High liquidity & lower rate will provide earning support to equity market
At the first monetary policy meet for FY17, RBI cut repo rates by 25 bp. What does this mean for stock markets? The repo rate cut by the RBI is as per market expectations. The target to bring systematic liquidity deficit to neutral level from ~1% of NDTL will increase money multiplier to boost credit and trade and will lower borrowing cost at the consumer level. The Indian economy, while on strong macro fundamentals, is constrained by high indebtedness in certain parts of India Inc, especially Infrastructure and metals. It is constrained by low capacity utilisation which restricts fresh investment. Consequent stress on banking balance sheet is not allowing the economy to grow at its fullest potential. Higher liquidity and lower interest rate will provide earning support to equity market over time. Since March 16, (we have) witnessed double digit returns in the equity market it is likely that markets may consolidate at current levels before moving higher.
How do you expect interest rate sensitive sectors to fare post the policy?
The markets have delivered close to 12% returns in March itself, on expectations of a rate cut by the RBI. Post this rally, we may see a correction and consolidation, at the current levels before the markets resume their upward journey. Obviously, select stocks will do better than the sector (as a whole). (Contributed by Prashant Mahesh)