Mar­kets To Re­main Volatile As Key Events Are Set To Un­ravel

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In­vestors have much to look for­ward to this week, as big events have taken place and even big­ger events are slated to take place which can in­flu­ence the mar­kets and the econ­omy. The most-awaited do­mes­tic event that took place this week was the cen­tral bank’s mone­tary pol­icy com­mit­tee (MPC) meet­ing. As dis­cussed in pre­vi­ous edi­tion, the MPC has de­cided to keep the in­ter­est rate un­changed at 6.5 per cent (repo rate) and main­tain­ing its stance as ‘cal­i­brated tight­en­ing’. RBI in its meet­ing yes­ter­day re­vised in­fla­tion es­ti­mates to 2.7-3.2 per cent by the end of this fis­cal from its ear­lier pro­jec­tion of 3.9 to 4.5 per cent. This in­fla­tion pro­jec­tion of RBI in­di­cates that at least in the near term, it would not go for a rate hike. In line with eas­ing liq­uid­ity con­cerns, RBI cut SLR (statu­tory liq­uid­ity ra­tio, manda­tory bond hold­ing ra­tios) by 25 bps. Presently, SLR stands at 19.50 per cent, and the cen­tral bank has said that it would start re­duc­ing this ra­tio by 25 bps ev­ery quar­ter till 18 per cent. This would lead to a greater avail­abil­ity of cash with banks, which in turn would be utilised to lend more.

The RBI has ruled that from the be­gin­ning of FY19 all new float­ing rates of per­sonal or re­tail loans such as hous­ing and auto loans as also loans to mi­cro and small en­ter­prises ex­tended by banks shall be linked to an ex­ter­nal bench­mark. Though banks may de­cide on the spread dur­ing the ini­ti­a­tion of the loan, this may have some im­pact on banks as they will have lesser power to re­set the pric­ing, un­less the credit pro­file of the bor­rower changes. Con­se­quently, mar­gin im­prove­ment for banks would be an up­hill task, on the other hand, NBFCs might face stiff pric­ing com­pe­ti­tion from banks.

On the global front, an­other im­por­tant event that in­vestors all over the world an­tic­i­pate is the OPEC and other ma­jor oil pro­duc­ers meet­ing to be held in Aus­tria to de­cide on oil pro­duc­tion amid fall­ing oil prices. Mean­while, the US Pres­i­dent Don­ald Trump has urged OPEC mem­bers not to cut oil pro­duc­tion.

On the side­lines of the G-20 sum­mit, US Pres­i­dent Don­ald Trump and Chi­nese Pres­i­dent Xi Jin­ping have de­cided to ease trade war ten­sions. Both the lead­ers agreed not to im­pose any new im­port tar­iffs for 90 days and would strengthen their talks as both the na­tions have set­tled on the fi­nal agree­ment.

Back at home, at the start of the De­cem­ber month, auto com­pa­nies re­ported muted sales num­bers for the month of Novem­ber, which can be at­trib­uted to higher own­er­ship costs and liq­uid­ity crunch in NBFCs. MHCV sales, which largely de­pend on fi­nanc­ing from NBFCs, were ad­versely af­fected, how­ever, strong growth in LCV de­mand re­stricted fur­ther fall in over­all com­mer­cial ve­hi­cle sales. Also, the de­mand for pas­sen­ger ve­hi­cles con­tin­ues to re­main slug­gish and mar­ket leader Maruti recorded mar­ginal de­cline of 0.7 per cent yoy. How­ever, two-wheeler mak­ers man­aged to record pos­i­tive growth amid weak con­sumer sen­ti­ments. Ba­jaj looks set to re­gain its mar­ket share as it reg­is­tered 45 per cent growth in its do­mes­tic sales, while Hero Moto’s sales rose marginally by 0.87 per cent.

We be­lieve that in the near fu­ture, mar­kets are likely to re­main volatile on the back­drop of state elec­tions exit polls and re­sults here in In­dia. Hence, we con­tinue to urge our in­vestors to adopt stock-spe­cific ap­proach amid volatile con­di­tions. Re­mem­ber the Chi­nese proverb: “Un­less there is op­pos­ing wind, a kite can­not rise”.

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