RBI Comes To the Rescue – Expect a Positive Opening

Indian equity markets yesterday remained mostly in a negative zone only to bounce back in the later part of the trading session. The recovery was quite surprising with even cues from the US markets as well as the European markets remaining weak. However, the reason for the bounce back came in after market hours. In a surprise move, the Reserve Bank of India (RBI) reduced the marginal standing facility (MSF) rate by 50 bps to 9 percent from 9.5 percent with immediate effect. The MSF cut will ease short-term rates and companies are likely to borrow from the commercial paper (CP) market instead of banks. The move is part of the calibrated withdrawal of exceptional measures undertaken by the apex bank and is aimed at improving liquidity in the system. The RBI's 200 bps increase in the MSF rate in July had tightened short-term market liquidity. In its mid-quarter review of September 2013, the RBI had cut MSF by 75 basis points from 10.25 percent to 9.5 percent. The move is likely to help banks and NBFCs today.

The positive impact of the news can also be judged from the fact that while all other Asian indices are trading in red the cues from SGX Nifty are positive. The SGX Nifty is trading at 5978 (Up 46 points). Just to quantify the other global cues US equity indices fell on Monday, extending two weeks of losses, as a lack of progress in ending the partial US government shutdown or the debt-ceiling standoff kept investors nervous. The S&P 500 ended near its lows of the session in a volatile day and dropped for its 10th time in the past 13 sessions. The Dow and NASDAQ also closed in red with around 1 % losses. Even European markets mostly closed in red. Asian Indices are also trading in red with Nikkei being down 0.20 % and Shanghai composite down by 0.40 %. In a nut shell, Asian stocks fell for a third day, as U.S. lawmakers remained at odds over lifting the debt ceiling to avoid a default.

There are certain other reasons for the Indian markets to open on a positive note. Reports suggested that L&T which is the largest engineering company in India started to receive good order flow. Reports suggested that it bagged nearly Rs 23900 crore worth of orders in the July-September quarter. With the infrastructure orders started pouring in; we feel it would be positive news not only for the company but also for the overall Indian economy.

Considering all the factors, We expect a gap up opening for the Indian equity markets.