Stock market situations are governed by a number of factors, and RBI policies are one of them. Rate cuts by RBI are one of the driving market factors at this point of time. Stock investors must hence tread with caution while making investments, so as to keep the ventures lucrative for the times to come. A detailed knowledge of the markets and the governing factors is required in order to make the right pick for stocks across categories. Counsel of a prudent stock advisory can be very useful in this regard, and he can offer his genuine opinion in form of stock tips and commodity tips.
Outcomes of RBI monetary policy committee (MPC) were in line with the expectations of market experts. The repo rates were cut down by 25 basis points to 6% in the first bi monthly meeting of this financial year. The stance of the policy remains unchanged, and is at neutral levels.
The expectations of the rate cuts were exceedingly positive in the market prior to it happening. The government securities and equities were both working towards securing themselves in order to meet the outcomes as expected since the past few weeks.
A few of the entities were even expecting a 50 basis points cut as a result of upcoming elections.
Following the rate cuts, G-Sec prices and equities, both decreased by a little margin. This may also be seen as a reflection of the global trends. Traders and investors, both, at this point of time are deeply focused upon the developments of the trade talks between China and US which are presently underway. It seems close to conciliation. It seems like an example of the stock market fundamental, buy on expectation but sell on fact.
The reduction in the policy rates that we have witness has appeared at a time wherein the inflation has been gentle while the growth has slowed down a little. The scenario has been common at home and in major economies across the world alike.
The second version of advanced estimates for growth of GDP in India for the year 2018-19 was released in February. It revised to be at 7.0%, down by 0.2% from 7.2% as released in the first estimate.
RBIs target for consumer inflation was at 4%. But the inflation rates have stayed below the same for past 7 months. This is while core inflation, which excludes food and fuel prices stay at 5.5%
A plethora of economic data was released following the previous MPC meet. It has specified that the risks encountered by growth have now enhanced.
As resulting from a reduction in consumption, both private and public, economic activity has slowed down in the third consecutive quarter of 2018-19.
In February, the core sector has fallen to 2%. It has rendered its effects on IIP growth for the month. Within the infra space activity, private sector involvement has been limited. Car sales were down in March and similarly, capex achieved a 14 year low for the month.
The growth prospects have been faltering in other economies as well, such as those of US, UK, China and Euro zone. They have laid negative odds on India’s growth prospects.
The CPI inflation for quarter 4 of 2018-19 was seen to be at 2.4%. It is projected to be in the range of 2.9-3% for the first half in 2019-20 and in the range of 3.5-3.8 % for the second half of 2019-20.
Let us now take a look at market liquidity situation at this point of time and the effect that RBI policies lay on it.
For 12 months now, RBI has bought durable liquidity in the banking system. This has been achieved by buying rupee securities. The total rupee liquidity has been in the line of Re. 2.9 trillion. Similarly, the inventory of rupee dominated securities has enhanced from Re. 6.3 trillion to Re. 9.2 trillion for the period.
This has laid its influence on multiple foreign assets. Gold to rupee securities have fallen from 4.343 to 3.030 for the phase. Concerns have come to fore in a few of the quarters regarding inflation.
There was a 3 year swamp of $ 5 billion on 27th March this year. This has given rise to a fresh liquidity infusion of Rs. 350 billion.
The move, thought initially welcomed by the market now is seen as way to provide cheap funds to the banking system. This would encourage lending at lower rates.
Later in the month, there is likely to be a repeat swamp of $5 billion again.
If we take into consideration the effects of these developments with an eye on the history of the stock markets, we can presume that a part of this liquidity will also make way to equity markets, commodity and real estate.
The gentle inflation that we have come across at this point of time does offer relief to a certain extent regarding stability in prices of commodities. This is due to the liquidity that we have recently seen, and assures us that inflation would not be beyond limitations in the times to come.