Markets to get a flat-to-cautious start

The Indian markets recovering from their intraday low managed a decent closing in the last session, with traders rejoicing the RBI’s decision to cut statutory liquidity ratio by 50 basis points to 20 percent, a move that will help infuse more liquidity into the banking system. Today, the start is likely to be flat-to-green and traders will be getting some support with RBI expectation of retail inflation falling to 2-3.5 percent in the first half of current fiscal and moving up to 4.5 percent in the second half saying that rush for farm loan waivers may have inflationary spillovers. Though, after the Monetary Policy Committee decided to hold rates, chief economic adviser Arvind Subramanian has expressed his unhappiness over the Reserve Bank's inflexibility on interest rates. He warned that real policy rates are becoming tighter and rising at a time of low inflation and slowing growth. There will be some buzz in the PSU banking stocks, as the RBI has raised its concern on state governments waiving off farm loans and has said that such actions increase the risk of slippages and contribute to inflation sooner or later. The PSU oil marketing companies though will be in jubilant mood as the international crude prices slumped by close to 5 percent.

The US markets ended modestly higher in the last session on the heels of the pullback seen over the two previous sessions. Though, traders seemed reluctant to make more significant moves ahead of several potentially market-moving events. The Asian markets have made a mixed start with some indices trading marginally in red, with some concern emanating from Korea after North Korea launched a series of short-range missiles. Traders seemed reluctant to add any big positions before Chinese trade data too.

Back home, Indian equity indices concluded the season on a positive note on Wednesday, as investor turned optimistic after Reserve Bank of India (RBI) used a less hawkish tone and reduced the Statutory Liquidity Ratio (SLR) in its second bi-monthly monetary policy for financial year 2017-18. The slashed in SLR or the percentage of deposits that banks have to park in government securities by 0.5% to 20% will allow banks to increased lending. RBI left repo and reverse repo rates unchanged at 6.25% and 6%, respectively and lowered its inflation estimates for the current financial year. The central bank, however, raised concerns over the possibility of fiscal slippages due to the farm loan waivers. RBI also cut the economic growth projection to 7.3% for the current fiscal from 7.4% earlier. With the UK elections, the European Central Bank's (ECB) policy meeting, and former FBI director James Comey's Senate testimony all set for Thursday, investors were noticeably risk averse across the globe.  Sentiments got some support after the Met Department has upgraded the South-West monsoon forecast to 98% of the long-term average rainfall from 96% earlier. Rainfall during the June-September monsoon season is expected to be normal, with a high possibility of all four broad geographical regions receiving evenly distributed rains. Some support also came with NITI Aayog CEO Amitabh Kant's statement that the Goods and Services Tax, to be rolled out next month as the biggest tax reform since independence, will help India achieve 9% growth rate. He said GST will simplify India's taxation system and help deal with tax evasion. Meanwhile, many banking stocks gained traction on hopes of early resolution to stressed assets issue and recapitalisation of PSUs. The Reserve Bank of India said it would continue to work in partnership with the government to address the stress in banks' balance sheets. Finally, the BSE Sensex gained 80.72 points or 0.26 % to 31271.28, while the CNX Nifty was up by 26.75 points or 0.28% to 9,663.90.