Indian Indices Turn Negative Ahead of RBI Monetary Policy; Metal Stocks Witness Selling

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Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the FMCG sector and metal sector witnessing maximum selling pressure. Realty stocks are trading in the green.

The BSE Sensex is trading down 23 points (down 0.1%) and the NSE Nifty is trading down by 16 points (down 0.2%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading up by 0.2%. The rupee is trading at 64.09 to the US$.

Investors are closely tracking the RBI monetary policy review today. As per street estimates, the Reserve Bank of India (RBI) may lower the key interest rates by a quarter-percentage-point.

In June 2017, the RBI kept rates on hold at 6.25% for the fourth consecutive time. However, with easing inflation and industrial growth continuing to remain weak, the consensus is that the central bank may go for a rate cut this time.

What decision the RBI takes remains to be seen. If it does cut interest rates, it could mean more liquidity coming to Indian financial markets in search of high returns. It will also influence many macro-economic factors in the coming period.

Interest rates are a key macroeconomic variable that have far-reaching consequences on economic growth, corporate profitability, and how people invest their money. As a thumb rule, lower interest rates aid corporate profitability as businesses pay lower interest on their borrowings. On the other hand, declining interest rates mean lower earnings on fixed deposits for investors and savers. Both of these effects of lower interest rates have a positive impact on stock markets.

In other news, the Nikkei India Manufacturing Purchasing Manager's Index (PMI) slowed to 47.9 in July. This was against 50.9 in June and is the lowest since February 2009. This was seen as new orders and output fell the steepest in more than eight years.

Also, the output of eight core industries has slowed down in June. This came as the total output moved up marginally by 0.4% as against an increase of 4.1% in May 2017. The trend can be seen from the chart below:

Slowdown in Manufacturing

The above data clearly indicates a subdued picture of industrial and manufacturing growth. As per the survey report, challenging economic conditions, water shortages and the implementation of the GST reportedly hampered growth.

Nevertheless, growth recovery is expected to accelerate in the second half of 2017 on the back of a resumption of production after GST, normal monsoons and lower lending rates.

Speaking of GST, the Goods and Services Tax became the order of the day last month. And all these months we have been subjected to a relentless propaganda by the government and the supporters of the GST, on how it will change our world, only for good.

Our colleague Vivek Kaul, has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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