Asian Indices

Global cues are not so important this morning but they are flattish, not much is happening there. The Hong Kong market is looking smart, three of those markets are in the red and China is holding out. So the Chinese markets are okay but the rest of the markets are in the red. It is a mixed bag there.

On RBI Policy:

I think there has been more talk about this policy than any other policy ever before everybody has got his own take. My only submission is everybody who spoke and understands this far better and I think Dr Reddy understands it better than most of them.

It is not about logic and rationale all the time. Going by logic and rationale there should not be any repo rate hike because all the arguments, which have been put against it by so many speakers, I think Dr Reddy knows the situation. I do not think anybody needs to tell him that what this inflation is all about and how it can be tackled and how it will not work, whether monetary policy action will not be very effective in this kind of inflation, he knows all of it. The question is whether this is just a pure monetary policy response to an inflation problem or he has to send out a signal to curb inflationary expectations that I think is the debate. The debate is not about pure monetary policy in this kind of a situation, I think there is a huge alarm kind of situation in the country today about inflation.

The government is completely paranoid and probably justifiably so. Is the Reserve Bank paranoid? Does it worry about inflationary expectations, is it worried to the extent that it may do something which may not have been prudent monetary policy course of action in the ordinary circumstances but they think that it is right and appropriate to send out a signal to the market at this point in time. So this policy action is much more than monetary policy and to that extent maybe there could be a room for surprise because if this was so cut and right, make no mistake 50% of people as the case in our poll would not be expecting a repo rate hike two weeks after a CRR hike has happened.

But I think it is all about the signal, which they may or may not want to send out to the market. I do not want to sit in judgment and say what is right and what is wrong policy action. What the Reserve Bank will do, they will do and the market will have to deal with it. So keep your fingers crossed, I don’t think Dr Reddy as we have discussed in the past has any regard for what people expect of him or what the market expects of him. He will do what he thinks is right and you have just got to lump it.

I hope that he decides this morning that having taken the CRR hike, a repo rate hike is not in order at this point at least and he can wait and watch for another two-three months and if he has to do it then, he will do it then or if he thinks that the situation is alarming enough and he needs to send the signal to the market right now to cool inflationary expectations then he will do it.

It is a toss of a coin and this is not a debating society and so you cannot win this by a debate and say I have argued vehemently in favour and well in favour against a repo rate hike and therefore the RBI will not do it.

The market was very tentative yesterday perhaps rightly so but where is it right now?

I think the market is waiting because it’s very important it’s not like one of those things buy before sell after, it’s interest rates I mean it’s absolutely core and fundamental to equity markets and all markets. So if rates are going up everybody has to take cognizance of it and it can be a big problem for the equity markets if rates actually harden more from here. I don’t know about the day because the market is in a nice kind of groove right now. So strange things happen and there is not too much by a way of institutional participation, it’s difficult to predict what traders have done before the event and to that extent there might be short covering, long accumulation.

In a market which is trading Rs 40,000-50,000 crore essentially traders deciding the course of the market right now because the big fish are absent anything can happen. You could have an act of defiance; see the repo rate goes up and the market falls a bit and then moves back once again. So all of these possibilities remain and the thing is to look beyond the day.

I still think that whatever is the response right now and the response if there is a repo rate hike may  be on the way down. Eventually if there is a repo rate hike today, it will become a serious headwind for the equity markets. It can rally more even in defiance of that hike in the near-term because the market is in an uptrend right now. But I suspect at some point this will become an obstacle and the market will realize, as it’s difficult to swim against.

I have got my fingers crossed and today is a pivotal event. I am praying that there is no rate hike because there might be big problems for the equity market if the Reserve Bank of India (RBI) explicitly says that we are in a rate hardening scenario and it might dent equity market performance quite seriously and might become the biggest headwind for our markets for the rest of the year.     

 In a couple of days from now we will also have the Fed’s decision to move with, is that top of mind right now what’s happening in global markets?

It is important because of what goes on in our markets. If today there is a Repo rate hike, and if there is no hike obviously there will be a rally today. And we’ll probably go above 5,150 cross our 200 DMA and may be the Sensex will make that journey from 17,000-18,000 in the near-term that’s entirely likely if there is no Repo rate hike.

If there is a Repo rate hike the big question for the trader is, does the 200 DMA becomes the intermediate top for the market and we may not go any further and retrace instead from, where we went just a couple of days back 5,150.

I think the global situation is very important because this is a global uptrend that we are in midst of and the global markets have rallied 15-20%, if after what the Fed does and the Fed cuts 25 bps and says nothing too hawkish, and says if required we will cut more and global markets continue their rally. I think you will have a situation where markets despite the Repo rate hike might not fall too much and will probably fall in steps with what’s going on globally.

I don’t think it is prudent to ignore all the global cues, at worse what might happen if the global rally continues is that we may under perform other global markets, like we have done in our upmove and I suspect we may not collapse if global markets remains very certain.

So Friday is the important day. If you come back on Friday and you don’t have a Repo Rate hike and you don’t have anything alarming from the Fed, global markets are fine, then you have got a good shot at another 1,000 points on the Sensex from here for sure.