Markets to start in green, to see good recovery

The Indian markets lost the momentum in final hours of trade in last session after the Reserve Bank of India (RBI) kept the interest rates unchanged. RBI lowered GDP growth estimate to 7.1 percent in 2016-17 from earlier projection of 7.6 percent and said that retail inflation will be 5 percent in fourth quarter of current fiscal. Today, the start is likely to be in green and the markets will be recovering from the knee-jerk reaction of the monetary policy review. Traders will be getting some support with finance minister Arun Jaitley’s statement that demonetisation will boost growth in long run. The finance minister said the country will now have a cleaner economy, cleaner ethics and better GDP, he added that the economy, in the long term, is looking for a major change and policy makers now have a vision. Meanwhile, the government has sought the approval of the Lok Sabha for gross additional expenditure of Rs 59,978.29 crore as part of the Second Batch of Supplementary Demands for Grants for the fiscal 2016-17. Marketmen will also be getting some support with S&P Global Ratings stating that India with a large domestic economy will be less affected by the changes in growth and monetary policy in the new set-up under Donald Trump administration. There will be some buzz in construction equipment makers, on report that the government is firming up a Construction Equipment Manufacturing (CEM) legislation to introduce a separate regulatory framework and Act for off-highway equipment.

The US markets coming off the initial sluggishness surged in last session, with Dow and the S&P 500 once again reaching new record closing highs, as traders looked ahead to the European Central Bank's monetary policy announcement on Thursday. The Asian markets have made an all green start taking cues from the US markets. The Japanese market has taken the lead ahead of the Bank of Japan Governor Haruhiko Kuroda’s speech at a party for economists.

Back home, it turned out to be a lackadaisical performance from the Indian benchmark indices on Wednesday as they failed to snap the session in the green territory and settled below the neutral line. Though the start was good tracking the positive cues of the global markets, but sentiments got spooked in the second half of trade after Reserve Bank of India (RBI) Governor Urjit Patel-led Monetary Policy Committee (MPC) maintained ‘accomodative policy stance’  keeping the repurchase (repo) rate unchanged at 6.25% in its bi-monthly policy review. The MPC committee unanimously decided to keep the policy rate unchanged considering the “heightened uncertainty” of volatility related to US rate hike and the local demonetization drive. The expectation of slow pace of recovery in the economy also weighed on market sentiment.  Acknowledging the threat to economic growth from notes ban, the RBI has cut its GDP forecast, slashing gross value added growth outlook to 7.1% for FY17 from 7.6% earlier. However, in a positive move for the banking sector, the central bank withdrew incremental cash reserve ratio (CRR) of 100% on deposits. The RBI also forecast inflation to be around 5% for the fourth quarter of FY17 stating that some of the price reduction resulting out of demonetisation could be temporary. Meanwhile, former RBI Governor D Subbarao said that the Indian government's decision to delegalise high denomination currency notes may hurt growth in short-term, but in the medium- to long-term it will have positive macroeconomic implications. According to him, the banks will see their cost of funds declining even in the absence of any further policy easing by the RBI, and this should encourage them to reduce lending rates and pump credit into the economy. Also, investors got some comfort with Asian Development Bank’s (ADB’s) report, indicating that the largest economies of Asia - India and China - will help maintain the growth rate of the region at 5.7% in 2016 and 2017. The report also mentioned that India’s growth prospects have got a boost from the acceptance of the 7th pay panel recommendations and likely implementation of the Goods and Services Tax (GST) regime next year. Finally, the BSE Sensex declined by 155.89 points or 0.59% to 26236.87, while the CNX Nifty dropped 41.10 points or 0.50% to 8,102.05.