Markets likely to get a cautious start ahead of RBI's policy announcement

The Indian markets despite a green start could not keep their momentum going and lost over half a percent in last session. Today, the start is likely to be cautious and all eyes will be on RBI’s monetary policy announcement. Banking and rate sensitive stocks will be under pressure as the RBI is most likely to raise the repo rate by at least 25 basis points. Reserve Bank of India Governor Raghuram Rajan in the Macroeconomic and Monetary Developments report, a day prior to policy announcement has indicated for the same by saying that he has “the unenviable task of anchoring inflation expectations”, despite tepid growth and weak business confidence. However, repeating their demand, industry body Assocham has asked the central bank to cut cash reserve ratio (CRR) and marginal standing facility (MSF) rates by 50 basis points to infuse liquidity in the money market. There will be some reaction in pharma sector, as the Health Ministry has supported restrictions proposed by the Industry Department on foreign direct investment (FDI) in existing pharmaceutical projects. On the other hand the PSU oil marketing companies are likely to see some action as the Kirit S. Parikh Committee’s report on pricing diesel, domestic LPG, and PDS kerosene is likely to suggest an immediate increase in diesel prices by at least Rs 4 a litre and, thereafter, doubling the current pace of increase in diesel prices to Re1/month. Apart from this there will be lots of result reactions to keep the markets ticking.

The US markets closed modestly lower on Monday as traders seemed reluctant to make any significant moves following the strong gains in last few weeks and ahead of the Federal Reserve's Wednesday announcement on monetary policy. The Asian markets have made a mixed start with some of the indices trading marginally in red, there was some concern related to Fed’s meet. Japanese market was suffering sharp cuts despite retail sales in the country increasing by 1.8 percent in September from the previous month, after gaining 0.9 percent in August.

Back home, Monday’s trading session turned out to be a disappointing one for the Indian equity markets, as investors booked profit in last leg of trade ahead of Reserve Bank of India’s (RBI’s) policy announcement. Some cautiousness also crept in after report showed that Foreign Direct Investment (FDI) into India declined to 8-month low of $1.4 billion in August, down 38 percent year-on-year. Though, domestic benchmarks started the day in the green as some strength came in from report that foreign institutional investors (FIIs) bought shares worth a net Rs 626.99 crore on October 25, 2013. Global cues too were supportive with all the Asian equity benchmarks ending the session in the green terrain on Monday after weaker than forecasted US consumer confidence raised hopes that the Federal Reserve will maintain stimulus. Back home, some support came in after the rupee recovered from the day’s low. Sentiments also got some support after Government said it has cleared 13 FDI proposals totaling Rs 1,258 crore and referred Axis Bank's proposal for increasing foreign equity amounting to about Rs 6,266 crore for consideration of the Cabinet. Meanwhile, shares of gold finance companies surged on the buzz that the Reserve Bank of India (RBI) may allow them to lend 75% of the value of jewellery compared with 60% at present. However, investors turned cautious in the last leg of trade and booked their gains awaiting RBI’s monetary policy review on October 29, amidst the expectation that India’s apex bank would hike key interest rates by 25 basis points. Selling in fast moving consumer goods counter too dampened the sentiments with ITC and Colgate Palmolive declining post weak second quarter numbers. Finally, the BSE Sensex lost 113.24 points or 0.55%, to settle at 20570.28, while the CNX Nifty declined by 43.80 points or 0.71% to settle at 6,101.10.