Markets to make a cautious start ahead of RBI’s monetary policy

The Indian markets were in most euphoric mood in last session with Fed’s decision to refrain from scaling back its stimulus program. There was across the board buying and markets witnessed a good volume with FII’s once again queuing up to buy in Indian markets. Today, the start is likely to be cautious ahead of the domestic mega event of RBI’s monetary policy announcement. All eyes will be on new RBI governor Raghuram Rajan, as he presents his maiden credit policy today. All the rate sensitives’ are likely to be buzzing, though there is not much expectation of a rate cut but there is wide expectation of partial roll back in the tight-money policy by reducing the marginal standing facility (MSF) from 10.25% by about a percentage point to 9.25%. Traders will also be eyeing the movement of rupee which has surged to its one month high in last session on hopes of increased capital inflows and dollar weakness overseas after US Federal Reserve's surprise decision to keep its stimulus programme intact. Meanwhile, Finance Ministry feels that India would do better to focus on its own structural reforms rather than over-emphasise the US central bank’s decisions. There will be some action in textile and apparel industry stocks, as Apparel Export Promotion Council (AEPC) has reported that the  industry is witnessing an upswing and the exports are likely to go up from $13 billion last year to $17 billion in the next two years on the back of economic recovery in the US and Europe.

The US markets made a mixed closing in last session after a rally induced by Fed’s decision to keep the bond buying programme intact. Stocks traded in a relatively lackluster manner throughout the session, though a batch of economic data came positive. Most of the Asian markets are not trading today, while those who are trading, are showing cautious trend.

Back home, boisterous benchmarks exhibited an enthralling performance on Thursday, by rallying close to three and a half percentage points and breaking a lot of psychological levels in their northbound journey. Markets traded superbly throughout the session and both the gauges surpassed their crucial 6,100 (Nifty) and 20,600 (Sensex) bastions at the end, with Nifty closing at its highest level since May 30, while Sensex closing at its highest level since November 10, 2010. Though, small amount of profit booking was witnessed in dying hours of trade ahead of Reserve Bank of India’s (RBI) monetary policy review. Sentiments remained up-beat since beginning as key bourses opened with a huge gap after the Federal Reserve chief Ben Bernanke surprised markets by continuing with its $85 billion dollar stimulus injection plan. Some encouragement also came in from Economic Affairs Secretary (DEA) Arvind Mayaram’s statement that economic growth will pick up in the third and fourth quarters of the current fiscal and the government will be able to meet its fiscal deficit target and also with the government issuing “safe harbor” rules to bring greater clarity in cross-border transactions, easing the deal for multinationals and Indian companies with overseas arms. Firm opening in European counterparts too supported the sentiments, while Asian equity indices rallied with Japanese Nikkei ending higher by around two percent. Back home, sentiments also got some boost after rupee strengthened significantly in Thursday’s trade tracking other emerging market currencies. Meanwhile, foreign institutional investors (FII) pumped dollars into Indian markets, so far this month, these investors have bought to the tune of over Rs 7,000 crore, after selling shares worth about Rs 22,000 crore in the preceding three months. Moreover, shares of rate sensitive sectors such as auto, realty, infra and banking remained on buyers’ radar on hopes that the Reserve Bank of India (RBI) may roll back its tightening measures taken in order to contain the forex volatility in its monetary policy review on September 19, 2013. Additionally, shares of oil marketing companies such as BPCL, HPCL and Indian Oil, along with ONGC and GAIL India rallied by up to 8% after the Indian Rupee hit one month high against the US Dollar. Finally, the BSE Sensex rushed by 684.48 points or 3.43% to settle at 20,646.64, while the CNX Nifty surged 216.10 points or 3.66% to settle at 6,115.55.