Markets to get a cautious start; RBI’s policy review eyed

The Indian markets showed an unexpected rally in the last session on rate cut hopes. Apart from the IT and technology all the rate sensitives were in action, a day ahead of the RBI’s annual monetary policy announcement. Today, the start is likely to be in green on firm global cues, though there will be some cautiousness too, before the central bank finally comes up with its policy decision. There is a general expectation of a 25 basis point rate cut and that has been discounted too, but something more significant is unlikely to happen as the apex bank in its macroeconomic report has indicated a hawkish stance. RBI has cautioned that though CAD in 2013-14 is likely to benefit from moderation in global commodity prices but its sustainability continues to face risk from event shocks that may cause a sudden stop or reversal of capital inflows. About inflation it has said that it is likely to be range-bound and stay around the current levels in this financial year as supply-side issues, along with recent price adjustments in fuel prices, will offset the recent gains.

There will be some buzz in the steel sector too, as the government is planning to impose safeguard duties on some iron and steel pipes, tubes and profiles protect domestic producers from a flood of imports. There will be some action in power and coal sector too, as the Planning Commission has said that the government will now pool supplies and pass higher import costs on to tariff.

Also, there will be lots of important result announcements to keep the markets buzzing. ACC, Ambuja Cements, Heidelberg Cement,  Pfizer, SRF, Titan Industries are the prominent to announce their earnings today.

The US markets bounced back from last session’s sharp fall supported by European Central Bank’s decision to cut its key interest rate to a record low and a report showing that initial jobless claims in US unexpectedly fell to a five-year low in the week ended April 27th. The Asian markets have made a mixed start, though many of them are in positive territory for the first time in last three days as ECB after cutting interest rate at record low, signaled another possible reduction. The Chinese market was leading the pack with advancement in the industrial metals.

Back home, boisterous benchmarks witnessed an enthusiastic performance on Thursday by rallying over a percent and breaking a lot of psychological levels in their northbound journey. After a negative start, frontline gauges managed to fervently gain from strength to strength as investors continued hunt of fundamentally strong but oversold stocks. Local bourses finished the session at its highest level since February 4, 2013 on the back of hefty buying across the board ahead of Reserve Bank of India’s monetary policy amid expectations that the central bank may surprise by reducing both interest rates and cash reserve ratio by 25 basis points to boost growth. Sentiments also remained upbeat after the Supreme Court upheld the constitutional validity of government’s decision of allowing 51% foreign direct investment in the multi-brand retail sector. Markets continued their northward journey in noon deals as market-men shrugged-off weak macroeconomic data. The seasonally adjusted HSBC Purchasing Managers’ Index, a composite indicator of operating conditions in the manufacturing economy slowed to 51 in April against its previous reading of 52 in March, registering its second monthly decline. On the global front, European counters opened mostly in red as investors waited to see if the European Central Bank will cut rates and hint at more measures to boost struggling euro-zone economies. Back home, sentiments remained jubilant after Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the current account deficit (CAD) will come down to 2.5 percent of GDP in the next two to three years from around 5 percent currently. Investors’ confidence also got some boost after the International Monetary Fund (IMF) estimated that India will grow at about 5.8 percent in FY14 and said that acceleration in infrastructure investment will only help the economy to get back its growth rate at 8 percent per annum. Bucking the trend, fertilizer stocks like Chambal Fertilisers & Chemicals, Coromandel International and Gujarat State Fertilisers edged lower as the government in its bid to rein in fiscal deficit decided to cut the subsidies on phosphate and potash-based fertilisers in the fiscal year that began in April. Finally, the BSE Sensex gained 231.59 points or 1.19% to settle at 19,735.77, while the CNX Nifty rose by 69.15 points or 1.17% to end at 5,999.35.