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Early next week, local stock indices are likely to trade in a narrow range on caution ahead of the Reserve Bank of India's mid-quarter policy review on Tuesday. The central bank is widely expected to lower its benchmark repo rate by 25 basis points. In our view, a combination of narrowed February trade deficit, adherence to the fiscal deficit target in FY13 (ends 31 March 2013), a pronounced slowdown in GDP (gross domestic product) growth to decade-low levels, and a fall in core inflation to below 4% y/y for the first time since April 2010 will provide the RBI with enough space to reduce repo rate at its next meeting (on Tuesday). However, A 25-bps reduction in the repo rate has been factored into stock prices and therefore, unlikely to cause any rally in stocks. They continue to view 5970 as a stiff resistance for the National Stock Exchange's 50-share Nifty. Yesterday, the index ended at 5872.60, down 36.35 points, or 0.6% from Thursday. The S&P BSE's 30-stock Sensex closed at 19427.56, down 142.88 points or 0.7%. We expect that 5800 is likely to hold as a support for the index even if the central bank withholds a rate cut. A few expect a sharper fall to levels near 5720-5750. Bank stocks may remain subdued in the wake of the central bank's probe into allegations of private banks HDFC Bank, ICICI Bank, and Axis Bank indulging in money laundering. Movement on bourses post-policy will depend on the tone of the RBI's statement and any likely guidance on the timing of future rate cuts. Infosys may gain on getting an order from India Post to implement and manage the latter's rural operations. Trade may get increasingly choppy towards the end of next week given that expiry of the February futures contract is due in the truncated week thereafter.
Early next week, local stock indices are likely to trade in a narrow range on caution ahead of the Reserve Bank of India's mid-quarter policy review on Tuesday. The central bank is widely expected to lower its benchmark repo rate by 25 basis points. In our view, a combination of narrowed February trade deficit, adherence to the fiscal deficit target in FY13 (ends 31 March 2013), a pronounced slowdown in GDP (gross domestic product) growth to decade-low levels, and a fall in core inflation to below 4% y/y for the first time since April 2010 will provide the RBI with enough space to reduce repo rate at its next meeting (on Tuesday). However, A 25-bps reduction in the repo rate has been factored into stock prices and therefore, unlikely to cause any rally in stocks. They continue to view 5970 as a stiff resistance for the National Stock Exchange's 50-share Nifty. Yesterday, the index ended at 5872.60, down 36.35 points, or 0.6% from Thursday. The S&P BSE's 30-stock Sensex closed at 19427.56, down 142.88 points or 0.7%. We expect that 5800 is likely to hold as a support for the index even if the central bank withholds a rate cut. A few expect a sharper fall to levels near 5720-5750. Bank stocks may remain subdued in the wake of the central bank's probe into allegations of private banks HDFC Bank, ICICI Bank, and Axis Bank indulging in money laundering. Movement on bourses post-policy will depend on the tone of the RBI's statement and any likely guidance on the timing of future rate cuts. Infosys may gain on getting an order from India Post to implement and manage the latter's rural operations. Trade may get increasingly choppy towards the end of next week given that expiry of the February futures contract is due in the truncated week thereafter.
