FROM LACKLUSTRE TO FIRECRACKER - MARKET LOOKS BEYOND RBI POLICY

By Ruma Dubey

The markets almost through most of the session remained lackluster. Everyone said that this is expected as the market is awaiting the RBI Credit Policy announcement tomorrow. But then, in the same breath, marketmen said that the markets largely expected rates to be held, a non-event kind of status quo policy.

So one hand, the market was expecting the RBI policy and hence remained uninspiring while at the same time, its expectation from tomorrow were that of expecting nothing. Thus expecting nothing to happen kept the markets moving with no real vitality; ditto for the rupee v/s the dollar which after the dollar buying by oil companies over the month end, continued to lose in the morning.

Then suddenly the picture changed – as though shifting from Aastha to MTV channel – from prosaic and mundane, it was suddenly spirited and it spiked up over 400 points, lead mainly by PSU banking stocks.

There were three announcements which propped up the markets – first the news on PSUs. There are reports that the Finance Ministry is looking at the option of transferring all PSU bank equity into a holding company. This is something in line with the Nayak Report presented by RBI a couple of days ago. The proposal is that a new company – something like a Bank Investment Company will be formed and the Govt will transfer all its holdings in PSU banks, to be managed like a sovereign fund. This much was enough and all the PSU bank stocks spiked up, shoving the dull markets into a tizzy.

Then came another news from ‘sources’, once again from Finance Ministry sources. It is reported that they are looking at hiking FDI in insurance sector to 49% from the current 26%. It was like a small wisp of news of coming in and that was enough – stocks like Reliance Capital, Bajaj Finserv and Max India spurted up into stratosphere.

And then the big news – Budget. Once again, from ‘sources, news is that the Budget session will convene in first week of July and the Budget is expected to be presented sometime between 4^th and 7^th July. Well, if we read further into these dates, 5^th and 6^th July are Saturday and Sunday respectively. So does that mean that we should now expected the Budget on 4^th or 7^th July? Or will Modi Govt set a new trend and present it on a Saturday and why not?

But the news here is that there is a lot of things happening underneath and over the next few weeks, we will continue to keep on getting these from various sources and agencies. So till we get clarity on the Budget dates, the markets will spike up or fall based on these source news.

More importantly, what this behavior of the market today also conveys is that it does not really so much credence as of now to RBI or IIP or GDP. It has discounted all this as bitter fruits of the past and accordingly ignores it. Instead what it has started doing is look ahead at the new Govt, hoping to hear more about economic reforms.

The next few days on the markets will be marked by such sudden movements, hopefully, all upwards. But the fact does remains that RBI is all likelihood will maintain a status quo on rates tomorrow. Maybe we can get some insights into the Nayak report on this proposed PSU banks holding company. What it also means is that the market can accept the role of RBI hiking rates and remain hawkish on inflation if the Govt promises growth and reforms. Simply put, if each does their own work, things will run smoothly.

At the end of the day, markets are ruled by sentiments and that’s what it is all about……