RBI rate cut fails to cheer markets; Nifty ends below 10,100 mark

All that happened in Wednesday's trade

4:08 PM

MARKET OUTLOOK: Jayant Manglik, President, Retail Distribution, Religare Securities 

 

We're seeing early sign of exhaustion in Nifty and possibility of profit taking or consolidation is high now. However, the overall trend will remain positive and there'll be no shortage of trading opportunities on stock specific front. We suggest using any intermediate correction for accumulating quality stocks on dips. Nifty has strong support at 9,900. Plan your trades accordingly

4:07 PM

COMMENT: Motilal Oswal, CMD, Motilal Oswal Financial Services

 

RBI has been facing this challenge of non-transmission for a while, but a silver lining is developing at the macro level where the Forex reserves of India are becoming big. Large forex reserves eventually will ensure fall in currency premiums and that will result in foreign capital flowing into the economy at substantially lower rates. This will happen as global borrowing rates are subdued and currency risks now tapering off will result in lower rates offered in India.

 

Markets are overheated but reluctant to fall, a huge pile of cash getting built in the system and waiting to be deployed, that will act as a shock absorber at every weakness. We think long term money should be committed at these levels as well. Barring any global event, the outlook is positive

4:05 PM

NOMURA ON RBI POLICY

 

Overall, the RBI’s rate decision and its neutral stance are in line with expectations. The neutral stance suggests that the RBI’s decision-making remains data-dependent.

 

Looking ahead, we expect GST-related growth weakness in June/July and a gradual recovery after August, aided by a resumption of production (after initial GST hiccups), ongoing re-monetisation, normal monsoons and easier financial conditions (lower lending rates, ample liquidity). 

 

Headline inflation bottomed in June and we expect it to rise gradually to above the medium-term target of 4% on higher food prices and statistical factors (HRA increases, adverse base effects). Given our expectation of both growth and inflation rising over the next six to 12 months, we expect a prolonged pause from the RBI

4:05 PM

AMBIT CAPITAL ON RBI POLICY

We expect the RBI to administer 25-50bps of rate cut from hereon over the rest of FY18. Even as CPI inflation is expected to trend higher in 2HFY18, we expect expect the RBI to cut rates from hereon mainly because: (1) the Central Government’s net spends have been heavily front-loaded and hence will slowdown from hereon thereby requiring monetary policy to play a more growth-supportive role  and (2) meaningful pressure is being exerted by the Ministry of Finance on the RBI to cut rates

4:03 PM

Anand James, Chief Market Strategist, Geojit Financial Services

 

Given the soft PMI numbers and concerns over GST hassles markets have been expecting a deeper cut, especially as inflation expectations had eased. So it was not surprise that markets looked underwhelmed after RBI’s 25bps cut. Rise in volatility index and FII's restrained approach over last few trading sessions have also been testing investor sentiments. 

4:03 PM

Deepak Jasani, Head- Retail Research, HDFC Securities on RBI policy

 

While the 25 bps repo rate cut was in line with consensus expectations, the neutral policy stance of the MPC may disappoint some market participants. A 25 bps rate cut in itself will not result in a large fall in interest expenses for the businesses, therefore, an indication or hint about the future speed and time of rate cuts could have helped sentiments across the board; though the compulsions of the RBI's MPC are well appreciated at this point. Availability of credit may be more important than its cost in times when a large section of the business community is undergoing stress. While the markets may react in a knee-jerk fashion in the extreme near-term, in a day or two, it may come back on its original path, which seems upwards atleast for the next 2-3 weeks.

3:52 PM

Sectoral trend

All sectoral indices settled in negative. 

Source: NSE

3:49 PM

Top Sensex gainers and losers  

Source: BSE

 

3:46 PM

Rate-sensitives end lower

Stocks of rate-sensitive sectors such as financials, automobiles and real estate ended lower. Nifty Bank and Nifty Auto shed 0.2%, while Nifty Auto closed 0.3% lower. 

3:42 PM

Market breadth remains negative

The breadth, indicating the overall health of the market, was negative. On the BSE, 1,594 shares fell and 1,063 shares rose. A total of 176 shares were unchanged.

3:40 PM

In the broader market, the BSE Midcap shed 0.3%, while the BSE Smallcap settled little changed. 

3:39 PM

Markets at close

 

The Sensex settled at 32,476, down 98 points, while the broader Nifty50 closed at 10,081, down 33 points. 

3:36 PM

COMMENT: Radhika Rao, India Economist, DBS Bank

 

Today’s policy statement is not a game-changer for the markets, with a neutral central bank to keep interest rate differentials in favour of the economy and thereby fueling foreign investor interests. One needs to differentiate between liquidity management and the rate direction, which might over the course of the coming months move in opposite directions. 

