Markets to get cautious start ahead of RBI’s policy outcome

06 Feb 2020 Evaluate

Indian markets ended significantly higher on Thursday with encouraging service sector activity data helping underpin investors’ sentiment. Today, the markets are likely to make a cautious start amid surge in crude oil prices overnight and ahead of the Reserve Bank of India's (RBI) sixth bi-monthly monetary policy statement for 2019-20 to be out later in the day. The Monetary Policy Committee (MPC) of RBI is expected to maintain status quo on policy rates in its last monetary policy for the current financial year, despite the economic slowdown. There will be some cautiousness with NITI Aayog member Ramesh Chand’s statement that the Indian agriculture sector faces issues in making available customised technology to farmers and implementation of policy reforms, especially at the state level. However, some support may come later in the day with report that the Fifteenth Finance Commission (15th FC) will set up a panel later this month to examine the fiscal and debt situation of the Centre and states and present a road map, on the lines of the erstwhile Fiscal Responsibility and Budget Management panel. Also, a another private report stated that India can achieve the target, to become a $5 trillion economy by 2025, by using automation technologies such as, artificial intelligence, natural language processing and machine learning that will drive increased efficiencies and new jobs resulting in economic growth in the next few years. Meanwhile, the Union Cabinet has approved amendments to the Banking Regulation Act to empower the RBI to regulate co-operative banks as the government was looking to tighten scrutiny around co-operative banks after the collapse of Punjab and Maharashtra Co-operative (PMC) Bank. There will be some buzz in the insurance stocks with finance secretary Rajiv Kumar’s statement that the government aims to complete the merger of three state-owned general insurance companies-National Insurance Co, United India Insurance Co, and Oriental Insurance Co-the end of March. Automobile stocks will be in focus with credit rating agency ICRA’s statement that the penetration of electric vehicles in the country is likely to remain low at 3-5 per cent till 2025 due to higher prices of EVs compared to its internal combustion engine (ICE) counterparts, as well as the inadequate public charging infrastructure. There will be lots of earnings reaction based on the performance of the companies.

The US markets ended higher on Wednesday as markets let coronavirus fears abate and focused instead on positive macroeconomic data out Wednesday. Asian markets are trading in green on Thursday, following encouraging economic data, while investors keep a wary eye on the impact of the coronavirus outbreak.

Back home, exuberance continued over the Dalal Street on Wednesday, with Sensex and Nifty ending higher by around 0.90% each. The markets made a cautious start but soon staged sharp recovery, aided with Minister of State for Finance Anurag Thakur’s statement that the Foreign Direct Investment (FDI) in India has been increasing on an annual basis and was at $34.90 billion till November of this fiscal. In early noon deals, volatility hit over the street, as rating agency CRISIL warned of potentially high stress in non-banking financial companies’ (NBFCs) wholesale book well above the reported bad loan numbers by March, indicating rising risks to their retail books. However, in the second half of the day, bourses bounced to intraday high points, as Indian service sector started a new year 2020 on a strong footing, on the back of fastest increase in new orders and output. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index surged to 55.5 in January from 53.3 in December. Further, the Nikkei India Composite PMI Output Index also rose from 53.7 in December to 56.3 in January. Traders got encouragement, after the Central Board of Direct Taxes (CBDT) Chairman P C Mody said that the tax department is reasonably confident of meeting the revised direct tax collection of Rs 11.7 lakh crore in current fiscal. Finally, the BSE Sensex gained 353.28 points or 0.87% to 41,142.66, while the CNX Nifty was up by 109.50 points or 0.91% to 12,089.15.

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