Indian Markets Outlook for the week – 4.Mar.2016 to 8.Mar.2016
RBI policy eyed next week; 25-bps rate cut seen
( www.rupeedesk.in )
For
the coming week, all eyes would be on the Reserve Bank of India's monetary
policy, scheduled for Tuesday, before which indices are seen trading in a
narrow range with a positive bias as investors
maintain
caution. Our base case (scenario is) that Governor Rajan cuts (interest rates
by) 25 bps on
Tuesday
(and August) but signals a pause in June. A dovish scenario would be the RBI
cutting key
interest
rates by 50 basis points and supporting more liquidity by reducing cash reserve
ratio by 25 bps or increasing the open market operations. In our view, this (a
dovish scenario) is a low probability event.
In
the third situation, the sentiment may be weighed down by hawkish comments from
RBI Governor
Raghuram
Rajan, citing multiple risks to the RBI's 5% inflation target for 2016-17
(Apr-Mar), such as a possible third El Nino year or a rebound in oil prices, or
a probable rate hike by the US Federal
Reserve
in June that may weaken the rupee. We see this (the hawkish outlook) as an even
lower
probability
event as high lending rates have pulled down growth to an estimated 4.6% in the
December quarter in the old GDP series. Banks and other rate sensitive
sectors--capital goods, infrastructure, automobiles, and real estate--are
likely to be in focus on account of RBI's monetary policy.
The
index yesterday ended 0.2% higher at 16174.90 points on hope of a 25-bps rate cut
by the RBI.
We
believe markets have factored in a 25-bps rate cut and will rise if the RBI
cuts rates by 50 bps.
Domestic
markets are also seen taking cues from global markets, where investors are
grappling with
fears
of a slowdown in world economy and central banks' measures to ease monetary
policy which are
not
seen having much effect. Domestic benchmark indices declined yesterday,
tracking weakness in
the
global markets. Sentiment world over was hit as a reading of Tankan survey of
manufacturers'
sentiment
by Bank of Japan for Jan-Mar halved on quarter, raising concerns that the
central bank's
negative
interest rate policy was doing little for the country's growth.
The
Nifty 50 and the S&P BSE Sensex ended down 0.3% each at 7713.05 points and
25269.64 points,respectively. The automobile sector would also be in focus as
many companies report their sales numbers for March. Post market hours
yesterday, Tata Motors reported its total sales of 53,057 units, which were up
just 1% on year. Stocks of Tata Motors ended down 1.8% at 379.65 rupees.
