Sunday, August 16, 2015

Hopes of a RBI Rate Cut

The markets were down for the week but there was a sudden spike up on Friday which reduced the deficit for the Nifty to a mere 46 points down for the week. What was the reason for the sudden burst of optimism? There are actually 4 reasons for this.

1. The inflation data released on Thursday shows inflation at -4 pc on the wholesale inflation front. This gives 1 more trigger for the RBI  to further reduce rates. The next RBI Meet is in end September so 1 could expect an unexpected rate cut. Maybe the rate cut is coming next week and there were certain people aware of it.

2. There is talk of special session of Parliament to pass the GST Bill in September. This raised market sentiments. Again, markets go up on hope more than anything else.

3. On Friday, the Finance Minister presented a comprehensive plan for PSU Bank reform. People were hired from the Private Sector for the first time as Chairmen of PSU Banks and lots of reforms were spoken of.

4. With the devaluation of the Chinese Yuan, there is talk that US may have to postpone rate hikes to December from September. This is because once interest rate are raised the currency becomes stronger. The US Dollar has already become 3-4 pc stronger to Yuan and further strengthening may hurt US companies who are export oriented.

5. The markets are continuing to consolidate with a positive bias. The longer it consolidates in this range, this range becomes support for the future. 8300-8650 is the key range for the market. A breakout in either direction could take us to 8000 or 8900.

6. Friday rally was different from the usual dead cat bounces. It got stronger during the day and we closed near the highs of the day. Normal relief rallies get sold into during the day and often we see a flat close.

China by devaluing the Yuan has changed the parameters of the game in the short term. All previous calculations go out of the window.

If the rupee continues to weaken, then IT sector and the export sectors gain but imports become costlier.

In 2 months the focus has shifted from the Monsoons and Greece to GST and RBI rate cut. Banks again will lead the rally or the fall.

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