RBI's Monetary Policy Review Keep Markets Cautious

Tue, 4 Oct 11:30 am

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After opening the day on a flat note, the Indian indices registered have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the energy and metal sector witnessing maximum buying interest. Consumer durables stocks are, however, trading in the red.

The BSE Sensex is trading up 25 points (up 0.1%) and the NSE Nifty is trading up 8 points (up 0.1%). The BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 66.56 to the US$.

All eyes in Dalal Street are glued on the Reserve Bank of India's (RBI) bi-monthly monetary policy review. The outcome of the meet will be out today around 2:30 p.m.

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.

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.

Market participants are keeping tabs on this policy as it will give cues on MPC's stance on interest rates. There also remain many questions ahead. As we wrote in one of our articles today-

• Is the dilution in the powers of RBI's Governor good or bad? How will it affect interest rates?
  
  There can't be a one-word answer to this. There are merits as well as demerits of having a committee taking monetary policy decisions instead of the RBI Governor being solely in charge.

The final verdict on interest rate decision will be seen today. One thing, however, however, is a given here. With the MPC in place, there sure would be a dent in the independence of the RBI.

As regards the challenges for the RBI and its governor Urjit Patel, please read Vivek Kaul's article, The Biggest Challenge for the New RBI Governor Urjit Patel Is...

Stocks in the pharmaceuticals space are trading on a flat note. The stock of Piramal Enterprises is trading down 1.4%. This fall was followed by the stock's biggest single-day percentage gain in six weeks yesterday.

The stock faced selling pressure after the Securities and Exchange Board (SEBI) fined the company and five senior officials of the firm for violating insider trading rules. The company has violated insider trading rules with regard to the sale of its domestic healthcare business to Abbott Laboratories.

For the above, the SEBI has imposed a fine of Rs. 600,000 on the company and five of its executives.

The regulation of these companies by the SEBI is a step in right direction. Meanwhile, investors would do themselves a service to not rely blindly on the management of any company and do their own homework and independent thinking.

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

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