even though there is significant upside risk to it.
According to the Governor, there are number of disinflationary factors underway such as lower crude prices and relatively stable rates are positive for inflation.
However there are some uncertainties on the evolvement of inflation. He said it needs to be seen how food inflation will evolve over time as headline inflation is buffeted by food inflation.
The RBI may ease interest rates if CPI inflation comes below 6 per cent before January 2016. If inflation moves above 6 per cent in the same period then the central bank may be forced to hike rates as well.
“We expect inflation to continue falling in the coming months due to benign global commodity prices on the one hand as well as the government’s focus to bring down food and wage inflation by avoiding inflationary impulses from sharp MSP price hikes, etc,” said Dinesh Thakkar, Chairman & Managing Director, Angel Broking.
“Hence, we expect that in the coming 6-12 months, we are headed for lower inflation and therefore interest rates, which should be a key positive catalyst for investments, growth and capital markets,” Thakkar added.
There is another little change that has been made by the Reserve Bank that might enthuse markets. The limit on short sale for liquidity bonds has been increased to 0.75 from 0.50.
According to Nilesh Shah, MD & CEO, Axis Capital, hiking limit on short sale for liquidity bonds will help markets
“In a cycle where people expect interest rates to cut eventually if not immediately, it is unlikely that most people will be happy to build long-term short positions. I doubt people will be willing to use it in the near to medium term but certainly from a market point of view, this is an encouraging enabling provision,” he told ET NOW.
The RBI is reducing ceiling on SLR securities under HTM from 24 per cent to 22 per cent in phased manner. This move will have an impact on the banks.
“Partial decrease in HTM limits is also driven by the liquidity coverage ratio. Clearly that will be the driver for the consideration of decreasing the HTM limit so that the excess SLR can be used for improving liquidity coverage ratio,” Shah added.
At 01:05 p.m.; the Nifty was at 8,018, up 59.10 points or 0.74 per cent. It touched a high of 8,030.90 and a low of 7,943.75 in trade today.