Markets to get a cautious but positive start

The Indian markets picked up some pace in the final hours after the MPC in its debut policy review, much on expected lines, reduced the repo rate by 25 basis points. Today, the start is likely to be a bit cautious on mixed global cues but the traders may continue the euphoric mood. The rate sensitive sectors will be in action with lenders promising to swiftly pass on the 0.25 per cent rate cut effected by RBI to borrowers, a move that would lower interest rates on home, auto and corporate loans. Earlier, the RBI Governor Urjit Patel had said that transmission of interest rate cuts by banks has not been up to the mark despite the 150 basis points rate cut by the Reserve Bank of India (RBI) since January 2015 but the central bank hopes the recent cuts in small savings rates will lead to lower deposit rates and ultimately will reduce borrowing rates. There will be buzz in the telecom stocks with reports that spectrum auction received additional bids worth Rs 3,100 crore on the third day to take total commitments to Rs 59,981 crore, leaving two-thirds of total quantum of on-offer airwaves unsold as bidders stayed away from high-cost 700 Mhz and 900 Mhz bands. The PSU oil marketing companies too will be in action as the Petrol price was hiked by 14 paise per litre while diesel rate was also increased by 10 paise per litre from midnight.

The US markets declined in last session on worries emanating from Europe, with traders remaining concerned about the health of the euro zone economy and European financial sector. The Asian markets have made mostly a soft start tailing the weakness overnight in US stocks; however the Japanese stocks gained after the yen dropped on Tuesday by the most since August; also, as the Federal Reserve officials talked up the likelihood of a US interest-rate increase in 2016.

Back home, Indian equity indices carried forward their northbound journey for yet another session on Tuesday, as optimistic cues from across the globe helped the indices to surpass crucial support levels of 8,750 and 28,300. It turned out to be a rather volatile day of trade as the indices rebounded after drifting to lower levels in the noon  session, though sustained position build up was witnessed after the Reserve Bank of India (RBI) cut the short-term lending rate, or repo rate, by 25 basis points to 6.25% from 6.50% earlier. Today's rate decision, the first in the tenure of new RBI chief Urijit Patel, also began a new era for the central bank. The policy decision was for the first time made by a six-member panel called the monetary policy committee or MPC, which noted that the recent sharp drop in inflation reflects a downward shift in the momentum of food inflation - which holds the key to future inflation outcomes - rather than merely the statistical effects of a favourable base effect. The committee also expects that the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook. Investors’ morale also remained upbeat with the World Bank's statement that India's GDP growth will remain strong at 7.6 percent in 2016 and 7.7 percent in 2017. According to World Bank, the growth will be supported by expectations of a rebound in agriculture, civil service pay reforms supporting consumption, increasingly positive contributions from exports and a recovery of private investment in the medium term. On the global front, Asian markets ended higher on Tuesday, while European stocks advanced across industry groups and regional markets. Back home, the local benchmark got off to a positive start in the morning trade as investors sentiments remained optimistic with hopes of a probable rate cut. However, the indices failed to capitalize on the initial momentum and continued trade around the neutral line for most part of the day. But the dying hours saw the frontline indices edging higher as the central bank cut the short-term lending rate by 25 bps. Finally, the BSE Sensex gained 91.26 points or 0.32% to 28334.55, while the CNX Nifty ended up by 31.05 points or 0.36% to 8,769.15.