All Eyes On RBI Policy. Expect A Flat Opening Today

Indian markets witnessed sharp up-move yesterday with Sensex surging by more than 600 points and the Nifty surging by 170 points. The pleasant surprise provided by the Bernanke by not opting to taper down the stimulus took the Indian equity markets to the new orbit. Now the sentiments are all positive with market participants looking at new high for the Indices.

However, the key remains in the hands of new RBI Governor. Dr Raghuram Rajan has already displayed his ability to handle the crux of the problem and also his ability to provide a solution for the same. Rather the postponement of the mid quarter review and scheduling it after the FOMC meet was a master stroke. By playing it safe he has managed to solve two issues at one go. First has been the depreciating rupee and secondly the FII outflows. As the taper did not happen, Rupee has appreciated against the USD and the higher liquidity in US markets would find its way into the riskier markets like India. The best part, Indian Government will get chance to tackle the fiscal deficit after the US Fed move. Federal Reserves' decision of not tapering for now, gives India some more time to set right its existing imbalances.

As on the policy announcement front today, we expect the RBI to maintain a status quo. The simple reason being the inflation levels are still above the comfort levels of RBI. And Dr Rajan is of the opinion that, if inflation is contained everything will fall in place. Hence we do not expect any changes on the repo rate front. But some liquidity would be provided in the near term. We expect the markets to start on a very cautious note and that seems to be the right strategy after a sharp rally yesterday.

On the global front also there was some amount of moderation as the Dow closed marginally in red (0.26 %). But the European markets continued their upward surge and closed higher. As regards the Asian peers, Nikkei is trading in positive zone on account of weaker Yen. Hang Seng is closed today on account of Chinese Mid-Autumn Festival.

As expected the SGX Nifty is trading flat at 6145 with marginal gains of one point. We expect the Indian equity indices also to trade on a flat note till the policy announcement is made.