A New Wave Of Optimism

The RBI acted as expected. Neither did it change rates, nor did it tweak the reserve ratios. So, for now, while the liquidity position remains the same and there is not going to be any change in the interest rate scenario, the RBI has kind of assured that rates are slated to come down in the near future. We had said at the beginning of the yesterday that the markets have already discounted the RBI’s maintenance of status quo on the interest rate front and that its actions if any could only lead to a positive reaction in the market. While yesterday turned out to be exactly that way, today the markets look set to continue picking up from where they ended last evening.

Most of the post-market developments of yesterday suggest a positive opening today. The principal factor that will drive market action today is the rolling forward of the reforms juggernaut. Two critical bills have been seen through in the parliament yesterday; The Banking Laws Amendment Bill and the Companies Bill 2011. The passage of the Banking Laws Amendment Bill paves the way for the issuance of new banking licenses which has been keenly awaited ever since it was announced. The Companies Bill on the other hand, is a welcome step towards ensuring more transparency on the corporate governance front as well as taking forward CSR initiatives in a more meaningful manner.

While these post-market developments on the domestic front set the tone for a good trading day ahead, the global front too is providing all the right cues which will keep the market in a very good mood today. Greece is for once in the news for something good. Standard and Poor the global rating agency has raised its sovereign debt rating from “selective default” to “B-/B”. Though this still keeps it under the speculative investment grade it has upped its standing by stating that its outlook on it was stable.  All European markets closed up yesterday with France (CAC 40; up 0.29%), Germany (DAX; up 0.64%) and the UK (FTSE: up 0.40%) leading the pack.

But what will really help the markets up today is the overnight performance of the US bourses. Progress on talks intended to avert going over the ‘fiscal cliff’ saw US markets scale higher levels yesterday. They closed at their 8-week high expecting that a tax pact will be reached before year end.

Asian markets have opened on a very positive note across the board. The Hang Seng is trading up by a 160 points followed by the Japanese Nikkei which was up a 122 points. There is not one single red mark on the table this morning except for China, which anyways plays contrarian to its peers many a times. The SGX Nifty which is among the strongest indicators of market opening sentiment is trading up by a solid 21 points. All these point to a strong trading day ahead.

Watch out for our ‘Stocks in Action’ for selective plays that will be in demand today. However on a broader note, while there could be an across the board rally in stocks, the financial space is likely to be in a higher demand, particularly the NBFCs which are expected to gain after the Banking Bill got passed yesterday.