Markets May Open Flat

After the RBI kept the rates unchanged in its monetary policy review, we expect market to show flat opening today. SGX Nifty is showing a flat trading session.

In its monetary policy review, the central bank of the country, RBI kept the repo rate unchanged at 8% while cut the cash reserve ratio by 25 basis points. Day before yesterday, finance ministry had said that it is committed to reduce twin deficits (current account deficit and fiscal deficit) in four years. The market was overbought on these comments on the expectation of repo rate cut. 

Though RBI cut the CRR, it would not be much effective as it raised provisioning requirement to 2.75 percent from 2 percent on restructured standard loan accounts. The higher provisioning would eat the profits of the banks. 

Giving another shock to the markets, RBI also cut the GDP forecast for the current fiscal to 5.8 percent from 6.5 percent. It also raised the annual inflation projection to 7.5 percent from 7 percent. Overall yesterday’s RBI meet proved damaging as the markets tanked over 1%. The Banking shares were hit hard on the higher provisioning requirement on restructured standard loan accounts. Shares of public sector banks SBI, BOB and PNB tanked between 4-5% by closing.

The US markets were closed on Tuesday too due to weather. The markets are expected to open today for normal trading. We expect volatility in the US markets due to the October's payrolls figures due on Friday and presidential election in the next week.

The European markets yesterday closed with significant gains on well received corporate news from banks and a strong September quarter result from British Petroleum.

The sentiment also remained positive due to the better-than-expected Spanish growth figures and decent Italian bond auction. The GDP of Spain fell 0.3% which is less than Bank of Spain's last week estimate of a 0.4%. By closing UK’s FTSE 100 was up about 1%, Germany's DAX was up 1.12%, and France's CAC-40 had gained 1.46%.

The Asian markets are showing positive trading session due to the strong positive cues from the Europe. Japan’s Nikkei is trading up with 1% gains while Hong Kong’s Hang Seng has gained about 0.5%. Chinese Shanghai Composite is trading flat.

From the RBI’s comments it is clear that it may not cut the rates any further in this calendar year. This however increases probability of cutting the rates in the first quarter of the next calendar year. The Inflation projections are quite worrisome at 7.5%. The industrial production which has hit hard is also reflected in the GDP projections of the RBI.

Amid all these mixed cues we expect a volatile session today.