Markets to make optimistic start amid firm global cues

Indian equity benchmarks ended higher on Wednesday as investors took the RBI rate hike decision in their stride. Today, the markets are likely to make an optimistic start amid firm global cues. Sentiments will remain buoyed with World Bank’s statement that India will retain the tag as the world’s fastest growing major emerging economy for the next three years. The bank’s June 2018 edition of the Global Economic Prospect report pegged India’s GDP growth at 7.3 percent in FY 2018-19 and 7.5 percent in FY 2019-20, reflecting robust private consumption and strengthening investment. Traders will also get some support with RBI Governor Urjit Patel’s statement that there are no implications on non-performing assets (NPAs) of banks because of farm loan waivers provided by various states. However, there will be some concern in the market with report that foreign direct investment (FDI) to India declined to $40 billion in 2017 from $44 billion in the previous year. FDI inflows to South Asia contracted by 4 per cent to $52 billion, owing to a drop in inflows to India. Some concern may also arise on report that the RBI’s decision to increase the key lending rate by 25 basis points will hurt India’s growth prospects and hit business sentiment.

The US markets ended higher on Wednesday amid a pullback by U.S. treasuries after European Central Bank chief economist Peter Praet indicated the ECB will discuss ending its bond purchasing program at a meeting next week. All the Asian markets are trading in green in early deals on Thursday ahead of a meeting of major industrialized economies overshadowed by tension over U.S. steel tariffs.

Back home, snapping three-day losing streak, Indian equity benchmarks ended the Wednesday’s trade in green terrain, following the outcome of Reserve Bank of India’s (RBI’s) bi-monthly policy meet where the central bank maintained its neutral stance. However, the RBI for the first time in four-and-half-years raised key interest rate by 25 basis points to 6.25% on inflation concerns arising from surge in international oil prices. Markets, after making a flat to positive start, gained traction and traded jubilantly throughout the day, as traders took some encouragement with a private report stating that the government has effected a major overhaul of its credit guarantee scheme to make adequate loans available to micro and small enterprises easily by more than tripling its corpus to Rs 8,000 crore and allowing non-banking financial companies (NBFCs), along with banks, to avail of official guarantees to extend credit to such units. Market-men also took some support from a report stating that riding high on the success of UPI-based payments system, the digital payments in India has tripled to 7% of GDP from 2.5% three years ago. However, domestic bourses witnessed some selling in last leg of trade with RBI raising repo rate by 0.25%. The reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 6%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%. The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. The selloff proved short-lived and markets ended near intraday high levels with Sensex and Nifty ending tad below their crucial 35,200 and 10,700 levels, respectively. Sentiments also remained upbeat with World Bank in its latest report stated that India is projected to regain its position as the world's fastest growing major economy advancing 7.3% this fiscal year and 7.5% in the next two ‘as factors holding back growth in India fade’. Finally, the BSE Sensex surged 275.67 points or 0.79% to 35,178.88, while the CNX Nifty was up by 91.50 points or 0.86% to 10,684.65.