RBI Monetary Policy – Important Trigger For The Markets

Equity markets are full of surprises. Every time you feel you know all of it, a new one arises on the horizon. Similar is the situation at current levels. While everyone on the street was worried about the cracks that were visible on the macro front in global markets, suddenly there is positive news emerging from every corner.

To start with is the, ECB has cut its benchmark rate by 25 basis points to 0.50 %. The ECB also cut the interest rate on the marginal lending facility by 50 basis points to 1.00%, but analysts said this would merely encourage banks to lend and not impact the real economy. However one concern remains as Draghi stated “Weak economic data extended into spring and labour-market conditions remain sluggish”. As a result the gains for European equity Indices were limited. While the FTSE 100 closed at 6460.71 (Up 9.42 points) DAX closed at 7961.70 (Up 48 points). As regards CAC 40, it closed at 3858.76 (up only 2 points). The major surprise came in from the US markets, where the S&P is at a striking distance from the psychological 1600 mark. Along with the ECB move, the strong job data helped the US Indices propel to the new levels. Applications for U.S. unemployment insurance payments fell 18,000 to 324,000 in the week ended April 27, the fewest since January 2008, Labour Department figures showed. Economists had a forecast of 345000 claims. While Dow closed at 14829 (Up 129.04 points) NASDAQ closed at 3342.40 (up 43.27 points).

Taking a cue from the European and US markets, Asian equity indices are also trading in positive zone. Japanese markets are closed today on account of Constitution day. Other leading Indices are trading in a positive zone. While Shanghai composite is up 1.66%, Hang Seng is up 0.72%. Even Taiwan is up 0.42%.

As regards the Indian markets we feel one should expect a strong opening. While the global indices have already provided positive vibes, some domestic factors are likely to keep the initial trade under check. RBI will announce the monetary policy at 11 AM. Till then the trade is expected to remain choppy. Everyone on the street is expecting at least a 25 basis point cut in the repo rate. Hence we feel the 25 basis points cut is already factored by the markets. Anything above the 25 basis will take the markets to new orbit. But anything less than 25 basis points will result in a decline in leading indices. We recommend the investors to trade with caution in the rate sensitive sectors like Automobile, Banking and Realty. SGX Nifty is Trading up by 5 points at 6013.