All Eyes On RBI Policy Announcement

As expected the Indian equity markets remained quite range bound yesterday ahead of the RBI Policy meet today. We had categorically mentioned that with a long weekend ahead and RBI policy announcement the markets may remain range bound. After witnessing a range bound trade the Indices finally closed in red with marginal losses. While the Sensex closed at 26597 (Down 29 points), the Nifty closed at 7958 (Down 10 points).

Now today all eyes would be on the RBI Meet and hence the opening for Indian equities are likely to be range bound or may be with some gap down. As we have been consistently maintaining our stance that RBI Governor would maintain a status quo on rates front. However there is likely to be some tinkering on the liquidity front. However what one needs to understand is what stance Dr Rajan takes on the inflation front. In the past few months of BJP led Government while most of the other macro worries are been taken care for, inflation still remains a concern. RBI has been quite hawkish in terms of inflation. Hence we are of the opinion that unless and until the inflation declines below the tolerance levels of RBI, there is hardly any possibility of rate cuts. We expect the possible rate cut only in first quarter of CY15. Amid all this another positive factor has been the visit of PM to US. He has managed to create a good image for India outside so as to receive funds and technology needed for growth.

As for global equities, US stocks ended lower yesterday following protests in Hong Kong that added to worries about Chinese growth and after a disappointing forecast from Ford Motor Co. The S&P consumer discretionary sector, down 0.6 percent, had the most losses. Ford shares fell 7.5 % and the stock was the S&P's biggest percentage decline after it lowered its outlook late during the session, saying North American margins will be at the low end of its previous guidance. But the market ended well off its lows as worries about tensions in Hong Kong started the day off with losses of nearly 1 percent. The Dow Jones Industrial average fell 41.93 points, or 0.25 %, to 17,071.22; the S&P 500 lost 5.05 points, or 0.25 %, to 1,977.8; and the Nasdaq Composite dropped 6.34 points, or 0.14 %, to 4,505.85.

The Asian indices are also trading in red following the yesterday cues. The Nikkei which was trading in green yesterday is trading with loss of 1.35%. Hang Seng after witnessing a steep decline yesterday is again trading in red with cuts of 1.40%. Shanghai Composite is the only market trading in green with marginal gains of 0.12%. SGX Nifty is trading in red with a loss of 0.44%.

Coming back to Indian markets, we are expecting a gap down opening for leading benchmark indices. However the clear picture can be seen only after RBI announces its policy stance. Over all there are few positive with FIIs coming back to buy in cash markets after a long time. However sentiments are quite negative and hence every rise would used to exit from the stocks. This will keep the indices under check. All in all expect a choppy session in early hours of trade.