Indian Indices Inch Upwards; All Eyes on RBI Policy Tomorrow

Mon, 3 Oct 11:30 am

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After opening the day on a positive note, the Indian indices have registered further gains and continue to trade in the green. Sectoral indices are trading on a positive note with stocks from the automobiles, oil & gas and realty sectors leading the gains.

The BSE Sensex is trading up 274 points (up 1%) and the NSE Nifty is trading up 90 points (up 1%). The BSE Mid Cap index is trading up 1.6%, while the BSE Small Cap index is trading up 1.8%.

Stocks in the automobile sector are witnessing maximum buying interest on account of the news of growing auto demand in the ongoing festive season. The stock of <>Maruti Suzuki is trading up by 3.7%. The company posted a 29.4% YoY growth in domestic sales in September 2016. This is noted as the highest ever domestic sales for the company in terms of absolute volumes.

All eyes in the Indian markets are set on the Reserve Bank of India's bi-monthly monetary policy review. Market participants are gauging whether the Reserve Bank of India (RBI), with the newly formed Monetary Policy Committee (MPC), will cut key interest rates or keep them unchanged.

As per leading financial dailies, according to a survey, 14 of the 18 banks and financial institutions expect the RBI to cut the Repo rate.

This policy will be the first under the new monetary policy decision process that confirms to global standards. The government has now constituted a monetary policy committee, which will take over the job of setting interest rates from the central bank. Up until now, the interest rates were decided by the RBI governor, who in turn was advised by the technical advisory committee. However, with the MPC in place, the responsibility will be spread out. This will help in reducing the immense pressure that falls on the governor.

The new MPC is comprised of six members, headed by the RBI governor. Three members, including the governor, are from the RBI while other three are nominated by the government. Each member will have one vote in the monetary policy decision. The governor will have an additional vote in case of a tie. We believe, this committee based approach will add value and help bring in transparency to monetary policy decisions.

Also, the policy would test the governorship of newly appointed RBI Governor, Urjit Patel. Expectations are that Urjit Patel will rise to the occasion and use his vast experience of handling monetary policy at the RBI to deliver on this front.

Moving on to the news from the commodity space, crude oil is witnessing selling pressure today. This is seen as a Reuters survey found out that Organization of the Petroleum Exporting Countries (OPEC) oil output is likely to reach 33.60 million barrels per day (bpd) in September 2016 from a revised 33.53 million bpd in August, the highest in recent history.

The fall is seen despite last week's agreement by OPEC members to cut output. The OPEC agreed for a modest output cut last week. It agreed to reduce output to a range of 32.5-33 million barrels per day (bpd) from the present output of 33.24 million bpd. The deal was struck during talks in Algeria to ease global supply fears.

Until a few years ago, US$ 100 per barrel was the new 'normal' for oil prices. And then this capricious commodity proved everyone wrong. Early this year, crude oil prices fell below US$ 30 per barrel for the first time in seven years. The root of this turmoil has been the global supply glut.

OPEC is a major source of the turmoil we've seen in crude oil prices. Check out Asad Dossani's article, How OPEC Lost Control of Oil Prices, for more on this.

To keep a tab on the movements in crude oil and other commodities, you can read the weekly market commentary from the Daily Profit Hunter team. Their weekly commentary tracks the developments in the global economy as well as the stock, currency and commodity markets.