Sensex Opens on Flat Note Ahead of RBI Monetary Policy

Wed, 7 Dec 09:30 am

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Asian markets have opened higher today. Nikkei 225 is up by 0.4%. The stock markets in Hong Kong and China have too opened in green. Both are up by 0.32% and 0.1% resepectively. Stock markets in US closed their previous session in the green.

Meanwhile, Indian share markets have opened the day on a flattish note. The BSE Sensex is trading higher by 48 points (up 0.2%) while the NSE Nifty is trading higher by 15 points (up 0.2%). The BSE Mid Cap index opened up by 0.5% and BSE Small Cap index too opened up by 0.4%. The rupee is trading at 67.87 to the US$.

Barring healthcare stocks, all sectoral indices have opened the day on a positive note with power sector and oil & gas sector witnessing maximum buying interest.

All eyes are set on the RBI's monetary policy meeting today. The results of the meeting will be out within couple of hours. The consensus for now is clear. The repo rate will be cut by 0.25%. We too believe there's a strong possibility of a 0.25-0.5% rate cut. However, that is not what we are concerned about. As our recent edition of The 5 Minute WrapUp states...

• It's old news. Interest rates in India have been falling steadily since January 2015.
  
  We are more concerned about Dr Urjit Patel as RBI governor and the possibility of negative real interest rates for savers.

As regards the governorship of Dr Urjit Patel, we hope he uses today's policy to lay out his thoughts more clearly. This we say, because it's reasonable to expect a clearly articulated view from the central banker during a time of currency crisis.

A rate cut, or the lack thereof, is not as crucial as the governor's thoughts on the impact of demonetisation. We want to know whether he expects the near-term demand slowdown to have a snowball effect on the economy and specific businesses. But no one at the RBI has offered a concrete view so far.

In the 28 November issue of The 5 Minute WrapUp, Tanushree explained why Dr Patel is off to a disappointing start.

• Although banks have been at the core of the demonetisation drive, Dr Urjit Patel chose not to comment for nearly twenty days. At such times, we would typically expect the central banker to outline a plan. However, what we got from Dr Patel was rather more like political rhetoric.

Earlier, in the 11 November issue of The 5 Minute WrapUp, Tanushree explained why savers have received a bad deal due to demonetisation.

• On one hand banks will have a deposit base much bigger than they would have earlier envisaged. On the other hand, the poor demand for credit is unlikely to pick up soon. The correction in bond yields has prompted corporates to raise funds via corporate deposits and non-convertible debentures (NCDs). Issue of NCDs, in fact, is at a seven year high. There will be few takers for bank loans at high yields. Threatened with prospect of poor margins, banks may therefore decide to cut deposit rates sharply.

The above scenario, coupled with the demonetisation move, can make matters worse for the economy. So apart from worrying about the demonetisation drive, depositors in India should also be concerned about their returns on the money parked in the bank.

Speaking of banking space, here's an update from our friends at Daily Profit Hunter on Bank Nifty...

And here's an update from our friends at Daily Profit Hunter on Bank Nifty...

After resisting from its all-time high of 20,575 levels in September 2016, Bank Nifty corrected 10% amid global and political events. The fall led by demonetisation got arrested near 18,150 levels. Ahead of RBI monetary policy the index is trading in a tight range of 18,200-18,600 levels finding support from 200 EMA, gap area and down sloping support line. A break below this level might further accelerate correction. The policy might act as a guiding anchor to which side, either bulls or bear, will take control of the near term trend.

Bank Nifty Trading in a Tight Range

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