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How Dalal Street will react as it sets eyes on RBI policy

Majority of the players in the market expect the RBI to cut key policy repo rates anywhere between 25 and 50 basis points. Expectation of a cut has seen the BSE Sensex jump 10 per cent in a month.

twitter-logoMahesh Nayak | April 4, 2016 | Updated 16:04 IST

Come Tuesday, the entire market will eagerly wait for the Reserve Bank of India (RBI) monetary policy. Majority of the players in the market expect the RBI to cut key policy repo rates anywhere between 25 and 50 basis points. Expectation of a cut has seen the BSE Sensex jump 10 per cent in a month.
 
So why does the market feel the RBI will bite the bullet on April 5?

 

  • Dovish stance from US Fed chair Janet Yellen that raised expectation that the Reserve Bank of India, or RBI, will cut rates on April 5.
  • Comfort came from the fact that retail inflation in February slipped to 5.18 per cent, as against 5.69 per cent in January 2016.
  • The government cut its interest rates on small saving schemes such as Public Provident Fund (PPF), National Saving Certificates (NSE) and Kisan Vikas Patra (KVP).
 
What will be the impact in the market?

 

 

  • No cut in rates will be a disaster and see a sell-off in the market.
  • A minimum cut of 25 basis points (bps) in policy repo rates with positive or hawkish tone from the Governor indicating a further cut in future will keep the market positive and steady.
  • A 50 bps point cut will see the party continue in the market. After all on expectation of a cut in rates, the BSE Sensex jumped 10 per cent in a month, the biggest gain since January 2012. (Then the Sensex had jumped 11.25 per cent in a month).
 
The market movement this week will be dictated by the event in the market. Any positive will pull the market upwards, but any disappointment may see a bigger than expected fall. Investors would be better off to wait for the events to unfold before investing. Investors will do  well to pay a higher price for certainty than risking their money.
 
Meanwhile in the current week the market would look at RBI for future cues, going ahead the market in the current month will keep a close watch on the five-states assembly election, the second phase of the budget session of parliament and the last quarter ended March 2016 results of India Inc that would start following from the second week of April.

 

 

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