Markets May Open Weak And Trade Sideways

“Life is so constructed, that an event does not, cannot, will not, match the expectation.” Charlotte Bronte’s quote seems to have come so true in the context of Indian markets yesterday. After months of speculation on whether the RBI would go ahead and cut interest rates, it finally did so yesterday. In fact, it gave something more than what was expected. But the tendency of not being satisfied with what is offered got the better, and markets reacted to monetary policy review in a rather disappointing manner.

The RBI finally cut key rates by 25 basis points bringing down the Repo and Reverse Repo rates which had long been the expected. But what really surprised was the cut in the CRR effected by the Central Banker. The 25 basis point cut in CRR is likely to release Rs 18000 crore in the system. All this should have ideally enthused the market and taken the indices roaring past their recent highs. But what followed after the brief euphoria was really not the kind of reaction that policy makers would have expected.

On the global front, US markets have been reacting positively to corporate results. The Dow and the S&P 500 yesterday ended in the green, while the Nasdaq was marginally down. Asian markets have opened the day on a good note. All except Malaysia are trading positive. The SGX Nifty was seen trading up 9 points. Will Indian markets follow suit? Well, yesterday’s market action doesn’t really hint at that.

Call it profit booking or disappointment, the trigger that the markets waited for so long has resulted in creating a negative bias and this is likely to shape up in the trading for today too. You could probably see a flat opening with the market trading with a fairly negative bias for today. There is too much of reading between the lines in what the RBI Governor has said about the present risks in the Indian economic system. This will weigh on the markets for some time before the real benefits of a rate cut become visible. Interest rate sensitive sectors may find some favour from here on.Now that the major macro event that was eagerly awaited is out of the markets way, the focus once again will shift to the micro level. This means corporate results will once again be the focal point for today. There is a whole bunch of companies that will come up with their quarterly earnings report today. Actions depending on the yesterdays monetary policy like Banks rushing in to cut rates will also be keenly watched.

To sum up, watch the market open on a slightly weaker note and trade sideways. Probably some deeper reading into the RBIs policy will help the markets to inch up, but the mood is not upbeat as it should have been or rather was expected to be after the announcement came up. Trade on a stock specific basis.