Markets Remain Volatile After RBI’s Googly

The Indian markets continue to trade in volatility after the unexpected SLR cut by the RBI. The apex bank has maintained status quo on the key policy rates, i.e. CRR and Repo Rate. The market seemed perplexed when news came in of a cut in the SLR, and at one point of time they snapped the losses and turned positive. However, the markets registered the RBI's googly, and turned volatile within minutes.

What this means to the economy is that the borrowing rates have remained at the earlier levels, due to which the government will have to borrow at a higher rate. This has an implication on the fiscal deficit, and the government will now be obliged to reduce the fiscal deficit. With its move, the RBI has again put pressure on the government.

Meanwhile, there is news that there will be reshuffle in the Union Cabinet tomorrow. P Chidambaram is likely to be designated as the new FM, while Sushil Kumar Shinde is expected to be the Home Minister. According to sources, the former IMF Chief Economist, Raghuram G Rajan, is set to become the government's Chief Economic Advisor.

The peer Asian markets have given up their gains marginally, with Nikkei and Hang Seng trading up 0.6%. Shanghai is still trading down.

European markets have opened with no clear trend. The CAC is down by 0.2%, while DAX is in 0.2% gains. UK’s FTSE is trading flat, with 0.7% gains in the opening hours.

On the domestic turf, IT, FMCG, Teck, Oil & Gas and Realty are trading in the green, while all the other indices are in the red. IT is the top gainer with 0.6% gains. Metal and Bankex, on the other hand, have both lost over 0.5%.

Among the Sensex stocks, Cipla  is the top gainer, up by 2.19%. Wipro, ONGC, Coal India and HDFC have each gained by over 1% at this time. Bharti Airtel remains the top loser, 2.3% down. Jindal Steel is also trading lower by 2.13%. SBI is seeing the top turnover among the Sensex stocks, and is currently down by 1.85%.

In other stocks, Essar Oil is up 7.8% as its accounts have been released by the Gujarat government. TTK Prestige is up by 3.81% at Rs 3533 and United Spirits has also rallied by 3.62%. SpiceJet has gained over 4% on its robust Jun 2012 quarter results. Besides, stock investor Rakesh Jhunjhunwala has also bought 25 lakh shares of the airline company through his asset management firm, Rare Enterprises.

The advance-decline ratio on the BSE is currently negative, indicating a negative sentiment.

Following the RBI’s strategy of cutting the SLR rate, we expect the markets to remain on the edge, though with a positive bias.