 

Whilst rates might be lowered in response to benign inflation, liquidity might continue to be drained to ensure the operating rate target is close to the policy rate

3:26 PM

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services on RBI policy

 

We understand that the rate cut decision was not consensual. One member wanted a 50 bps cut in rate while another was in favour of a pause, while four members wanted a 25 bps cut. So, finally we got a 25 bps cut by a vote of 4 to 2.  

 

An important point to note is that the RBI has not changed the policy stance, which continues to be neutral. A shift to ‘accommodative' stance would have been better. To that extent, the decision is disappointing. It is important to note that India has the second highest real interest rate in Asia presently. This is detrimental to credit expansion and economic growth. 

 

The RBI governor expressed concern that CPI inflation might inch up to 4% by Q4. Perhaps they might cut again when CPI inflation undershoots their estimates, which has been the case in the recent past. 

3:22 PM

Rupee surges to two-year high

 

The rupee rose to as much as 63.7575 per dollar, its strongest level since Aug. 10, 2015, from its close of 64.0750 on Tuesday. READ MORE

3:16 PM

Madan Sabnavis, Chief Economist, CARE ratings

 

The decision to lower rates was expected even as the market has made it a habit to always buffer a rate cut every time a policy is announced. Prima facie, it appeared that with CPI inflation going below 2% there was strong reason to lower rates as the target which has been set is 4% with a band of 2% on either side. With the number crashing through the lower limit, a clamour for rate cuts naturally built up. But if one goes back to the earlier policy statement from the RBI, there were some issues highlighted which are still not addressed today. CLICK HERE FOR FULL ANALYSIS

3:11 PM

Viral Acharya: Working on next steps for resolution of stressed assets in banks

2:59 PM

COMMENT: Shishir Baijal, Chairman & Managing Director, Knight Frank India

 

The policy rate cut of 25 bps by the Reserve Bank of India’s monetary policy committee is on the expected lines. While it is a welcome move we were looking forward to a much more aggressive rate cut. 

 

Considering the battery of new reforms in force, a good monsoon in progress, benign inflation numbers, favourable global environment and the overall uptick in industry sentiments a healthier lending rate could have provided the much needed thrust to fuel India’s growth story. 

 

But we are happy to see that the central bank has adopted a monetary policy that propels growth. A growing economy would signal healthy consumption across all genres of the Indian real estate

2:59 PM

Viral Acharya: Currency in circulation is showing early signs of normalisation

2:58 PM

Viral Acharya: There remains much surplus liquidity in the system 

2:57 PM

COMMENT ON RBI POLICY: EPIC RESEARCH

 

This was mostly discounted in prices where we have seen the recent run up in broader indices as well. We have seen a positive build up in interest rate sensitive sectors like automobile, banking, Reality and NBFCs. So, liquidity was already present for a while and with this boost we may see further momentum.

 

We expect Reality stocks to gain some momentum, while private banks will do well due to their better return on deposits as compared to PSU banks. We maintain our 'buy on dips strategy' with next the next targets around 10,400 - 10,450 on the Nifty. Bank Nifty may rally towards 25,800 levels, while base is seen at 24,800.

 

2:56 PM

Viral Acharya: Marginal cost rate loan experience not satisfactory

2:55 PM

Addressing twin balance-sheet issue is top priority, says RBI deputy governor Viral Acharya

2:54 PM

Benchmark indices extends fall with Sensex falling over 100 points and Nifty50 down 36 points.

2:50 PM

PRESSURE ON HEADLINE INFLATION

 

High frequency indicators suggest that price pressures are building up in vegetables and animal proteins in the near months. There are, however, some moderating forces at work. First, the second successive normal monsoon coupled with effective supply management measures may keep food inflation under check. Second, if the general moderation of price increases in CPI excluding food and fuel continues, it will contain upside pressures on headline inflation: RBI

2:48 PM

HRA IMPACT ON INFLATION

 

If States choose to implement salary and allowance increases similar to the Centre in the current financial year, headline inflation could rise by an additional estimated 100 basis points above the baseline over 18-24 months -- RBI

2:47 PM

In broader markets, BSE Midcap fell 0.33% while BSE Smallcap was little changed post the outcome

2:46 PM

RBI on state of economy

 

There is an urgent need to reinvigorate private investment, remove infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana for housing needs of all. This hinges on speedier clearance of projects by the States. On their part, the Government and the Reserve Bank are working in close coordination to resolve large stressed corporate borrowers and recapitalise public sector banks within the fiscal deficit target. These efforts should help restart credit flows to the productive sectors as demand revives. 

2:46 PM

MPC VOTE PATTERN

 

Chetan Ghate, Pami Dua, Viral Acharya and Urjit Patel were in favour of the monetary policy decision, while Ravindra Dholakia voted for a policy rate reduction of 50 basis points and Michael Debabrata Patra voted for status quo. 

2:45 PM

Other rate sensitive stocks - Nifty Auto and Nifty Realty were trading flat but in red post the policy outcome