Markets to make a modestly positive start; MPC policy decision eyed

The Indian markets managed a modestly positive close in last session, with traders turning cautious a day ahead of the monetary policy review. Today, the start is likely to be positive but all eyes will be on monetary policy committee (MPC) of RBI announcing policy rate later in the day. Traders apart from a rate cut would be watching the commentary on inflation and growth, and will look for clarity on market stabilisation scheme (MSS) and CRR measures announced recently. Meanwhile, ahead of the monetary policy announcement by RBI, global rating agency Fitch Ratings has said that there is scope for monetary easing in India as retail inflation is holding below the 5 percent target. There will be some respite in PSU oil marketing companies as the international crude prices have started showing some fatigue following a 15 per cent four-day rally since the November 30 after the Opec members decided to cut output from January. However, a Crisil Research expects the price of petrol to rise 5-8 percent and that of diesel by 6-8 percent over the next 3-4 months after OPEC agreed to cut production of oil for the first time since 2008. There will be some buzz in gold and jewellary stocks too, as the Union Minister Ravi Shankar Prasad has said that government is not considering any plan to impose tax on jewellery of women.

The US markets added modest gains in last session with Dow touching new record highs on gains among financials and telecoms. There was some cautiousness with Commerce Department reporting that the trade deficit widened to $42.6 billion in October from $36.2 billion in September, though it remained on expected lines. The Asian markets have made mostly a positive start following the gains in US markets and the Japanese market advanced with the decline in yen.

Back home, Indian equity benchmarks showed a volte-face on Tuesday as what started on a promising note ended as a dismal show. However, the benchmarks managed to extend the winning momentum for the second straight day as local sentiments continued to show signs of improvement ahead of RBI policy review scheduled for Wednesday. The economic slowdown due to demonetization is likely to cut a percentage point from the gross domestic product (GDP) growth and so a rate cut at this point to encourage private-sector loan off-take and spending will be needed. Nevertheless, the US Federal Reserve is likely to increase its policy rate in mid-December. If that happens, the interest rate differential between India and the US will narrow, making it unattractive for foreign investors to put in money in Indian market. Meanwhile, firm global cues coupled with the appreciation in rupee value against the dollar added to the optimistic sentiments. Indian rupee strengthened by 16 paise to 68.05 against the dollar on Tuesday on increased selling of the US currency by exporters and banks.  However, market participants turned cautious after Kerala finance minister Thomas Isaac said he is almost sure the central government will not be able to present the supporting legislation for the goods and services tax (GST) in this session of Parliament. The central government is trying to push the draft GST bill before the Parliament’s winter session ends on 16 December, as it tries to roll out the new indirect tax regime by the 1 April deadline. On the global front, barring Shanghai Composite index which declined by 0.16 percent, all the other Asian markets ended higher on Tuesday as investors turned their focus to a highly anticipated ECB meeting this week, with most economists expecting the central bank to expand its quantitative easing program beyond the first quarter of 2017. Back home, finally, the BSE Sensex gained 43.66 points or 0.17% to 26392.76, while the CNX Nifty added 14.40 points or 0.18% to 8,143.15.